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India’s bid for self-sufficiency in urea not likely to impact dry bulk market

India’s target of achieving self-sufficiency in urea production in the next four years is expected to have limited impact on the Panamax, Supramax and Handy class vessels, dry bulk freight market sources tracking fertilizer cargoes said.

Urea movement into India, which is a key cargo for dry bulk vessels and is part of minor dry bulk commodities, has for the last few years been a “supporting trade” for bulkers ranging from Handysize to Panamax.

The statement from India’s chemicals and fertilizers minister Ananth Kumar on attaining self-reliance for urea has evoked widespread reaction from market participants, with many saying that this would affect the dry bulk market, though marginally.

India imported 8.75 million mt of urea in fiscal 2014-2015, running from April to March. Of this, 5.4 million mt came from China and 1.4 million mt from Oman, according to figures posted on the Department of Fertilizer’s website and market researchers.

“It looks like [there is] more bearish [news] for the shipping market. Recently there has been some fertilizer [movement] from China to India, which gave a bit of support to the Pacific shipping market,” a ship-operator source with a ship operator said.

India’s shift from Oman to China in sourcing urea has been favorable for the shipping market given the longer voyage, sources said.

“Oman used to be the traditional supplier of urea to India, so the switch was quite positive. This switch occurred when China provided subsidies in order to boost its urea production. It has drawn the market to Chinese urea,” said a shipping market researcher, adding that the share of Chinese urea in India’s imports had grown from about a third in 2010-2012 to around two-third in the last financial year.

Market sources estimated that India’s urea demand currently stood at around 30 million mt, while domestic production met 22 million mt of the total requirement. The rest was met through imports.

The restart of two more plants could add another 2.6 million mt to domestic production, leaving imports at about 5 million-6 million mt.

“It is close to impossible to make the country self-sufficient,” said the market researcher source, explaining that fertilizer demand was expected to rise 2-3% annually.

Given that India’s inland logistic costs are prohibitive, imports could offer some solace on the pricing front.

“Probably, India can manufacture more urea, but it has to reach the place where it has to be used. Sometimes it might be cheaper logistically to import the product from China or the Persian Gulf to the area of demand,” another source with a ship operator said.

According to another shipping market researcher, if India became self-sufficient in urea, Panamax and Supramax markets would be the ones that could be affected.

“The idea of self-sufficiency seems to have gripped the country,” said a ship-broker source, adding that imports of close to 9 million mt would translate to 90-100 trips on the Supramax/Panamax vessels.

Meanwhile, the possible drop in urea business could help boost the limestone trade from the Persian Gulf to India as more vessels would be available to compete for this cargo, according to a second ship-broker.

If India ever has surplus urea, it could turn into an exporter, thereby offering support to a dull Pacific dry bulk freight market that hardly has any exports from the country.
Source: Platts