MUMBAI: The ongoing supply-chain disruptions can impact the country’s production of both complex fertilisers and urea by up to 10-15% if the West Asia conflict lasts longer, affecting agricultural output and thus the food security of millions.
The increase in prices of raw materials and imported fertilisers is likely to increase the working capital requirement of players and also raise the subsidy bill by Rs 20,000-25,000 crore from the already budgeted Rs 1.7 trillion for the next fiscal, Crisil Ratings warned in a report Thursday.
According to Nitin Bansal, an associate director of the agency, factoring in the elevated input costs and imported fertiliser prices for a quarter, the overall subsidy budget is likely to increase by 12-15% from the initial estimates of Rs 1.71 trillion for fiscal 2027. While the government has been prompt in clearing subsidy dues in the past five years, timeliness and adequacy of subsidy support will have a bearing on the working capital cycle of players.
Urea accounts for 45% of fertiliser consumption in the country, while complex fertilisers (diammonium phosphate, or DAP, and nitrogen, phosphorus and potassium, or NPK) make up a third of the domestic demand, and the rest includes single super phosphate (SSP) and muriate of potash (MoP).
The import dependence for these materials remains high, with 20% of urea and one-third of complex fertilisers, primarily DAP, being imported. Furthermore, the key raw materials for urea (natural gas, which comprises 80% of the raw material cost) and complex fertilisers (ammonia and phosphoric acid) are largely imported due to limited domestic reserves, Crisil added.
For both urea and DAP imports, the Middle East remains an important region, accounting for 40% of imports in the first nine months of fiscal 2026 (42% in fiscal 2025 and 28% in fiscal 2024). For domestic production, the dependence on the Middle East is even higher, with 60-65% of LNG and 75-80% of ammonia imports coming from the region.
“The ongoing war could disrupt the fertiliser supply-chain at a crucial time for the forthcoming kharif season. Disruption in LNG and ammonia supplies continuing for about three months could cut domestic urea and complex fertiliser production by 10-15%,” said Anand Kulkarni, a director with Crisil Ratings.
However, he noted that the impact on production will be cushioned to some extent by the recent government directive to allocate 70% gas to urea producers. Additionally, the fertiliser inventory of around three months, along with expected imports from alternative sources, will mitigate the risk of immediate supply shortages.
Lower capacity utilisation is likely to dent profitability, with urea manufacturers likely to see a larger impact as sub-optimal capacity utilisation will reduce energy efficiency, he said.
Profitability of urea players primarily hinges on the difference between prescribed energy norms and actual energy consumption, as natural gas costs are completely passed on. Energy consumption of efficient players is 5% lower than the prescribed norms, which directly boosts their profitability. However, with lower capacity utilisation, energy efficiency will take a hit leading to an impact on operating profits.
Similarly, the profitability of complex fertilisers may get impacted due to interplay of variables like rising input costs, transmission of costs to the nutrient based subsidy rates, and retail prices. The shortage of raw materials and increased supply chain costs have already increased prices of ammonia by 24% since the start of the conflict. With limited ability to pass on these costs, the extent of impact on profitability will depend on commensurate hikes in NBS rates.
