India’s dependence on imported urea is expected to rise steadily over the next three years, reaching about 30 per cent of total consumption by FY2030, as domestic production capacity struggles to keep pace with growing demand, according to a report by Icra.
The domestic rating agency said urea consumption has grown at a compound annual growth rate (CAGR) of 3.4 per cent between FY2016 and FY2025 and is projected to expand at a similar pace over the next five years. The growth is supported by the continued price differential with other fertilisers and farmers’ preference for urea due to its visible “greening effect” on crops.
However, domestic production has not kept up with rising demand. While output increased by 7.62 million metric tonnes (MMT) between FY2019 and FY2025 following the commissioning of new plants under the New Investment Policy-2012 (NIP-2012), recent closures of two units have capped domestic capacity at 30.6 million metric tonnes per annum (MMTPA).
This compares with the estimated urea demand of around 38 MMT in FY2025, indicating a substantial supply shortfall that is currently being bridged through imports.
Icra said capacity additions are planned in FY2027 and FY2030, with cumulative incremental capacity of 2.5 MMTPA. These include Talcher Fertiliser’s coal gasification-based urea plant and a recently announced project by Assam Valley Fertiliser Corporation Limited in Assam.
Despite these additions, the agency expects import dependence to rise over the medium term as consumption continues to grow. India primarily imports urea from China and countries in West Asia, exposing the sector to geopolitical risks and supply uncertainties.
Globally, urea prices have been highly volatile in recent years. Icra noted that with only limited capacity additions expected over the next five years, excluding China, price volatility is likely to persist. Moreover, exports of urea from China remain under tight control of the Chinese government, adding further uncertainty to global supply dynamics.
The report highlighted that several industry incumbents have expressed intent to set up new urea plants and are awaiting approvals from the Government of India. However, execution timelines for such projects are typically 3.5 to 4 years, underscoring the urgency of policy clarity.
Icra emphasised that clarity on the continuation of NIP-2012 is essential to ensure that upcoming projects achieve adequate credit profiles, given the sizeable investments involved.
According to the agency, the capital outlay for a 1.27-MMTPA greenfield urea project is approximately USD 1.2 billion, while a brownfield expansion of similar capacity would require around USD 1.0 billion. Despite the high upfront costs, project economics remain healthy under the existing policy framework.
With consumption expected to maintain its growth trajectory and limited immediate capacity expansion in the pipeline, the gap between domestic supply and demand is likely to widen before narrowing towards the end of the decade.
Icra concluded that timely capacity additions and policy continuity will be critical to moderating India’s rising import dependence and mitigating exposure to global price swings and geopolitical risks in the fertiliser market. |
