The Mosaic Company’s (Mosaic) Q4FY12 PAT declined 22% YoY owing to lower phosphate margin (EBITDA margin down 142bps YoY) and 6% decline in potash volume. While MOP had been stable over the past two quarters, DAP prices were down 8% and 12% in Q4FY12 and Q3FY12, respectively, QoQ. However, the INR depreciation vis-à-vis USD has more than offset the lower DAP prices, resulting in Indian companies hiking farm gate prices 20-25% in June 2012. Owing to this, demand from Indian farmers for DAP and MOP is likely to be sluggish in the short term, resulting in lower imports of these products into India. However, Mosaic expects India to ink MOP contracts September onwards.
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Lower DAP price benefit for India negated by INR depreciation
Average DAP realisation for Mosaic is down 20% over the past two quarters, from USD611/MT in Q2FY12 (quarter ending November 2011) to USD494/MT in Q4FY12 (quarter ending May 2012). However, INR depreciation and the lower subsidy from the Indian government for DAP under nutrient based subsidy scheme (NBS) have more than negated the benefit of lower prices of DAP, resulting in Indian companies increasing farmers’ price 20-25% in June 2012 to maintain margins.
India’s fertiliser imports likely to be weak in Apr-Sept
Mosaic guided for strong global demand for phosphatic and potassic fertilisers, on back of low inventory levels while farmers continued to consume high quantities of these fertilisers owing to attractive farm economics. The company stated that despite the current drought in the US corn belt, farm economics remained compelling, thus incentivising farmers to consume more fertilisers to enhance their yields.
Nevertheless, in the Indian context, Mosaic guided that owing to high distributor inventory, lower NBS rates and adverse exchange rate movement, fertiliser imports are likely to be subdued during April-September. Currently, while India has imported some quantity of DAP (though at substantially lower level than last year) and no MOP, Mosaic stated that it expects the country to contract fresh MOP imports September 2012 onwards. However, we believe this will be subject to INR not depreciating further, prices of MOP not increasing from current level and monsoon improving during July-September.
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