July 25 (Bloomberg) -- Rashtriya Chemicals & Fertilizers Ltd., India’s second-biggest state-run maker of soil nutrients, plans to buy into potash mines in countries including Canada to secure supplies, Chairman R.G. Rajan said.
The price of the commodity has increased at least 13 percent from a year earlier, according to data compiled by Green Markets, as countries including China, the world’s largest consumer, paid more for imports after a drought in the U.S. pushed up the cost of grains.
Owning stakes in mines overseas may help the Mumbai-based company shield many of India’s 235 million farmers from rising costs when the annual monsoon is deficient. Lack of rain this year is threatening to crimp agricultural output. Potash, a form of potassium, is used by growers of crops including wheat, rice and sugar cane to strengthen roots and resist drought.
“India is a large importer of potash with no domestic supplies,” Jason Miner, a chemicals analyst at Bloomberg Industries in Princeton, New Jersey, said in a telephone interview. “It’s logical to secure supply of potash particularly if the acquirer thinks that potash prices will rise more than generally expected.”
Rashtriya Chemicals joins companies including Sinofert Holdings Ltd., a unit of China’s largest chemicals trader, that are looking for acquisitions overseas. Sinofert, 22 percent owned by Saskatoon, Canada-based Potash Corp. of Saskatchewan Inc., has been in talks about purchases, Chief Executive Officer Feng Zhibin said in March.
India and China, the two most populous countries in the world, need to boost supplies of potash to ensure food security. World potash demand will rise 3 percent this year, leaving a shortage, because of delays in commissioning new capacity, according to the International Fertilizer Industry Association.
Potash prices have risen to $505 a metric ton from $445 a year ago, Green Markets data show. Should a rally in corn and soybean futures continue, the fertilizer may gain further, Gilad Alper, senior analyst at Excellence Nessuah Investment House in Ramat Gan, Israel, said by telephone yesterday.
Corn has climbed 43 percent starting June 1 on the Chicago Board of Trade and soybeans rose 23 percent during the period as U.S. farmers face the worst drought since 1956 causing concern about global food supplies.
Acquiring stakes in Potash mines “makes sense from a national perspective,” Alper said. “But, if India is so worried about securing supplies, it should get into long-term supply agreement with producers.”
Rashtriya Chemicals shares have declined 30 percent in the past year, compared with a 9.6 percent drop in the benchmark Sensitive Index. The stock fell 0.8 percent 54 rupees as of 1:57 p.m. in Mumbai today.
India imported 3.9 million tons of potash in the year ended March, down from 6.3 million tons a year earlier, according to Coromandel International Ltd., a fertilizer and pesticide maker. China’s potash imports climbed to 6.4 million tons in 2011, up 22 percent from 5.24 million tons in 2010, according to data compiled by Bloomberg Industries.
The Fertiliser Association of India, representing domestic producers and importers, in April last year threatened an import “holiday,” citing high prices.
The worst start in three years to the June-September monsoon season is hurting crops in the South Asian country, data provided by India’s farm ministry showed.
Rainfall may be “approximately” 92 percent of the 50-year average from June to September, D.S. Pai, head of long-range forecasting division at the weather bureau, said by phone yesterday. That’s less than the 96 percent predicted in June. The bureau defines normal rainfall as 96 percent to 104 percent of the average received between 1951 and 2000.
Rice planting dropped 10 percent to 14.5 million hectares (35.8 million acres) this year from 16.1 million hectares a year earlier, the farm ministry said July 20. Cotton sowing declined to 8.37 million hectares from 9.24 million hectares, and oilseeds shrank to 10.9 million hectares from 12.1 million hectares, it said. Corn was planted over 4.78 million hectares, less than the 5.29 million hectares a year earlier, it said.
Rashtriya Chemicals will lead a group of Indian fertilizer makers to set up a 1.3 million ton urea plant in Ghana as an equal partner with the African country at a cost of 60 billion rupees ($1.1 billion), Rajan said.
“The Ghana government may come back to us with its comments on the joint venture proposal within two weeks,” Rajan said. “If everything goes well,” the construction of the plant may begin in January 2014, he said.
A shortage of natural gas, the main feedstock for making urea, is forcing companies including Indian Farmers Fertilizer Cooperative Ltd., the nation’s largest producer, to build plants overseas and cut reliance on global sellers International Potash Co., Agrium Inc. and Potash Corp.
Net income at Rashtriya Chemicals climbed 18 percent to 1.14 billion rupees in the quarter ended March 31.
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