Middle East Conflict May Cut India Fertiliser Output by 15%: Crisil

Supply chain disruptions triggered by the ongoing Middle East conflict could significantly dent India’s fertiliser output, according to a report by Crisil Ratings. The agency warns that domestic production of both urea and complex fertilisers may decline by 10–15 per cent if the situation persists.

The potential disruption comes at a sensitive time, with the kharif season looming and demand for fertilisers expected to surge.

How Will Supply Chain Disruptions Impact Output?

India’s fertiliser ecosystem remains heavily dependent on imports, both for finished products and key raw materials. Around 20 per cent of urea and one-third of complex fertilisers are imported, with the Middle East playing a dominant role.

The region accounts for nearly 40 per cent of fertiliser imports and an even higher share of critical inputs such as liquefied natural gas and ammonia. Any prolonged disruption could choke supply lines and directly hit production.

Anand Kulkarni, Director, Crisil Ratings, says, “The ongoing issues in the Middle East could disrupt the fertiliser supply chain at a crucial time for the kharif season. Disruption in LNG and ammonia supplies continuing for about three months could cut domestic urea and complex fertiliser production by 10-15%. The impact on production will be cushioned to some extent by the recent government directive for the allocation of 70% gas to urea manufacturers. Additionally, the fertiliser inventory of around three months, along with expected imports from alternative sources, will mitigate the risk of immediate supply shortages.”

What Does This Mean for Profitability?

Fertiliser manufacturers may face a profitability squeeze as supply constraints reduce capacity utilisation. Urea producers are particularly vulnerable because lower utilisation affects energy efficiency, a key determinant of their margins.

Efficient players typically operate at energy consumption levels about 5 per cent below prescribed norms, boosting profitability. However, disruptions could erode this advantage.

Companies with multiple plants may attempt to optimise gas allocation to limit the damage, but the overall impact is expected to be negative.

Are Rising Input Costs Adding to the Pressure?

The cost of key inputs is already climbing. Ammonia prices, for instance, have surged by around 24 per cent since the conflict began.

For complex fertilisers, profitability will depend on how effectively rising costs are reflected in government-set Nutrient Based Subsidy (NBS) rates and retail prices. Limited pricing flexibility could further strain margins.

Will Government Support Cushion the Blow?

The report highlights two critical buffers for the sector: strong liquidity among large fertiliser companies and the government’s consistent support through timely subsidy disbursements.

However, the fiscal burden may rise sharply. Increased input costs and imports could push the subsidy bill higher by Rs 20,000–25,000 crore.

Historically, the government has stepped in with higher NBS rates and additional support, particularly for DAP producers, to stabilise the sector.

Can Alternative Sourcing Prevent a Crisis?

India’s ability to diversify sourcing of raw materials and fertilisers will be crucial if the Middle East conflict drags on.

While current inventory levels and alternative imports may prevent immediate shortages, prolonged disruption could test the resilience of the entire supply chain.

The report concludes that government intervention and strategic sourcing decisions will be key variables to watch in the coming months.

(With inputs from ANI)