India’s urea import costs have fallen to a 15-month low of $392 per tonne, offering some relief. However, the total fertilizer subsidy budget for the 2026-27 fiscal year is still expected to overshoot its Rs 2.17 lakh crore allocation by up to Rs 25,000 crore, primarily due to high prices of other nutrients like DAP.
The cost of importing urea into India has fallen to a 15-month low of $392 per tonne in September. This is a significant drop from the May peak of $947 per tonne. The government has managed to improve domestic supply by diversifying sources to countries like Oman, Malaysia, and Russia, alongside higher exports from China. These inventory levels are expected to meet the requirements for the current Rabi farming season.
Despite this relief in urea prices, the overall fiscal outlook for fertilizers remains pressured. The government has a budget allocation of Rs 2.17 lakh crore for fertilizer subsidies for the 2026-27 financial year. Current projections suggest that this amount could be exceeded by Rs 20,000 to Rs 25,000 crore. While this potential overshoot is less than earlier internal estimates of Rs 3 lakh crore, it highlights the ongoing volatility in global agricultural input prices.
The Impact of DAP and Sulphur Costs
The primary reason for the expected budget overshoot is the stickiness of prices for other key fertilizers, particularly Diammonium Phosphate (DAP). While urea prices have eased, DAP import prices have stayed high, hovering around $906 per tonne compared to a peak of $933. The main driver of this sustained expense is a sharp rise in global sulphur prices, which have surged over 200% compared to the previous year to cross the $1,000 per tonne mark.
Supply chain constraints are playing a major role in these high costs. Regional instability in West Asia has reduced the availability of sulphur, a critical component for fertilizer production. Additionally, damage to energy infrastructure in Russia has increased the cost of phosphoric acid. These geopolitical factors are keeping raw material prices high, which forces the government to spend more to keep retail prices affordable for farmers.
Investor Implications
For investors in the fertilizer sector, this situation presents a complex picture. While the lower urea import cost is positive, the potential for a large subsidy budget overshoot can create uncertainty. Fertilizer companies often rely on government subsidy payments, which can face delays when the fiscal budget is strained. Investors may track the government’s next steps regarding subsidy management and how these persistent high input costs for DAP and other nutrients impact the profit margins of fertilizer manufacturers. Sustained high raw material prices often lead to a direct hit on the bottom line unless the government increases the subsidy support or the companies successfully manage their own production costs.