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Crop & Chemical Dashboard: Bottom is near, recovery unclear - Kotak Institutional Equities

Posted On: 2023-11-29 12:51:55 (Time Zone: IST)

International corn futures softened further last month, amid supply pressures. This, along with drought in several parts of Latin America, are key concerns for the agrochemical industry, as it looks to finish destocking. India's chemical trade ticked up slightly in October 2023 sequentially, suggesting a demand bottom may be near, but the timing of a recovery is unclear amid economic softness and oversupply. Chemical prices are soft.

Chemical demand seems near a bottom, but trajectory of recovery is unclear

India's exports of organic and inorganic chemicals fell 1% yoy, but rose 0.8% mom in October 2023. On the other hand, imports increased 14.1%/4.5% mom/yoy. US chemical production for October 2023 remained flat mom, but eased 0.2% yoy, whereas chemical railcar holdings-a measure of volumes-were down 2.2% yoy based on a 13-week moving average for the week ending November 11. Prices of several basic chemicals have corrected in the past month, and demand conditions remain soft, amid capacity additions in China, economic softness in Europe and uncertainty around the US going into CY2024. With this backdrop, while customer destocking may fade away sometime starting 1QFY25, the trajectory of a recovery is uncertain and contingent on demand conditions across key regions and supply discipline from China.

International prices of corn and wheat have softened further

International futures prices of corn and wheat softened further last month owing to increasing supplies, and are now down ~30% yoy. However, soybean futures increased sequentially, as Brazil's crop-threatening weather conditions remain a prime worry for the market. Sugar remains the most bullish spot in the crop markets, amid adverse climatic conditions and India's export restrictions. Meanwhile, in India, field crop prices have held steady, but vegetable prices are volatile, with prices of onions and tomatoes spiking due to the late arrival of the harvest. The poultry sector has witnessed a pick-up in prices of eggs, broiler and layer chicken. Rabi acreages are down 5%, as of November 24; low water levels in southern India are a concern. In the fertilizer markets, ammonia prices have moved up sharply, while phosphoric acid and DAP have also risen.

Chemical price trends

Price of several basic chemicals have resumed correction in the past month after the brief rally witnessed in China prior to the Golden Holidays. However, China soda ash spot prices, which had corrected sharply after the holidays, have started to tick up in the past few days. Yet, prices of soda ash imported into India remain under pressure due to pressure from Turkey, the US and Russia. Export prices of 2,4-D (a key product for Atul) have shown a slight pick-up in November 2023, while the prices of p-cresol remain under pressure. Prices of ATBS, too, stay under pressure, whereas prices of MEHQ (Clean Science) have ticked up modestly. Prices of refrigerants such as R-22 and R-125 continue to be soft. Phenol spreads have also corrected in the past month. Overall, market conditions remain soft for now and recovery is still some distance away.

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