Uncertainties cloud short-term prospects for agrochem companies

Agrochemical firms are observing blended prospects for the short-term. Demand was anticipated to rise following forecasts of a wholesome monsoon, however the preliminary delay and, subsequently, the uneven distribution of monsoon in some elements of India are prone to impression demand, based on analysts.

Rising crop costs was thought-about a optimistic additionally for worldwide agrochemical demand however unsure local weather situations might have impacted demand.

″We would count on some strain on agrochemical gross sales volumes within the close to time period each in India and in worldwide markets″ said analysts at Kotak Securities Ltd. The excessive and unseasonal rainfall in India, leading to crop damage, probably points to a challenging 2QFY23 for the domestic agrochemical market, said analysts. Meanwhile, dry weather in certain parts of the world, including Europe and the US, will be a headwind for volume growth in those markets, they said.

Rising international crop prices can, however, be positive news for chemical manufacturers in the long-term.

Crop sowing in India has remained a mixed bag. Analysts at IIFL Securities said: ″While cotton and coarse cereal sowing is higher year-on-year, rice sowing continues to be lower compared to last year; primarily driven by the drop in acreages in Bihar, Chhattisgarh, Jharkhand, Uttar Pradesh, and Odisha, where rainfall has been ~27-44% below normal. Paddy, wheat and maize prices rose ~4-8% month-on-month, cotton prices rose ~22% (in line with global prices).″

There are considerations about margins, too. Though the rise in chemical costs have been handed on to the shoppers, resulting in income development in Q1, demand might have been impacted by increased costs leading to margin strain.

With declining commodity costs whereas chemical costs in some segments are additionally prone to have softened a bit. However, firms will nonetheless be carrying over high-cost inventories and Himanshu Biyani Research analyst at Prabhudas Lilladher feels the margins strain might proceed in Q2.

Analysts have highlighted that the trade is grappling with value pressures, mirrored in agrochemical large Corteva’s resolution to put off 5% of its world workforce because it exists from round 35 international locations worldwide. Even chemical costs stay in turmoil in Europe on account of excessive power costs. This is prone to pose some challenges.

For Indian agrochemical producers, because the first half of the monetary 12 months contributes 60% to gross sales of contributions, and with anticipated softness in earnings throughout first half, analysts stay cautious. There are uncertainties related to another chemical compounds too. Urea manufacturing depending on gasoline availability is seeing manufacturing cuts in Europe.