Perennial demand and low domestic production promise a worthy business opportunity in imports of phosphoric acid. All an importer needs to do is play the volume game.
BY TDB INTELLIGENCE UNIT | April 2017 Issue | The Dollar Business
Heard the spiel about aerated drinks being harmful for your health? Well, one of the reasons you are advised to stay away from your soft drink is because they’re made using an inorganic acid called phosphoric acid. This acid is also used as a rust-inhibitor in anti-rust coatings of your car and in handy home cleaning products for your kitchen shelf. What’s more? Phosphoric acid also acts as a food additive or preservative in your favourite snack and dairy product.
On a larger scale, the use of phosphoric acid can be seen in the fertiliser industry, where it is used to manufacture complex compounds such as diammonium phosphate (DAP) and single super phosphate (SSP). But wait! We are not going to throw at you yet another advisory. Instead, we will bring to you what we do best – explore new avenues in foreign trade. When it comes to phosphoric acid, importers of this acid are definitely minting money.
BOOMING DEMAND
Phosphoric acid is broadly categorised into two grades – merchant and food. The quality is decided by the amount of phosphorous content in the acid. For instance, a content of 54% phosphorus in merchant grade is considered good, while food grade phosphoric acid needs to have at least 65% of phosphorous.
Experts estimate that nearly 85% of the traded phosphoric acid is merchant or industrial grade, while the remaining 15% is used in the food industry.
Although trade in food grade phosphoric acid is small, according to traders, it offers better returns. Rajesh Mehta of Nilkanth Organics, a Maharashtra-based manufacturer and importer of chemicals, reveals: “The quantity of food grade phosphoric acid is smaller but offers a faster turnaround. Also, the demand has been growing year-on-year.”
According to industry estimates, the Indian processed food industry is expected to grow by 104% to reach $482 billion by 2020. Jagdish Thakral of Kailash Group, a Nagpur-based manufacturer and importer of food grade phosphoric acid, agrees with Mehta. Thakral says, “Phosphoric acid is a secret ingredient in the food business.”
The demand for the merchant grade is also high. Hemant Bohra, Managing Director of Bohra Industries Pvt. Ltd., a Rajasthan-based dealer of chemicals and fertiliser intermediates, who supplies to companies like Madras Fertilizers, Chambal Fertilizers, Zuari Agro Chemicals etc., explains, “No DAP or SSP plant can operate without rock phosphate, even for a minute. Thus, their procurement teams are constantly seeking to get best rates to fill their warehouses.” 
Importers are also excited about the Centre’s consistent focus towards the agriculture sector. A report by TechSci Research highlights that by 2021, the market for phosphoric acid in India will grow by 7.2%. And that should be good news for importers because our domestic production is unlikely to be able to meet our needs. In 2015, London-based IHS Markit, in one of its reports revealed that the Indian production of phosphoric acid is around 3.6% of the global production. Meanwhile, import of the product corresponds to roughly 44% of total global trade. And that says it all.
Currently, Rajasthan State Mines & Minerals Limited and Gujarat State Fertilizer & Chemicals Limited are the only major domestic entities involved in the production of phosphoric acid and are catering to India’s domestic demand. As a result, India has consistently been the largest importer of this acid in the world. Imports in FY2016 (2.18 MMT) saw a jump of 21.85% over FY2015 (1.79 MMT). This clearly highlights the imbalance in demand and supply. How will India able to meet this shortfall?
Morocco to the rescue
According to Ministry of Commerce data, during the first three quarters of FY2017 (April-December 2016), India’s imports of phosphoric acid reached 1.99 MMT. The data also reveals that most of India’s demand is met by imports from Morocco, a country that has been the largest exporter of phosphoric acid to world. In fact, in FY2016, 47.26% of India’s total imports were from Morocco. Other top exporters to India during the same period included Jordan (317 MT), Senegal (247 MT) and US (178 MT), etc.
Ashok Gandhi, CEO of Growell Resources & Management (P) Ltd., a Mumbai-based exporter and importer of various commodities, states that Morocco produces the best quality of phosphoric acid in the world. In fact, the North African country commands a premium on price and owns nearly 70% of the world reserves of rock phosphate.
Interestingly, there are also importers who import huge quantity of rock phosphate (the raw material for phosphoric acid) and locally produce the acid. And even for that account, Morocco has been India’s largest sourcing country. In FY2010, India’s imports of rock phosphate from Morocco were 472,619 MT, worth $55.88 million. The number increased to 1.39 MMT in FY2016, which was worth $211.32 million.
"Morocco owns nearly 70% of the world reserves of rock phosphate"
VOLUME GAME
Now, considering the huge size of the market, how much are the importers pocketing? The answer is alluring – it is between 6-10%. But the margin depends on the sourcing destination, grade and quality; and above all, volume. As Kiran More, Partner, Shreeji Organics, an Ahmedabad-based manufacturer of dyes and intermediates, says, “One way to earn a higher margin is to buy in bulk, stock and sell when the demand in high.” In fact, almost all importers The Dollar Business interacted with agreed that one can make around 5-8% in profits provided the consignment is not less than 10,000 MT. In addition, exporters like Mehta, treat merchant grade acid and turn it into food grade and sell the product at a higher price. At the same time, many local traders prefer to import rock phosphate and produce phosphoric acid locally.
Speed breakers
So far so good. But tackling logistics and warehousing issues can be taxing for importers. Although experts have pointed out that phosphoric acid is a weak acid, it is corrosive enough to erode RCC and concrete during transportation.
“Phosphoric acid is colourless and can quickly form hazardous decomposition products. We use drums fitted securely with a vacuum-relief system to store it and regularly replace the drums every six months,” explains More of Shreeji Organics. This process becomes a challenge and chews into the importer’s margin.
On the policy front, though phosphoric acid isn’t a restricted import product, there are guidelines from the Customs Department to ensure imports are of high quality. In fact, anti-dumping has been imposed on imports from a few countries like Israel and Taiwan.
Currently, importers pay a total duty of 23.416% while importing the product. And, not all of them are happy about that. “There have been talks to reduce the imports duty, but that’s it; nothing has been done so far,” complains More.
Options Galore
There are several countries that have recently forayed into the mining business of phosphates. Further, countries such as Australia, Togo, Nigeria, Gabon and Ethiopia remain untapped for now. Additionally, many Western African countries, where business was marred due to political turmoil, have now become stable and are looking out for new opportunities. With new sources opening up and the demand for phosphoric acid only going up in India, importers will continue to rule the roost. Perhaps, a short-business trip to a few of these countries should be on an importer’s calendar for 2017. Who knows, you might hit a jackpot. Go, explore!
“phosphoric ACID’s Demand WILL GROW 5% ANNUALLY”
Ashok Gandhi MANAGING DIRECTOR
GROWELL RESOURCES & MANAGEMENT
TDB: Growell Resources & Management Pvt. Ltd. was amongst the first Indian companies to import rock phosphate from Syria. What allured you into doing business with Syria?
Ashok Gandhi (AG): Importers have been procuring phosphoric acid and potash from Morocco and Jordan since a long time. In fact, the Indian fertiliser industry was set up using Jordanian rock phosphate. In a way, the only rock phosphate that we knew of in the initial days was from Jordan – that too because Metals and Minerals Trading Corporation of India (MMTC) Ltd. allowed imports from there. But in 1996, we brought the first consignment of half-a-million tonne of Syrian rock phosphate to India.
TDB: How do you see the demand for phosphoric acid evolving in India?
AG: India not only imports fertilisers but also rock phosphate (for producing phosphoric acid) that is essential for the domestic production of fertilisers. Rajasthan State Mines and Minerals Limited (RSMM), which once produced 7 million metric tonne (MMT) per annum of the compound, is now producing barely 1-2 MMT per annum.
Alongside, Rashtriya Chemical & Fertilizer Ltd. will take another 3-4 years before it goes fully operational. So, even though the requirement for phosphoric acid will grow by 5% per annum (fuelled by agricultural demand, forecast to grow at 5%), India does not have the capacity to meet the domestic demand.
TDB: How volatile is the price of rock phosphate? Does it impact business?
AG: The price keeps on changing, but the fluctuation isn’t frequent. Back in 1999, Indians used to import rock phosphate for $432 per metric tonne (MT). We later realised the Moroccans were driving the price up as they had a stranglehold on the world market. About 10 months back, the price was $64'5 per MT, which has now dropped to $600 per MT. Nowadays, it is India and China who command the price owing to the large requirement in both the countries. But as neither of the countries wants to source from the same country at the same time, the sourcing destination keeps changing, which directly impacts the product’s price.
“MARGIN GOES UP WHEN THE MONSOON IS GOOD”
Kiran More PARTNER, SHREEJI ORGANICS
TDB: Is phosphoric acid a hot-selling product in the Indian market?
Kiran More (KM): Well, sulphur, sodium hydroxide and even acids, including sulphuric and hydrochloric acid, are fast-selling products. However, phosphoric acid isn’t a fast-selling product even though we end up selling a fair amount each month. Storing acids is tricky. While stocking acids and merchant grade products are fine, when dealing with food-grade products, it is always advisable to buy in small quantities than storing in a warehouse because of the risks involved. We are a regular supplier of phosphoric acid to about 14 clients and sell around 1 metric tonne of the compound every month.
TDB: What challenges do you face while storing phosphoric acid?
KM: There is a method to deal with every chemical. However, an acid will always be corrosive and will lead to immediate skin burns. The liquid is colourless and can quickly form hazardous decomposition products, including flammable hydrogen gas that increases the risk of fire hazards. We use drums fitted securely with a vacuum-relief system to store the acid and regularly replace the drums every six months. Also, we have a safety check-list to deal with acids.
TDB: Jordan and some other African countries are the world’s leading producers and exporters of phosphoric acid. Do you procure from these countries?
KM: We can look at procuring from these markets, however, pricing may put us at a disadvantage. At the end of the day, these countries produce more merchant grade phosphoric acid, which must undergo a lab process to improve the phosphorous content. Currently, we source from China because the connectivity from Mumbai to Beijing is good, and so are the samples and products.
TDB: Is the Indian government helping you improve your margins?
KM: There have been talks to reduce the imports duty, but that’s it; nothing has been done. As of now, our margins range around 6-8%. However, when the monsoon is good in India, our margin goes up because as the food production capacity increases, the quality and quantity of phosphoric acid (both merchant and food grade) must increase. Merchant grade is needed to improve farm yield and the food grade is used as a stabiliser and a leavening agent.
TDB: We have been told that imports usually fetch around 8-10% profit, whereas your margin is only 6-8%. Why is that so?
KM: When importers quote 8-10% as margin, I am certain that the figure does not include transportation and handling costs. We are able to generate about 6-8% margin because we do not spend money to acquire customers. In addition, we deal with a lot of industries and cater to a wide assortment of chemicals. If we were to consolidate the trade and acquire a few more clients, maybe 9% is what we can achieve; but that again will be a feat. The other way to earn a higher margin is to buy in bulk, stock and sell when the demand in high.
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