Fertilizer subsidy plans unveiled by India's government bode ill for world prices despite the allocation of an extra $1bn to the pot, at a time when potash and urea markets in particular are struggling.
The government of Prime Minister Narendra Modi last week, in its first budget since taking power two months ago, raised to $12.2bn its subsidy fund for the domestic fertilizer industry in 2014-15.
However, for phosphates and potash, of which India is a major importer, the subsidy budget was cut by 15% to $4.1bn.
And while the allocation to the third main nutrient type, nitrogen, was raised by $1.7bn to $8.1bn, that too may be a negative for world prices, Macquarie said, given that it will boost domestic production of a fertilizer which India does produce itself, but for which the world already has strong supplies.
"We would expect national production of urea to surge, weighing on domestic and international prices," Macquarie analyst Chris Gadd said.
Urea values at global benchmark ports in Ukraine and the Middle East are, at some $300 a tonne, at among their lowest values in four years, data overnight from fertilizer giant PotashCorp showed.
For phosphates, the cut in the combined budget with potash was a "negative indicator" given that the nutrient "is more expensive now, so fewer volumes can be subsidised".
Meanwhile, for potash, while its values have declined strongly over the past year, following the break-up of the Belarusian Potash Company cartel, the "cut to the subsidy doesn't suggest growth in potash demand, which many had hoped for", Mr Gadd said.
Indeed, it adds to the headwinds for Indian demand which have also come from the weak monsoon and the softening rupee, which has made imports of dollar-denominated goods, such as potash, less affordable.
"Any hopes for stronger potash demand this year should disappear, especially considering dryness spread across India, with El Nino's emergence on its way."
While Indian buyers had agreed import contracts of 3.8m tonnes of potash in 2014-15, at a price of $322 a tonne on a cost and freight basis, "some of these volumes might be cancelled as demand during the kharif [monsoon] season should remain weak".
Macquarie estimated Indian imports of 3.38m tonnes for calendar 2014, adding that there was "little room for any upgrade" to its price forecast, which it kept at $290 a tonne, as measured in the major export port of Vancouver.
The comments followed data from PotashCorp showing potash prices remaining stable at a little over $300 a tonne in Vancouver last month, well down from levels above $400 a tonne a year before, and among the lowest in six years.
North American potash producers' inventories of the nutrient declined by 19.7%, year on year, to 2.35m tonnes, a 22-month low, driven by falling production and rising export demand.
North American output was, at 1.69m tonnes, down 13.5% year on year, following an effort by producers to curtail production in the face of weaker prices.
Exports, meanwhile, hit a 15-month high of 1.11m tonnes, up 4.5% year on year.