• Global : Profitability of fertilizer companies in MENA grew by 149%.
Global Investment House -Kuwait- MENA Fertilizer Sector- The MENA region is home to many fertilizer companies and majority of them are state owned or are private companies. There are only few which are listed while the rest operate as affiliates of huge industrial entities (SABIC and Industries Qatar) rather than pure play fertilizer companies. The fertilizer production capacities in MENA (Middle East and North Africa) region during the past 7 years have increased at a CAGR of 3.5%, against the world CAGR of 2.8%, resulting in an increase in the region’s share in the world’s total capacities to reach 12%. Moreover, in 2007, the fertilizer production capacity in the region remained constant at 27.7mn tons. The major reasons for the increase in the MENA region capacity, during the last 7 years, were (i) the ample availability of gas in the region (ii) abundance of raw materials such as Potash and Phosphate and (iii) the high demand of fertilizer in South & East Asian regions.
Profitability of the pure play fertilizer companies in MENA on the whole grew by 149% in the 9M-2008 to US$1.78bn as compared to US$717mn in the same period last year. Financial numbers of other unlisted and government companies were not available otherwise a further leap would have been visible in the net income of the sector. This growth was possible because of the higher product prices because of the demand supply mismatch and availability of raw material which secured and enhanced their margins.
Saudi Arabian Fertilizer Company reported net profit of US$998mn during the first nine months of 2008, compared with US$391mn in the same period in 2007, an increase of 155%. The increase of 155% percent was primarily due to improvement in prices of products and full impact of production increase from new lines.
Jordan Phosphate Mines Company reported net income of US$287mn for the nine months of 2008 as compared to US$44.2mn in the same period of 2007, an increase of 550%. Increase in income was because of huge jump in the prices of phosphate rock and its accompanied products such as Phosphoric acid, Sulphuric acid and DAP.
Profitability of Arab Potash increased 82% to US$307mn as compared to US$169mn in the same period last year. The growth in profits resulted because of high commodity prices. The Company has negotiated higher prices for the contract year starting May 2008 on account of the strong agricultural sector fundamentals including: robust demand, tight supply and diminishing arable land.
Abu Qir Fertilizers Company, main nitrogen fertilizer producer with around 62% local market share reported a net profit growth of 61% during the 9M-2008 (from Jan to September 2008), reaching US$154mn. This growth came on the back of the huge increase in the sales, which in turn was due to the hike witnessed in the local nitrogen fertilizers’ prices while Egyptian Financial and Industrial Company’s (EFIC), main local phosphate fertilizer producer of 70% market share, consolidated net profit soared significantly during the 9M-2008, up by 128.4%, reaching US$40.5mn, compared to US$17.7mn reported in the 9M of 2007. The hike in EFIC’s net profit is attributed to the surge witnessed in the consolidated sales, which reported a twofold growth during the 9M period of 2008. The phosphate fertilizers prices mounted significantly by more than two folds during the 9M of 2008, in addition to the new production capacities of EFIC’s 99.88% owned subsidiary, Suez Company for Fertilizers Production (SCFP), which commenced its commercial production in 2008.
Over the last two years, international fertilizer prices have surged mainly due to higher feedstock prices in North America, Europe, and East Asia. In addition, no subsidy is given in these regions on feedstock prices. Consequently, the price of basic fertilizer chemicals in these regions has witnessed an increase of 35.8% in phosphoric acid while Sulphuric acid prices have jumped from US$75.1 per ton in 2005 to US$96.9 per ton in 2007. However, in the MENA region, the feedstock gas is available at highly subsidized rates and does not depend on the prices of gas in the international market. This is mainly due to ample production and supply of gas in MENA region and agricultural base economy of South Asia region.
Average prices of DAP has increased by over 80% and crossed US$900/ton mark in 2008. While for Urea, the prices have scaled up by as much as 25% during 2008 to US$375/ton. In 2007, average global potash price was US$200.2/ton as compared to US$174.5/ton in 2006. However the same for the year 2008 (Jan-August) has gone significantly to as high as US$479.6/ton, an increase of 140%. Price of phosphate rock witnessed stupendously from an average of US$44.2/ton in 2006 to US$70.93/ton in 2007 and in 2008, it has broken all its previous records and has perched to as high as US$430/ton in the month of September 2008.
Fertilizer production in the MENA region will likely show a year-on-year increase of more than 10% in 2008, with further growth constrained only by plants’ inability to churn out vaster amounts of urea, ammonia, melamine, and Sulphuric acid, all key components of chemical fertilizers. The industry is therefore poised for a massive expansion drive, with planned investments of more than US$20bn to build bigger plants to churn out 60mn tons of fertilizer by 2010 and close to 70mn tons by 2012.
Likes of Maaden Phosphate Company of Saudi Arabia, a state-owned mining firm, aims to supply 20% to the global fertilizer market when its Ras Al-Zour complex opens. The US$5.5bn integrated plant said it will become the world’s largest producer of Di-ammonium phosphate (DAP) fertilizer when its complex is completed, taking up to a fifth of the global market. The new output will affect the Kingdoms regional competitors, notably Jordan, which produced 600,000 tons of DAP in 2006, Morocco, which produced 1mn tons, and Tunisia which produced 1.1mn tons. Morocco’s state-owned Office Cherifien des Phosphates will remain the world’s largest exporter of phosphate products overall, including the production of phosphoric acid and another fertilizer, mono-ammonium phosphate.
Summing it up we remain optimistic on the outlook of the MENA fertilizer sector on the back of sound fundamentals and better cost control measures. The region posted capacity utilization rate of over 100% in 2007, which was mainly due to a huge increase in demand of fertilizers in South & East Asia. Focus on innovative farming techniques and the drive to increase agricultural yields would continue to bode well for the fertilizer sector in MENA.
