sector of MENA comprises of various 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. In this report we have compiled the profitability numbers of pure play fertilizer companies which are listed in the MENA region. After witnessing 103% and 149% growth in 2007 and 9M-2008 respectively, the sector witnessed a tumult in the 4Q-2008 which dropped the profitability numbers of 2008. On the whole in 2008 the sector witnessed a profitability growth of 99% to US$1.75bn as compared to US$0.82bn in 2007. In 4Q-2008, the sector reported loss of US$33mn on the back of drop in selling prices of the commodity along with already piled up huge raw material inventories at high prices.
In 2008, most of the profit was contributed by Saudi Arabian SAFCO whose net income contributed 65% to the total. Two Jordanian companies Arab Potash and Jordan Phosphate were able to add 22% to the total. While the remaining two Egyptian companies added 13%. While in 1Q-2009 the sector profitability dropped by 16% to US$252mn as compared to US$301mn in 1Q-2008. However, the profitability numbers were much better when compared on Q-o-Q basis as in 4Q-2008 the sector losses were US$33mn.
Major contributors to the bottom line once again was Saudi Arabian SAFCO which added 56% to the total. Contribution of Jordanian companies dropped to 19% while that of Egyptian companies went up to 26%.
The global economic slowdown and credit crunch took its toll on all and sundry sectors of the World and fertilizer was no exception. World Bank fertilizer index which over the years continued to increase from an average of 106.2 in 2003 to as high as 741.1 in the 3Q-2008 averaged to 492.2 in 4Q-2008 and further dropped to an average of 376.6 in 1Q-2009.
Natural gas is the main feedstock for fertilizer sector and crude oil prices are used as a benchmark to set gas prices in international markets. However, gas prices are highly subsidized in certain regions of the world Middle-East, Northern Africa, and South Asia to have pre-determined discounts and ranging between US$0.75/mmbtu (in Saudi Arabia) to US$2.5/mmbtu (North Africa and South Asia). Average gas prices, in international markets, have shot up by 79.5% from US$4.4/mmbtu in 2001 to US$7.9/mmbtu in 2008, which was mainly due to higher average crude oil prices Y-o-Y. However, the recent decline in crude oil prices has broken the upward rally in the gas prices and brought the average prices of gas from US$8.7/mmbtu in 3Q2008 to US$5.7/mmbtu in 4Q2008.
Talking about the prices of products, Urea prices which rose at a CAGR of 29% during 2003-08 reported an average growth of 59% during 2008 alone. In 2008, average prices of Urea was US$493/ton, a price never seen before and will surely not been seen in atleast 1-2 years onwards. DAP prices recorded a tremendous increase in 2008, perching by 111% to US$911/ton. Over the years DAP prices recorded a CAGR growth of 38% during 2003-08. Phosphate rock prices also witnessed the same trend although with higher percentages. During 2003-08 phosphate rock prices recorded a CAGR of 56%.
But all those prices have reversed in 1Q-2009. Average Urea price of U$493/ton has come down to an average of US$267/ton in 1Q-2009. DAP prices has dropped by 60% to an average 1Q-2009 price of US$362/ton while that of phosphate rock has declined to US$193/ton, down by 44% as compared to that of 2008.
The pressure on the prices would continue as internationally as well as locally there are various expansions going on. It is expected that MENA’s fertilizer capacity would increase from 46mn tons in 2008 to 70mn tons in 2012. In terms of capacity, an addition of 9.5mn tons and 8.9mn tons would be carried out in Urea and Ammonia while in terms of capacity growth Sulphuric acid and DAP would witness an increase of 176% and 132% during the period.
Summing it up we remain positive on the outlook of the MENA fertilizer sector on the back of sound fundamentals and better cost control measures. The profitability numbers which emerged in 2008 would not be seen in the years to come but nevertheless they would be able to post a decent profit. On the other hand focus on innovative farming techniques and the drive to increase agricultural yields within MENA would continue to bode well for the fertilizer sector.
