TAKEStock: Nitrogen Fertilizers Local Price Hike - White Friday Gift
What higher nitrogen fertilizers prices mean for EGX stocks
Impact: POSITIVE | Degree: STRONG
Thursday night, the Egyptian government handed Egyptian nitrogen fertilizer producers a White Friday gift. It revised local nitrogen fertilizers prices upward, sending the local subsidized price 37-50% higher from nearly EGP3,000-3,290/ton to EGP4,500/ton. Effectively, this will raise the average price per sack from EGP150-165 to as high as EGP225 for both urea and ammonium nitrate. The decision came following the recent hike in natural gas prices three weeks ago by c.28% to USD5.75/MMBTu. The new regime will see fertilizers, in addition to their monthly quota, required to sell an additional 10% of their output in the “free” local market (where prices are not subsidized) to ensure availability of fertilizers in the local market. Official announcement by the Ministry of Agriculture cited the abnormally-high global prices as the reason behind such a move, the same exact reason that was attributed to the recent natural gas price hike. Two questions remain unanswered:
(1) Will the prices of either natural gas or local fertilizers be ever revised downward in the future when things get back to normal?
(2) If yes, will the two (i.e. natural gas price and local fertilizers price) be changed simultaneously, or just one of them?
Abu Qir Fertilizers [ABUK] - Most Beneficiary of Higher Local Fertilizer Prices
12M PT to EGP31.0/share, Overweight, set on 21 November 2021
Back on 31 October 2021, we had revised our previous 12M PT for Abu Qir Fertilizers [ABUK] downward to EGP25.4/share, after taking into account the then-new higher natural gas prices. Back then, our assumptions reflected:
(1) Higher natural gas costs of USD5.33/MMBTu in 2021/22, then stabilizing at USD5.75/MMBTu thereafter.
(2) Granular urea prices ranging from USD610/ton in 2021/22 to USD335/ton in 2025/26.
(3) The annual sale of c.940,000 tons at local subsidized prices, c.80% of which is ABUK’s total ammonium nitrate output.
MOPCO [MFPC] - Positive Impact from Higher Local Fertilizer Prices
Upgrade 12M PT to EGP84.0/share, set on 21 November 2021
Back on 31 October 2021, we had initially assigned MOPCO [MFPC] a 12M PT of EGP75/share, post the recent natural gas price hike at the beginning of November. Back then, our valuation was based on:
(1) The expiry of gas pricing equation post 2023.
(2) Granular urea prices ranging from USD485/ton in 2022 to USD300/ton in 2026.
(3) Annual local quota representing 25% of MFPC’s total sales volume.
Egypt Kuwait Holding [EKHO/EKHOA] - Higher Local Fertilizer Prices Partially Positive
Per-share incremental fair value of c.3%
Alexfert, 55.4% owned by Egypt Kuwait Holding Co. [EKHO/EKHOA], sells urea in addition to ammonium sulphate. Alexfert’s annual local quota is c.25% of its urea production (or 171,000 tons per year) sold at EGP3,290/ton. Thus, we calculate that the new fertilizer subsidies regime will impact Alexfert’s top line positively, adding on average USD13.2mn annually.
Mohamed Saad
Senior Equity Analyst
T +202 3300 5719