Today’s Trading Playbook
KEY THEMES
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 of both urea and ammonium nitrate from EGP150-165 to as high as EGP225. The decision came following the recent c.28% hike in natural gas prices three weeks ago 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. An official announcement by the Ministry of Agriculture cited the abnormally-high global prices as the driver of that move, which is the same exact reason that was attributed to the recent natural gas price hike. Two questions remain unanswered though:
(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 their prices (i.e. natural gas and local fertilizers) be changed simultaneously, or just one of them?
In the note we published earlier this morning, we assessed the impact of higher nitrogen fertilizer prices on three names, Abu Qir Fertilizers [ABUK], MOPCO [MFPC], and Egypt Kuwait Holding Co. [EKHO/EKHOA]. We believe ABUK will benefit the most of the recent nitrogen fertilizers price hike, followed by MFPC then EKHO/EKHOA. We note that this assumes higher local nitrogen fertilizer prices and the natural gas pricing scheme effective since early November 2021. We note that our updated 12M PT for ABUK is EGP31/share (ETR +57%). Meanwhile, our updated 12M PT for MFPC is EGP84/share (ETR -8%), where we assess the positive impact for EKHO/EKHOA is USD0.042/share and EGP0.7/share, respectively.
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