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					                                                                                                                   Market Report



                  Subject              : MENA Fertilizer Sector Earnings

                 Prepared by : Global Investment House “Global”
                 Date         : May 2008
                 _________________________________________________________________
                 Global Investment House – Kuwait - MENA Fertilizer Sector Earnings - Fertilizer 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.

                  MENA Fertilizer Sector Listed Companies (US$ mn)
                  Country     Company                                                  2006           2007        2008     Chg 08/07 (%)
                  Egypt       Abu Qir Fertilizers Co *                                 100            133          182              37%
                  Egypt       Egyptian Financial and Ind Co                             18             21           42             102%
                  Jordan      Arab Potash Company                                       28            107          221             107%
                  Jordan      Jordan Phosphate Mines Co                                 11             33          169             418%
                  KSA         Saudi Arabia Fertilizer Co                               307            589        1,141              94%
                  MENA                                                                 464            882        1,755              99%
                  Source: Company Reports & Zawya
                  * Profit Computed on a Calendar Basis (Jan-Dec)
                  # Profit Amount Can Show Variation as Average Exchange Rate for the Period has been Taken


                 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.

                  MENA Fertilizer Sector Listed Companies (US$ mn)
                  Country     Company                            1Q-2008                       4Q-2008        1Q-2009   Y-o-Y Chg. (%)
                  Egypt       Abu Qir Fertilizers Co *               63                             28            62               -2%
                  Egypt       Egyptian Financial and Ind Co          18                              1             3              -84%
                  Jordan      Arab Potash Company                    21                            (87)           25               20%
                  Jordan      Jordan Phosphate Mines Co               6                           (118)           22             257%
                  KSA         Saudi Arabia Fertilizer Co            193                            143           140              -27%
                  MENA                                              301                            (33)          252             -16%
Faisal Hasan, CFASource: Company Reports & Zawya
Head of Research * Profit Computed on a Calendar Basis (Jan-Dec)
 hasan@global.com.kw
                  # Profit Amount Can Show Variation as Average Exchange Rate for the Period has been Taken
Phone No: 2295 1270

Hettish Kumar
Financial Analyst
hkumar@global.com.kw
Phone No: 2295 1281
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.

 World Bank Fertilizer Index

    800.0
    700.0
    600.0
    500.0
    400.0
    300.0
    200.0
    100.0
         -
                                                                       2009*




                                                                                       1Q-2008




                                                                                                                         4Q-2008
                                                                                                     2Q-2008

                                                                                                               3Q-2008
                                     2005




                                                             2008
                    2003

                              2004




                                              2006

                                                     2007




 Source: World Bank Pink Sheets


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.

 Fertilizer Product Prices
 (US$/Ton)                                   2003     2004           2005       2006              2007          2008               2009*
 DAP                                        179.4    221.2          247.0      260.3             432.5         910.8               362.2
 Phosphate Rock                              38.0     41.0           42.0       44.2              70.9         345.6               193.3
 Urea                                       138.9    175.3          219.3      222.9             309.4         492.7               267.3
 Source: World Bank Pink Sheets

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

                                                                                                                                      2
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.


 Fertilizer Capacity Expansion in MENA (000 Tons)
    80,000
    70,000
    60,000
    50,000
    40,000
    30,000
    20,000
    10,000
          -
                    2007           2008         2009E          2010E          2011E          2012E
 Source: Global Research & Zawya


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.




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posted:6/23/2011
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