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18-Feb-2018

Egyptian government to study implementation of free market mechanism for urea fertilisers

The Egyptian government is currently looking at a proposal to adjust the current urea fertilisers pricing mechanism from the currently used local quota fixed price system to a more market price-oriented system, according to Al Masri Al Youm. The current mechanism forces local urea producers to sell a certain percentage of their production at local quota price of EGP3,200/tonne. The proposed adjustment (under study) involves removing the local quota price, which implies that producers could sell their products locally at free market prices. The proposal also includes the creation of an EGP9bn fund to directly subsidise the farmers engaged in buying urea fertilisers. We think if the proposal was implemented by the government, and assuming there is no change to the current gas pricing mechanism, it would provide c26% upside to our forecast for Abu Qir, as the company sells 50% of their urea production at local quota fixed prices (EGP3,200/tonne), which is currently far below the global market prices (EGP4,700/tonne). MOPCO and EK Holdings’ Alex Fert would also benefit, but to a much lesser extent (+4%), as they are currently only sell c20% of their production in the local market.

Yousef Husseini, Omar Gharabawi 
 
Misr Fertilizers Production Company (MOPCO): EGP106.46 as of 15 Feb. 2018, Rating: Buy, TP: EGP120.00/share, MCap: USD1,380mn, MFPC EY/MFPC.CA
 
Abu Qir Fertilizers: EGP28.82 as of 15 Feb. 2018, Rating: Buy, TP: EGP24.50/share, MCap: USD2,058mn, ABUK EY/ABUK.CA
 
Egyptian Kuwaiti: USD0.99 as of 15 Feb. 2018, Rating: Buy, TP: USD1.00/share, MCap: USD1,014mn, EKHO EY/EKHO.CA

 

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