Fertiliser stocks, including those of Abu Qir Fertilizers (ABUK), rose significantly during Tuesday trading on the Egyptian Exchange (EGX), with renewed market rumours that the government is considering lifting subsidies on fertiliser prices.
If implemented, it would spell very good news for local fertiliser producers, which currently sell around 40%-50% of their urea and nitrate fertiliser output to the government at a discount of about 30% to the market price.
Urea, which currently trades at $260-280/tonne (equivalent to EGP 4,200/tonne) on international markets, is partly sold to the government at a capped price of EGP 3,100-EGP 3,200/tonne.
To protect the farming community, it was previously reported that the move could also involve the establishment of an EGP 5bn fund, managed by the Agricultural Bank of Egypt (ABE). The fund would be aimed at providing financial support to small farmers owning up to five feddan under a three-year transition programme.
Naeem Research sees that the government could raise the price of urea in phases over a period of time, rather than implementing a complete lifting of subsidies in one go. Nevertheless, the news should be viewed as positive for MOPCO (MFPC), ABUK, Egyptian Chemical Industries (EGCH/KIMA) and EK Holding (through Alexfert), given the 40%-50% exposure to local sales quota.
The stocks are also up on news that Egypt’s parliament has approved new amendments to the country’s investment law. The previous draft, which was approved by the cabinet in May, allowed the granting of licences to natural gas based industries, especially fertilisers and petrochemicals. This would allow them to work under the free zone system, with the aim of promoting exports and encourage natural gas intensive industries.
Naeem Research said that some of the benefits under the new norms according to previous news articles include the exemption of project profits from all taxes and tariffs, and the exemption of capital assets and production tools from custom tariffs and taxes. Other benefits include: the exemption of exports and imports from all tariffs or any kind of taxes; and a VAT exemption for the projects production components that are sourced locally.
While the amendments are aimed at new projects, existing projects could also qualify for the same if the following conditions are fulfilled: export proportion exceeds 80%; the project area exceeds 20ksqm; there are a minimum of 500 insured workers; there are a minimum of 30% local components used in production; and the minimum share capital should be $10m, with investment costs of $20m.
“With regards to companies under coverage, we reiterate our view that while none of the stocks under coverage are currently eligible to claim benefits under the new programme, Sidi Kerir Petrochemicals’ new $1.3bn propylene & polypropylene (PP) project could qualify under the new law,” Naeem Research said.
It added that Egyptian Chemical Industries’ (EGCH EY/Kima) new factory, Kima 2, could also claim exemptions under the scheme, given the 65%-70% cap on exports, although the limitation could impede the process.