Gulf fertiliser producers suffer as demand falls

Prominent fertiliser producers in the Gulf countries suffered in the second quarter as fertiliser imports declined the world over, said Hassan Ahmed, the Global Sector Head of Chemicals Research at HSBC.

The International Fertiliser Industry Association (Ifia) said the demand for fertiliser will decline by 2.2 per cent in 2009. The fertiliser association was particularly sceptical of demand in the first half of the year.

Ahmed earlier warned that the performance of petrochemicals industries is expected to deteriorate in July, August and September.

The Ifia, however, said that the demand of fertilisers will bounce back to 3.6 per cent in 2010, a proposition that Ahmed accepted.

"We believe that companies exposed to ammonia and urea – such as Industries Qatar and Saudi Arabian Fertiliser Company – will experience modest sequential declines in Q2-09 net income. We believe that there is a lag between energy prices running up and product prices following suit, and we expect ammonia and urea prices to rise over the next few months," said Ahmed.

As an indicator of the industry performance, the share price of an average Gulf-based petrochemicals producer has declined 58 per cent below recent highs, Ahmed pointed out in his new report.

Fertiliser demand dropped substantially in most of the export markets of these companies. While lack of rain forced a delay in sowing of crops in India, a major section of agricultural region in China is said to be experiencing drought-like conditions. El Nino, a weather phenomenon that brings droughts, has adversely impacted fertiliser demand in farmlands ranging from Australia to South America.

However, Gulf petrochemicals producers that are not exposed to fertilisers fared better than those producing fertilisers. Saudi Arabia Basic Industries Corporation is poised to record "robust" revenue in the second quarter, Ahmed said.

The Washington-based analyst enumerated the list of several plants that are expected to face shutdown across the world.

The list that was led by China included producers in the GCC.

The views come amid reports that GCC-based petrochemical producers are focusing more on expanding their production capacities rather than immediate profits. Abu Dhabi Polymers Company (Borouge) has awarded a series of contracts for construction and design contracts at its Ruwais site worth in excess of $1bn (Dh3.67bn). The contracts are part of the third-phase expansion of Borouge's petrochemicals production at Ruwais. The Borouge 3 expansion will result in the company increasing output to 4.5 million tonnes a year by 2013. "We have reports that small petrochemical producers across the Middle East are also expanding their production capacities – both fertilisers and petrochemicals ," a Gulf Petro Chemicals Association member told Emirates Business.

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