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Wed 14 Oct 2009 09:27 PM

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Egypt's Orascom to gain from fertiliser price - report

Investment group CI Capital raises target price to 268.4 Egyptian pounds ($49) per share.

Egypt's Orascom Construction Industries, which enjoys cheap access to phosphate rock and natural gas, is well placed to benefit in 2010 from a rise in fertiliser prices, research house CI Capital said on Wednesday.The investment group raised its target price on OCI to 268.4 Egyptian pounds ($49) per share. The group also upgraded to 'hold' its rating on the firm, the country's biggest producer of nitrogen fertilisers.

Slumping global fertiliser prices bruised OCI's fertiliser operations earlier this year. But given the company's cost advantages, its income should recover as commodity prices rebound in 2010, the report said.

"We believe OCI's 2010 fertiliser ... margins will be supported by a number of factors, including fertiliser price increases, the establishment of strategic alliances with global fertiliser distributors and production capacity growth," the report said.

CI Capital forecast OCI's fertiliser income would grow to $668.9 million in 2010, compared to its forecast of $427.8 million for 2009.

Egypt's fertiliser producers benefit from cheap access to raw materials such as phosphate rock and natural gas. The resumption of a 110 percent tariff on fertilisers in China, alongside rising global demand for food and bio-fuels will be a further boon to the local industry, CI Capital said.

"Egypt has a competitive fertiliser industry," the report said. "The expected rebound in the fertiliser market by 2010 reinforces our positive outlook for the sector."

The government's plan to expand agricultural land by over 150,000 feddans (155,700 acres) per year should help push domestic fertiliser consumption to 12.9 million tonnes in fiscal year 2013-2014, the report said. Domestic production is meanwhile expected to grow to 30.1 million tonnes in that year as new facilities begin operating.

Still, the lack of credit available to local farmers and government control of natural gas prices and phosphate mines poses some risks for local fertiliser makers, the report said.

OCI is a building company with wide interests in fertiliser. Shares last traded for 249.50 pounds on Wednesday. (Reuters)

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