How much is our natural gas pinch affecting fertilizer producers? In a bid to address a shortfall in natural gas, the government has been diverting natural gas from fertilizer plants to the national grid, with some producers reportedly seeing their supplies fall by 20%. The gas cuts will apparently affect mostly producers of urea fertilizer, a low-cost nitrogenous fertilizer that consumes high volumes of gas, according to reports last month. These supply cuts — which are open-ended, with no specific timeline for when they’re expected to end — are expected to affect production output, since natural gas is an important input, and will likely cause prices to rise in the domestic market, industry players told Enterprise.

REFRESHER- Egypt’s gas output has been declining, while demand has spiked over the summer: Egypt’s total gas output fell by 5% in 2Q 2023 from the previous quarter to 5.88 bn cubic feet per day (bcf / d), its lowest since 2Q 2020, according to recent Mees data. Eni’s giant Zohr field saw record output of 2.76 bcf / d in 3Q 2021 but output has now been effectively capped at 2.3 bcf / d, the industry news site said. Spiking demand for electricity amid a heatwave has led to shortages of gas that have forced the government to institute nationwide rolling blackouts.

The fertilizer industry, by the numbers: Egypt’s fertilizer industry has an annual capacity of c.7.8 mn tons of nitrogenous fertilizers, 7 mn tons of phosphate rock, and 5 mn tons of phosphate fertilizers, according to government figures. Egypt exported USD 2.7 bn-worth of fertilizers in 2022, Public Enterprises Minister Mahmoud Esmat said. We’re also the sixth-largest producer of urea fertilizers and the fifth-largest exporter of the product, head of the Chemical and Fertilizers Export Council Khaled Aboul Makarem told Enterprise.

Fertilizers have been doing well over the past several months, but the industry dynamics could be shifting: The fertilizer industry has broadly localized its production input needs, with minimal reliance on imported materials and inputs, which has helped make the industry’s production and export levels more robust over the past year, Evergrow Group CEO Mohamed El Kheshen told us. However, there are expectations that fertilizer prices in the local market will jump in the near term, with natural gas supply cuts meaning that factories won’t work at their maximum capacity, resulting in a shortfall in market supply, El Kheshen and Aboul Makarem both said.

It’s not just the natgas shortfall that’s impacting the industry right now , Aboul Makarem told us, although natural gas is a key production input for fertilizers. Other factors, such as the high interest rate environment (particularly with the Central Bank of Egypt’s latest 100 bps rate hike) are creating pressure for fertilizer producers, especially since most factories are reliant on debt financing, Aboul Makarem said.

Where can we expect prices to settle? The jury’s out on how much fertilizer prices are going to rise in the near term. While El Kheshen expects a ton of urea to breach the EGP 2.5k / ton mark if these pressures persist, Aboul Makarem sees these pressures being more short-lived and expects local market prices to cool off again quickly once the supply-demand balance is restored.

But prices aren’t the only concern: Local factories might be forced to cut back on exports to be able to continue meeting local market supply requirements, which would result in a steep decline in FX income, El Kheshen said.

Egyptian fertilizers have had a few days in the sun — now it’s time to hold on to that position: The outbreak of the Russia-Ukraine war last year created a golden window for Egyptian fertilizers to become a replacement for Russian fertilizers, thanks to international sanctions imposed on Russia. European markets moved to import more Egyptian fertilizers, helping our exports rise as much as 42% last year, according to Aboul Makarem. However, we need to work on maintaining our position in the international fertilizer market, as competitors such as Russia and other fertilizer producers are unlikely to cede their leading positions in the long term, Aboul Makarem stressed.

Could the industry actually sidestep any real impact? Falling global fertilizer prices could have some impact on the value of Egypt’s fertilizer exports, but we could continue to export the same volumes, particularly since producers already have agreements in place, according to Aboul Makarem. Additionally, the summer season typically sees a drop in global fertilizer demand, which could help absorb the impact of lower output levels in Egypt, Chairman of the Federation of Egyptian Industries’ Chemical Industries division Sherif El Gabaly told Enterprise.

Your top industrial development stories for the week:

  • Mansoura Poultry Company plans to invest around EGP 60 mn to inaugurate two new livestock feed production lines and acquire fattening farms, Al Mal quotes CEO Islam Naguib as saying.
  • Chinese home appliances giant Midea Group launched its USD 25 mn washing machine factoryin China’s TEDA industrial zone in Ain Sokhna.
  • Turkish companies, bank mull investing here: Turkey’s largest state-owned bank and a number of Turkish manufacturers expressed their interest in expanding into the local market during Trade and Industry Minister Ahmed Samir’s visit to Ankara last week.
  • The SCZone is well on its way towards launching an investment arm: The Suez Canal Economic Zone (SCZone) received cabinet approval to set up a joint-stock investment company named SCZone Istithmar, which will manage the authority’s investments and help establish industrial development and utilities companies that serve the SCZone.
  • Ariston eyes Egypt for new heaters factory: Italian home appliances manufacturer Ariston has submitted a request to the General Authority for Freezones and Investment (GAFI) to set up a heaters factory in Egypt, according to Al Borsa.
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