Analysis Markets Gulf investors urged to switch from petrochems to fertiliser By Matt Smith March 7, 2025, 7:49 AM Reuters/Rula Rouhana Workers carry fertiliser bags to be mixed with water at a farm in Sharjah: the World Bank’s fertiliser price index has rebounded to 124 from a three-year low last May of 108 Bright future for fertiliser companies Petrochemical companies plunge Production fallen behind demand Gulf fertiliser companies are trading below their fair value, with investors not seeming to price in a rebound in product prices that analysts say is more than just a seasonal upswing. In the Gulf, fertilisers and petrochemicals are considered adjacent industries, since both rely on natural gas as a feedstock. While petrochemical companies’ earnings have plunged as industry margins slump to multi-decade lows because of oversupply and muted demand growth, the prospects for regional fertiliser producers are brighter. This is in part because of lower exports of urea from China, which has meant a tighter global supply and rising prices for the most widely used nitrogen-based fertiliser. Gulf fertiliser companies’ share prices have still fallen, but now perhaps to levels that make them more attractive to investors. Gloomy outlook for Saudi petrochemicals Fertiglobe profit drops as topline falls 17% in 2024 Petrochemicals ‘won’t even get fleeting respite’, analysts warn “Valuations look good, dividends are excellent and they’re cash rich,” says Yousef Husseini, director of chemical equity research at EFG Hermes, an investment broker in Cairo. The share price of three of the biggest Gulf fertiliser producers have all fallen this year. Industries Qatar is down 0.2 percent, Fertiglobe of Abu Dhabi has lost 8.2 percent and Sabic Agri-Nutrients’ shares are 2.9 percent lower. That is despite the fact that the price of urea rose 23 percent this year to mid-February, reaching $445 a tonne, well above its price a year earlier of $378 a tonne. The World Bank’s broader fertiliser price index has rebounded to 124 from a three-year low in May 2024 of 108. However “the market is sceptical that the rebound is sustainable,” Husseini says. This is in part because the urea price rise is due to seasonal factors such as a relatively cold winter in the northern hemisphere increasing gas prices, and the imminent use of more fertiliser for the spring planting season, he says. But Husseini says the market is overlooking a structural element to the price increases – the expansion of urea production capacity over the next three years will be the slowest in a decade. In addition, a decade ago China used to export more than 10 million tonnes of urea a year, but exported just 262,000 tonnes in 2024 and has exported none in three of the past 12 months, as the country’s agriculture consumes more of its domestic output. Gas shortages Anoop Fernandes, vice-president of research at Sico Bank in Bahrain, says: “Major global supply additions are behind us, and China’s involvement in export markets has reduced over the years, both of which have supported market balance and therefore prices.” Other sizeable fertiliser producers such as Egypt, and Trinidad and Tobago have endured gas shortages, causing production to fall, while India’s fertiliser inventories have halved over the past year. So as production fails to keep pace with demand, supply may tighten, driving prices higher, Husseini says. This bodes well for the Gulf’s listed fertiliser makers, which can attract Gulf equity investors reluctant to put their money in petrochemical stocks, Fernandes says. Industries Qatar trades at a dividend yield of 6.5 percent, above those of Sabic Agri-Nutrients (5.5 percent) and Fertiglobe (4.7 percent). However, the trio’s trailing price-to-earnings ratios are reasonably high, at between 16 and 33, according to Simply Wall Street. “They all provide a good dividend yield, face few headwinds and are in a benign supply-demand environment,” Fernandes says.
