Economy

Dr. Iman Zaky

Case Study
Abu Qir Fertilizer Company
 Abu Qir Fertilizer Company

The company overview

Abu Qir Fertilizers Company (ABUK.CA) is a well-established company founded in
1976 and announced as an Egyptian shareholding company in 1980. ABUK is the
largest producer of the Nitrogen, liquid and mixed fertilizers in Egypt, since it
currently contributes around 15% of the domestic nitrogen fertilizers produced
quantities. ABUK has been listed in EGX since 1994.

Abu Qir In Brief

 On 20th July, 1976 Abu Qir Fertilizers Company was founded by the
ministerial decree number (374) of year 1976 according to law number 60
of year 1971 and law number 111 of year 1975.
 On 20th April, 1980 the company was declared as an Egyptian Public
Company according to the ministerial decree of the Minister of Economy
and Foreign Trade and International Cooperation number 107 of year 1980
and according to law number 43 of year 1974.
 The company is regulated by law 97 of year 1983.
 On 15th May, 1996 the ministerial committee of the public sector
companies and privatization agreed that the company will be regulated by
law 159 of year 1981, where this was approved by the general assembly of
the company on 16th May, 1996.
 The company is a pioneer of producing and marketing nitrogen fertilizers
and liquid and bulk-blended fertilizers in Egypt and Africa in terms of
production rates and product diversity.
 In 1979, Abu Qir (1) Plant was commissioned to produce prilled Urea
fertilizer with a production capacity of 1550 tons / day, which was
increased later to be 1750 tons / day.
 In 1991, Abu Qir (2) Plant was commissioned to produce Ammonium
Nitrate fertilizer with a production capacity of 2400 tons / day.
 In 1996, the production capacity of the Ammonia (1) Plant was increased
from 1000 tons / day to 1100 tons / day, which was later increased to 1150
tons / day in 2012.
 In 1998, Abu Qir (3) plant was commissioned to produce Urea Granules
fertilizer with a production capacity of 1750 tons / day, which was then
increased to 1925 tons / day.
 In 2004, Urea Magnesium fertilizers were produced in Abu Qir (3) Plant.
 In 2004 Urea Sulfate fertilizer were produced in Abu Qir (3) Plant.
 In 2005 Urea Zinc fertilizer was produced in Abu Qir (1) Plant.
 In 2005, the Bulk-Blended Fertilizers Unit was commissioned to produce
NPK fertilizer with a production capacity of 1000 tons / day.
 In 2006, the liquid fertilizers (UAN) Unit was commissioned to produce Urea
Ammonium Nitrate (UAN) solution with a production capacity of 1000
tons / day, which was then increased to be 2400 tons / day.
 In 2014, Eurofert and Nitrofert Fertilizers were produced.
 In 2018, the production of Ammonia (3) Plant was increased from 1200
tons / day to 1230 tons / day.
 In 2019, the Plastic Factory was commissioned to produce fertilizers Plastic
Bags with a production capacity of 40 mn bag/year.
The main types of fertilizers in Egypt used are : -
Nitrogen Fertilizers
 Urea (46.5 percent N)
 Ammonium nitrate (33.5 percent N)
 Ammonium sulphate (20.6 percent N)
 Calcium nitrate (15.5 percent N)
Phosphate Fertilizers
 Single superphosphate (15 percent P2 O5 )
 Concentrated superphosphate (37 percent P2 O5 ) Potassium
 Potassium sulphate (48 to 50 percent K2 O)
 Potassium chloride (50 to 60 percent K2 O) Mixed and compound
fertilizers containing N, P, K, Fe, Mn, Zn and/or Cu in different
formulations for either soil or foliar application. The micronutrient
may be in either mineral or chelate form.
Products of Abuqir from Nitrogen Fertilizers are:-
- Prilled Urea.
- Prilled Urea Treated Zinc Sulphat.
- Granular Ammonium Nitrate 33.5% N
- Granular Ammonium Nitrate Treated With Magnesium 33.5% N.
- Granular Urea.
- Granular Urea Treated With Magnesium Sulphate.
- Urofert Sulphur 12
- Urofert Sulphur 12
- Liquid Ammonia .
- NPK.
The Contributors

Abu Qir is owned mainly by governmental entities such as National Investment

Bank (NIB) with a stake of 24.881%, Egyptian General Petroleum Corporation
(EGPC) with 19.111%, Industrial Development Authority (IDA) with 12.66% in
addition to Holding Company for Chemical Industries (CIHC) with 6.5% these
percentages brings the total governmental entities’ stake to 56.5% while the free
float percentage surpasses 30%. ABUK has available for sales investments in four
companies operating within the same industry: Alexandria Fertilizer Co (15%),
Helwan Fertilizers Co. 17%, Al-Wadi for Phosphate Industries and Fertilizers
Company (10%) and International Petrochemical Investment co. (3%).

Contributor Percentage
National Investment Bank 24.881%
Egyptian General Petroleum Corporation 19.111%
Industrial Development Authority 12.669%
Al-Ahly Capital Holding Company 8.109%
Chemical Industries Holding Company 6.509%
Nasser Social Bank 5.902%
Misr Insurance Company 5.437%
Misr Life Insurances Company 4.758%
Shareholders Employees Union 4.005%
Chemical Industries Company (Kima) 2.695%
Mutual Funds and Individual Investors 5.924%

Contributors
3% 6%
4% 25%
5% 5%

6%

7%
13% 19%
8%

National Investment Bank Egyptian General Petroleum Corporation

Industrial Development Authority Al-Ahly Capital Holding Company
Chemical Industries Holding Company Nasser Social Bank
Misr Insurance Company Misr Life Insurances Company
Shareholders Employees Union Chemical Industries Company (Kima)
Mutual Funds and Individual Investors
The Fertilizers Exemplify a Necessity for The World Agriculture
According to the United Nations (UN), the global population of 7.6bn in 2018 is
expected to reach 8bn by 2023. A recently published study in the journal of
Bioscience suggests that the overall food production necessitates a substantial
additional production of agricultural commodities as the global supply of food
will have to increase by almost 30% by 2030. This increased food production will
have to occur on less available arable land and this can only be accomplished by
intensifying production which comes to the role of fertilizers.

Mineral Fertilizers Are More Efficient

There are two types of fertilizers used worldwide organic fertilizers and Inorganic
fertilizers. The first type can refer to fertilizers that have gone through minimal
processing, where nutrients are still found in their natural forms. On the other
hand, the Inorganic fertilizers (Mineral Fertilizers) generally refer to fertilizers that
are synthetic or artificial, they are minerals in concentrated form that are readily
available to the plant. Many researches proved that the Mineral Fertilizers are
more efficient than organic fertilizers as they contain high nutrients
concentration, need a low logistical cost (as for organic fertilizers the separation
of arable land and livestock made the bulky nature of them costly) and has high
productivity unlike organic fertilizers that contains low concentration and need
large volumes to give the same amount of nutrients.
Nitrogen Is The Most Important Nutrient:
Nitrogen (N), phosphorus (P) and potassium (K) are the “Big 3” primary nutrients
in commercial fertilizer markets. Each of these fundamental nutrients plays a key
role in plant nutrition. Nitrogen fertilizer products represent the major bulk in the
world consumption of mineral fertilizers help to increase crop size and the annual
application is critical because the plants absorb more nitrogen than any other
element There are various nitrogen fertilizer products such as anhydrous
ammonia, urea, Ammonium nitrate and other multiple nutrient products while
the most commonly used nitrogen fertilizer is urea with the highest nitrogen
content (about 46%).

Total Fertilizer Consumption In 2018

20% Nitrogen (N )
Potassium (K )
Phosphours ( P )
18% 62%

World Records A Surplus in Nitrogen Fertilizers

The global Nitrogen nutrient capacity (N) was 186.8mn tonnes in 2018 out of
which the total supply was 168.9mn tonnes. During 2019, the total capacity
is expected to expand by 3.7% while the total supply is forecasted to grow by 1.7
%. The international Fertilizer Association (IFA) stated that the global supply has
been expected to grow by an annual average 0.6% between 2018 and 2023.
The global demand for nitrogen fertilizer nutrients for 2018 grew by 1.79% to
record 151.6mn tonnes and the estimates for 2019 are more bearish regarding
the growth rate as analysts forecast the global demand to grow by 1.53% at a
slow pace compared to historical trends due to prospects for low international
crop prices, increasing pressure to reduce nutrient harms to the environment as
well as the declining demand by the major consuming country.
The potential world surplus of nitrogen is expected to achieve 15.8mn tonnes in
2019 and to shrink moderately, reaching 14 Mt of potential surplus in 2020
backed by numerous factors such as the scheduled shut down of factories for
environmental considerations. Albeit this pending imbalance equating to around
9% of the potential supply in the coming years, will put pressure on high-cost
producers or those with chronic short falls of feedstock supply.

Egyptian Fertilizers Market Outlook

There are 8 companies in Egypt working within nitrogen fertilizers production
totaling at 22mt while the annual local consumption has recorded 12mt in 2018.
The Eight producing companies are:-
1. Abu Qir Fertilizers (ABUK.CA) .
 2. Egyptian Chemical Industries (EGCH.CA).
3. Misr Fertilizers Production (Mopco) (MFPC.CA).
4. Delta Company for Fertilizers
5. Helwan Fertilizers Co
6. Alexandria Fertilizer Co. (ALEXFERT)
7. El Nasr Co. for Fertilizer & Chemical Industries (SEMADCO) .
8. Egyptian Fertilizer Company.
These mentioned companies use the remaining production in exporting to
around 20 Arab, European countries as well as the United States.

Fertilizers Segment to Get More Significant Within the Egyptian Economy

Egyptian exports of fertilizers are back to pop up after a plunge in 2015 as
fertilizers exports grew at a CAGR of 35% since 2015 to record USD1,374mn in
2018 compared to USD410mn in 2015. Through the flourishing exports Abu Qir
dominates the first place of fertilizers exporters list in Egypt as shown in the
following graphs:

The local capacity to surge within the coming years

The local capacities is expected to witness a surge in the coming years based
mainly on KIMA 2 project of Egyptian Chemical Industries (EGCH.CA) that has a
projected annual capacity of 396k ton of ammonia , 530k ton of urea and 240k
ton of ammonium nitrates and the operation is expected to begin in by June
2019. In addition Delta Company for Fertilizers is planning for expansions that
would increase the annual capacities by 396k ton of ammonia and 650k ton urea
but the company is still preparing for the project studies and financing.
ABUK hasn’t stand detached from these expansions as the company is studying
and proceeding multiple projects such as ammonium nitrate project of annual
capacity of 200k ton, 330k ton to produce Diammonium phosphate (DAP), calcium
ammonium nitrate(CAN) and Mono ammonium phosphate (MAP)according to
market needs.

Ministry Of Agriculture to Regulate the Egyptian Market through an Inefficient

Way
The Ministry of Agriculture has obligated the fertilizers companies to provide a
certain amount of their production for the local market in subsidized prices. For
ABUK, the ministry has set 55% of the company production to be supplied in
subsidized prices to Agricultural Bank of Egypt (ABE) while exporting the
remaining 45%. The Ministry made this decision to stabilize amount of subsidized
fertilizers and reduce the traded amounts in the black markets. After the Egyptian
pound floatation the ministry defined a subsidized prices equation based on and
exchange rate and other fixed costs besides freight charges in order to stop the
fertilizers company’s losses.

Undeniably, this ministry set mechanism hasn’t been seriously followed by the
fertilizers companies as they record a higher margins from exporting, as a result
the ministry decided to increase exports tariff from EGP125 to EGP500 per ton of
exports or to deliver the total required quantity to Bank for Development and
Agricultural Credit in order to get an export certificate.

We foresee that this policy is inefficient as farmers are still suffering from
shortage of subsidized fertilizers and high prices of black market nutrients. In
addition, the recently imposed exports tariff increase will not hinder the
companies from exports as there is still a gap between the local and exports
prices, for instance the ton of exported urea is sold at EGP4470/ton while the
local price is EGP3290/ton in 2018.
New suggestions to change the subsidy policy to a cash subsidy would in role
boost the fertilizers sector, as the companies would be able to sell fertilizers at
the international prices.

Operational Overview
ABUK has three main Factories: ABUK I that has a designed capacity of Ammonia
(1.15ton/ day) and Urea (1.55ton/day), ABUK II with a designed capacity of
Ammonia (1k ton/ day) and Urea (2.4k ton/ day) in addition to ABUK III that has a
capacity of ammonia (1.2k ton / day) and Granular Urea (1.75 ton / day).
ABUK produces these types of nitrogen fertilizers, their byproducts in addition to
other secondary products such as Liquid urea-ammonium nitrate (UAN) and NPK
(nitrogen-phosphorus-potassium) compound fertilizer.

Market Regulations Came in Favor of ABUK

Since March 2016, the Ministry of Agriculture has issued a decree allowing ABUK
to export 45% of the company production while the remaining 55% to be supplied
to Agricultural Bank of Egypt (ABE). Since that decree ABUK’s revenues and
margins has soared backed by the exports of ammonia, Urea, Granulated Urea
and liquid fertilizer although exports of the latter product have been shortened as
the international prices of the UAN has shown a declining trend since 2015. Abu
Qir like other companies in the market hasn’t stopped reducing local market stake
of production in favor of exporting as the difference between subsidized prices
and international prices still has a large gap.

ABUK Dominates a Solid Market Share

ABUK has a market share near 60% of nitrogen fertilizers of ammonium nitrates,
Urea and Granular urea in the local market. ABUK also dominates a significant
stake in Egypt exports of fertilizers as Egypt exports of fertilizers recorded
USD964.8mn while ABUK’s exports recoded EGP3bn in FY2017/2018.
ABUK’s total production volume recorded 2321k ton in FY2017/2018 while the
total ABE supplied amounted 17.2mn bag totaling at 861k ton, a 37% of the total
production. According to ABUK Chairman the company provides ABE with around
77k ton of fertilizers on a monthly basis by the cost of production sacrificing the
profit margin of these sales. It is worth noting that the variance in prices between
the subsidized ton of urea and the exported ton has reached EGP1500/ton in
FY2017/2018.

ABUK Exports as a Redeemer

Since the government decree of allowing fertilizers companies to export 45% of
production, ABUK ‘s revenues has soared as the company became able to sell this
percentage of production at the international prices and gradually the exports
value and volumes has exceeded local sales. As of FY2018 prices local portion of
ABUK production has been sold at more than 30% discount compared to
International prices that gives the companies a great motive to break the ministry
decree and sell more than 45% of production at the free prices. ABUK’s exports
sales have begun to exceed local sales supported by the ministry decree and a
shift in the international prices of urea. We foresee a continuous increase in the
exports and an increase in the exported volume in the coming years.

Abu Qir’s Future Projects

Integrating the current plants with the new projects provides a wide variety of
products, which can be applied to the market based on the local markets’ needs
aiming at keeping up with agricultural reform programs. Production surplus is
exported to the international markets which aids in balancing the balance of trade
and supplying hard currency, which raises the value added from the company's
current products and maximizes the company’s profit margin. Abu Qir Fertilizer
Company is able to produce ammonia, urea, ammonium nitrate, liquid fertilizers
(UAN), Calcium Ammonium Nitrite (CAN), mono-ammonium phosphate (MAP)
and di-ammonium phosphate (DAP), as well as several other new granulated NPK
fertilizers. Such new products allow Abu Qir Fertilizers Company to horizontally
integrate and grow through entering new world markets, which achieves the
company’s desired leadership in the Arab fertilizers industry and to compete in
the international fertilizers markets.

Nitric & Ammonium Nitrate Plan)

The New Projects

 Nitric & Ammonium Nitrate Plant Revamp ( Under Study )

 Bulk Blend Mixed Fertilizer Plant Revamp ( Under Study )e (ZLD)
 Zero-Liquid Discharge (ZLD) Unit ( Trial Running )
 Methanol and Calcium Ammonium Nitrite ( Under Feasibility Study )
 Sea Water Desalination Project ( Referring a Consultant Office to Make a
Feasibility Study )