Urea market is expected to remain oversupplied; and the supply growth is likely to exceed demand growth in 2017, before moderating in 2018.
An addition of 12 metric tonne (MT) of new urea capacity is expected in 2017-18 which is likely to offset demand growth of 6MT, according to market analysts.
“We expect capacity additions to decline to 6MT in 2019-20 in line with demand growth”, SICO Investment Bank analysts said in a performance analysis of Industries Qatar (IQ).
Industries Qatar announced its financial results on Thursday, reporting a full-year profit of QR3bn for 2016. The analysts noted the earnings of IQ are impacted by price weakness across all segments, including fertilizers, petrochemicals and steel. The analysis released ahead of the announcement of IQ's financial results, said profitability in the fertilizer segment should remain under pressure due to lower prices.
The analysts said IQ’s petrochemical segment is unlikely to benefit in low oil regimes as it’s feedback is gas-based, implying no relief from lower oil prices.
The investment case for Industries Qatar in 2017-18 will be driven by price recovery across all segments, steel, fertilizers and petrochemicals. SICO revised up its urea price assumption for 2017 to $250/tonne from $230/tonne earlier.
On the GCC supply-demand outlook for petrochemicals, SICO said : “Petrochemical spreads in 2017 should sustain current levels as we expect supply growth to be modest 1.8 percent led by ramp up of three greenfiled crackers which started in 2016”.
SICO expects supply growth to peak in 2018 at 4.8 percent, causing a softening of spreads. Urea market will continue to remain oversupplied, and the market analysts expect supply growth to exceed demand growth in 2017 before moderating in 2018.
The SICO analysts said clarity on feedstock price regime for next two years is a positive. For, Saudi Arabia’s government will not raise gas feedstock prices until 2019, to protect the petrochemical industry and enable it to adapt to the new market conditions.
