EUR 89.58 For Business Accounts Only

2019 MENA industrials outlook | Positive on urea; Tough year for Egypt building materials; Stability in Qatar utilities

A promising year for Egypt fertilisers on positive urea price outlook, Qatari utilities on stability and growth. A tightening global supply/demand balance, driven by a mix of lower exports from China and healthy demand in North America, India, and Brazil, bodes well for urea prices and our Egypt fertilisers coverage. Meanwhile, Qatar’s power and desalinated water sectors are expected to witness demand stability and improving supply in 2019, thanks to the mega plant, Umm El Houl, coming fully online early 2019e, contributing 30% of Qatar’s desalinated water production and 25% of its power production.

Egypt building materials to remain pressured by oversupply, global headwinds. We anticipate the Egyptian cement industry to face worsening supply/demand imbalance in 2019, the first full year in which the impact of the mega 13mn tpa greenfield capacity addition takes effect. Egypt’s steel industry is highly pressured, amid tough global dynamics. The risk of a global economic slowdown can take a heavy toll on the industry. We expect protectionism extension in 2019, but this is unlikely to support local steel margins, as current prices already reflect the import price parity with protectionism in place.

Egypt energy outlook: Temporary self-sufficiency of gas; further energy reforms, oil investments. In Oct-18, Egypt reached self-sufficiency of natural gas, thanks to improving supply. We believe this is temporary, as long-term demand growth and supply depletion should produce a long-term deficit, meaning stable natural gas prices for industrial users in 2019. We expect LNG export resumption in 2019, if any, to be a way of compensating IOCs, and not because of better supply/demand dynamics. We anticipate another round of fuel and electricity price hikes mid-19, in the vicinity of 20-30%, and look for more public and private investments in the oil and gas sector in 2019, which could yield more discoveries.

EKH and Nakilat our top picks among industrials. EKH’s net income expected to double over 2019-21. This is driven by expansions in the upstream and downstream energy operations, rising chemical exports from Sprea Misr, higher urea prices for Alexfert, with potential gas reserves at ONS being a likely upside. Meanwhile, Nakilat in Qatar offers stability, continuous deleveraging, and an attractive yield (5.9% in 2019e). We expect KIMA 2 to start commercial operations in 4Q18/19. It was reported that KIMA 2 would source gas at USD3.0/mmBtu vs. our base case price of USD4.50/mmBtu. This was officially denied, but drove an unjustified rally, hence our only Underweight call within our industrials space.