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Urea price momentum likely to continue, says report

RIYADH, September 15, 2021

Urea prices have moved up significantly this month, reaching multi-year highs with multiple drivers at play which are likely to sustain in the medium term, pertaining to supply, demand and cost push factors, a report said.

Supply constraints are due to tight supply amid disruptions to US Gulf Coast due to Hurricane Ida while China is focussing lesser on exports for boosting domestic supply, said Al Rajhi Capital, a leading financial services provider in Saudi Arabia, in its report.

In terms of demand, India is likely to announce a new tender in the coming weeks, pushing Urea prices higher while the pandemic has resulted in structurally higher food demand, as reflected in rising global food prices (+40% over the past 15 months; source: Food and Agriculture Organization).

As for the cost push factor, gas prices and coal prices are rising sharply, driving cost and in turn Urea pricing.

There  has been a 30% rise in urea prices (US Gulf NOLA Urea) in September so far, but the share price of  Sabic Agri-Nutrients is up only by 10%, the report said.

“Given the bullish market outlook, we revise our Urea price assumptions and thereby revise our forward-looking estimates,” Al Rajhi Capital added.

“Overall, we expect the company to post strong earnings in 2021 (mainly in H2 2021), despite a couple of planned shutdowns. This would result in higher cash flow generation, implying a possibility of higher dividend pay-out. Post revision in our Urea price assumptions and better-than-expected efficiencies improvement in Q2, we raise our TP to SR160 ($42.6)/share (SR115/share earlier) and rating to Overweight (earlier Neutral) on the stock.” – TradeArabia News Service




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