Qatar Fertiliser Company (Qafco) plans to launch niche production of environmentally friendly fertilisers to meet rising demand in Western markets, the firm's chief executive said on Thursday.

The plan underlines a trend in several of the Gulf economies: they are using their ample supplies of energy to widen their industrial bases and boost exports of non-energy goods such as chemicals.

Qatar's exports of chemicals and related products jumped 11.4 per cent to QR38.78 billion ($10.7 billion) last year, far outpacing the growth of the tiny country's natural gas and oil shipments, which were more than ten times larger but rose only about 2.5 per cent in value.

Qafco says it supplies around 15 per cent of the world's exports of urea and ammonia, which are used for fertilisers. It is owned 75 per cent by state petrochemical giant Industries Qatar (IQ) and 25 per cent by Norway-based Yara International.

"Given that our markets are mainly in the U.S. and Australia, there is a growing demand for environmentally friendly fertilisers, and this is something we are working on now and want to develop," Khalifa al-Sowaidi said in an interview for the Reuters Middle East Investment Summit.

The firm makes about 5.6 million tonnes of urea and 3.7 million tonnes of ammonia annually, and sales volumes have been increasing every year, Sowaidi said.

PROFIT PRESSURE

Qafco made a profit of about $1 billion last year - a sizeable contribution to the bottom line of parent IQ, which posted a 5 per cent drop in annual net profit to QR8.01 billion ($2.2 billion).

IQ blamed its profit drop on falling global fertiliser prices, as well as higher operating costs for fertiliser production because of increases in natural gas rates under a supply agreement with Qatar Petroleum. Sowaidi said he believed the urea slump was now ending.

"For urea I think it just came out of its biggest dip and we will start to see an improvement in the third quarter this year - compared to last year, I think our (financial) performance will be almost the same."

Cees van Amelsfoort, Qafco's chief financial officer, said that to maintain its profits, Qafco had opted this year to lower urea production at one of its facilities in order to sell higher volumes of ammonia.

"This year the price of urea is lower and the price of ammonia has shot up, so we are trying to be more flexible in terms of selling more ammonia and we have diminished production at one of the urea plants."

Unstable market conditions make developing niche products more important.

"Niche products that are environmentally friendly and can increase the production of agricultural products is something we think can add value to us, provided that we can make a premium on these products," Sowaidi said.

Qafco recently explored the possibility of taking over plants in Egypt, Gabon and the US, but deals did not materialise. "We didn't end up taking any of these projects because every country carries its risks," Sowaidi said, declining to give further details.

As a result, for the time being Qafco has no plans for foreign or domestic expansion.

"I think it's a good strategy to wait three to four years so you can get the yield of these projects and then start expansion again. But so far, for our projects we managed to recover them in around two to two-and-a-half years' time," Sowaidi said. - Reuters