Orascom Construction Predicts Growth on Fertilizer Demand

Orascom Construction Industries, the Egyptian bidder for BASF SE's fertilizer unit, predicted that crop nutrient sales will continue to grow after it reported second-quarter revenue that beat analysts' expectations.

Sales rose 9.8 percent to $1.47 billion in the period, the Cairo-based company said today, exceeding the median estimate for revenue of $1.29 billion in a Bloomberg survey of five analysts.

"Fertilizers will be quite strong for the next 12 months on the back of high corn and wheat prices," Nassef Sawiris, chairman and chief executive officer, said yesterday in a telephone interview before the results were released.

Orascom is expanding its fertilizer business amid industry consolidation as rising food prices spur farmers to plant more crops. The strongest growth in margins came from Egyptian subsidiaries that make nutrients, investment bank EFG-Hermes Holding SAE said today in a note to clients.

Orascom is bidding for the fertilizer unit of BASF, the world's biggest chemical producer, and is waiting to hear from the German company, Sawiris said. "We are like what we were last quarter, which is no decision," he said.

Net income advanced 15 percent to $165.2 million, restrained by an increase in the corporate tax rate in Egypt, Orascom said. The median of analysts' estimates was for profit of $205 million.

Tax Adjustments

The tax rate rose to 25 percent from 20 percent, and the company made adjustments totaling about $23 million, including $17 million in "deferred tax adjustments related to current and previous periods," it said.

Orascom, which intends to reorganize its construction and fertilizer businesses into separate entities, said it will pay a cash dividend of $1.10 per share in the fourth quarter.

Orascom's fertilizer group sold about 1.17 million tons of nitrogen-based products during the quarter, the company said. Ammonia and calcium ammonium nitrate prices have remained firm throughout the year on "robust demand" from North America and Europe, it said.

OCI Nitrogen's expansion of a calcium ammonium nitrate line in the Netherlands is "on track" for completion in early 2012 and will add about 300,000 tons of capacity, the company said. The unit, previously called Royal DSM, plans to restart a 30,000-ton melamine plant in Geleen, which has been shut since 2008, Orascom said.

Sorfert Algeria, scheduled to enter commercial production before the end of the year, will add annual output of 1.2 million tons of urea and 0.8 million tons of ammonia.

Construction Business

In the U.S., Pandora Methanol LLC is expected to start ammonia production in the fourth quarter and methanol output in the second quarter of 2012, it said. Pandora will add 250,000 tons of ammonia and 750,000 tons of methanol capacity, according to the statement.

"Our organic growth is coming to an end," Sawiris said, referring to the fertilizer business. "We have done most of the capital spending and in the next six months we will add 2.75 million tons of production," an increase of about 60 percent.

The construction business added $1 billion in new awards in the second quarter, with 80 percent outside of Egypt.