UAE fertiliser giant resorts to trucks to shift product out of Gulf
Abu Dhabi’s Fertiglobe switches to land cargo to avoid Strait of Hormuz as soaring prices allow it to shoulder extra costs
One of the world’s leading fertiliser companies is trucking cargoes out of the Gulf as surging prices outweigh the steep costs of bypassing the Strait of Hormuz, which remains virtually blocked two months after the US and Israel launched their war on Iran.
Ahmed El-Hoshy, chief executive of Abu Dhabi-listed Fertiglobe, said the state-backed group was running its plants in the United Arab Emirates at full capacity and transporting fertiliser by land to ports outside the strait, bypassing the chokepoint before loading it on to ships.
The workaround involved “double handling” of cargo and higher transport costs, he added, but remained economically viable because of the soaring price.
“As long as we can get through the logistical bottlenecks, the pricing more than compensates,” El-Hoshy said. “The market is screaming for product.”
The virtual closure of the Strait of Hormuz, which before the conflict handled up to a third of global nitrogen fertiliser exports, has squeezed supply, while reduced gas flows have curtailed production elsewhere.
Prices of urea, the world’s most widely used nitrogen fertiliser, have almost doubled since the start of the war, according to CRU, a research and data group focused on commodities.
The measures adopted by Fertiglobe, which is majority owned by Abu Dhabi’s state energy group Adnoc, underline how companies are improvising to cope with disruption to one of the world’s most important shipping routes.
Saudi Aramco, the world’s biggest oil producer, has rerouted some of its output via pipeline to the Red Sea so it can be exported without having to transit the Strait of Hormuz, while some Middle Eastern retailers are resorting to air freight to keep their shelves stocked.
While production has remained strong, logistics has become the main constraint, according to El-Hoshy. With shipments moving “nowhere close” to normal levels and some sales deferred, the company is closely monitoring its storage capacity.
“We have storage on site, we have storage at other ports that are outside of the Strait of Hormuz, we have floating storage,” El-Hoshy said, adding that Fertiglobe had “more than one” cargo vessel loaded and waiting in the water, ready to sail once routes reopen.
He said Fertiglobe was “looking several weeks ahead” and, for now, saw no impediment to running plants at full rates, as storage and alternative export routes were still absorbing output and giving it “a bit more of a runway”.
But he warned that this buffer would shrink if bottlenecks persisted.
The company’s geographically diversified footprint has helped cushion the impact of the crisis. Only about 30-35 per cent of its production is based in the UAE, with the remainder in north Africa, including Egypt and Algeria, a structure that was proving advantageous compared with Gulf-only producers, El-Hoshy said.
Fertiglobe last week reported strong first-quarter results, with earnings boosted by higher prices and improved operational performance. Adjusted earnings before interest, tax, depreciation and amortisation were up 31 per cent on a year earlier to $342mn, while adjusted net profit rose 98 per cent to $145mn.
Roughly two-thirds of the first‑quarter uplift came before the recent surge in prices, according to El-Hoshy, while some of the gains from higher prices may only be reflected in coming quarters, as sales are deferred and pricing effects flow through with a lag. “You don’t get the full benefit immediately,” he said.
The company is also benefiting from a reduction in its UAE tax rate from a flat rate of 25 per cent to 15 per cent on the first $100mn of profits and 20 per cent above that, bringing it more in line with regional peers and supporting cash generation.
However, El-Hoshy cautioned that the current dynamics may not be sustainable if disruption persisted, saying prolonged disruption could have broader knock-on effects across supply chains.
He also noted that while companies such as Fertiglobe were benefiting from high prices, the same dynamics were “highly concerning” for farmers and could ultimately feed through into higher food prices if disruption persisted.