AnalysisNorway's Yara strong Q3 results underline robust demand

21 October 2011 17:00  [Source: ICIS news]

By Karen Thomas

LONDON (ICIS)--Yara International’s third-quarter trading statements on Friday show a very healthy 85% growth in net profit after controlling interests, and underline unexpectedly strong demand.

Improved margins – especially on nitrate fertilizers – and the completed expansion of the Sluiskil urea plant in the Netherlands are also highlighted as contributing factors to the Norwegian company’s strong performance, compared to last year.

But it is the Asian and Latin American markets in particular which stand out as the drivers behind Yara’s robust results.

Although India was expected to be active in the fertilizer markets, the volumes of urea purchased to cover what is expected to be a strong rabi crop-planting season have largely exceeded expectations.

India’s Mineral and Metals Trading Corporation has booked 1.53m tonnes under its 5 October tender – far surpassing the original import range of 500,000–1m tonnes.

Domestic demand for fertilizer has pushed up local prices and, despite a weakening Indian rupee, farmers are said to be scrambling for product in preparation for planting a bumper crop.

Sales growth has outstripped increases in production, resulting in heightened tender activity for multiple fertilizers including urea, diammonium phosphate (DAP) and nitrogen phosphate (NP) blends at the end of the third quarter and beginning of the fourth.

This record demand has kept international prices buoyant, and Yara reports that the average Black Sea urea price has leapt 73% over the third quarter 2010 price.

The benchmark Yuzhny price is currently in a range of $493–500/tonne (€355–360/tonne) FOB (free on board), compared to $330–350/tonne this time last year.

Continued Indian demand and activity through to November – when the rabi season begins – lends credibility to Yara’s forecast that these prices will stay afloat through the fourth quarter.

Brazilian imports of urea have also boosted Yara’s trading performance, although the market has quietened considerably since the beginning of October.

Buyers are sitting on comfortable levels of inventory in between seasons, and observing unhurriedly from the sidelines.

There are few pricing offers that have proved attractive beyond more than sporadic spot sales, and the Latin American market is unlikely to figure prominently in the company’s fourth-quarter results.

It is also worth noting that global Yara fertilizer deliveries were down by 12% from the same period last year, with decreases seen in all main product groups.

The company attributes the 19% decline in its total urea sales from last year to the suspension of production at the Lifeco plant in Libya, because of the civil war.

Production is expected to remain down for the remainder of this year, although this could change with news of Muammar Gaddafi’s death and anticipation that the National Transition Council will swiftly take power.

Yet Europe is also casting a shadow over the potential uptake of Yara product in the coming months.

Confident predictions posted in Yara’s second-quarter results – set against the momentum of the new European nitrate season – have not fully materialised in the ensuing quarter.

Imports into western Europe have slowed against well-stocked warehouses, and are reported as down 13% by the company.

Noting the current European financial worries, Jorgen Ole Haslestad, president and CEO of Yara, nevertheless remained optimistic for an upward trend in the fourth quarter.

He said: “Despite macroeconomic concerns and challenging harvest conditions, on a comparable basis European sales were only 10% below last year.

“Farm margins remain healthy at today's grain prices, and with limited stocks in the fertilizer value chain this indicates a catch-up in deliveries is likely during the remainder of the season.”

But, given that discussions on tackling Spain’s credit rating cut and Greece’s debts by European Union leaders have not yet taken place, market sentiment suggests that farmers will perhaps buy only what they need, and purchase volumes will be down on last year.

Despite missing out on the acquisition of the BASF fertilizer assets to Russia’s EuroChem earlier this month, Yara has not been deterred from pursuing expansion projects.

The firm can perhaps take confidence in the announcement that Qatar Fertilizer Company’s (QAFCO’s) QAFCO 5 expansion is set for start up by the end of the fourth quarter, and will have an enhanced total capacity of 1.5m tonnes of ammonia and 1.35m tonnes of urea.

A further 1.35m tonnes of urea will be produced when QAFCO 6 comes on line in a year’s time – Yara has 25% ownership in QAFCO.

Set against the Chinese closing the low export tax window for urea on 1 November, fertilizer product is likely to become tight, and Yara has the opportunity to take advantage of its additional availability in a demand-driven market

By: Karen Thomas
+44 20 8652 3214

For more on fertilizers visit ICIS pricing fertilizers
For more on Yara International visit ICIS company intelligence





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