27 April 2012 13:29 [Source: ICIS news]
By Karen Thomas
LONDON (ICIS)--The 4.5% year-on-year rise in net profit recorded in Yara International’s 2012 first-quarter trading results is attributed to consistent healthy margins and the return of fertilizer sales to normal volumes, the Norway-based producer said on Friday.
The increase of Yara’s net profit to Norwegian kroner (NKr) 3.02bn ($527m, €401m) in the first quarter lends support to the fertilizer major’s assertions, particularly given the downward pressure exerted by lacklustre fertilizer markets during the first two months of this year.
Yet, despite an uptick in demand seen late in the first quarter that has trended fertilizer prices upwards, Jorgen Ole Haslestad, president and CEO of Yara, sounded a note of caution that will resonate with major suppliers.
“Yara reports strong first-quarter results, as margins remained healthy and European deliveries picked up,” he said, adding: “As expected, northern hemisphere fertilizer demand is strengthening following a slow first half of the buying season. This recovery is needed to avoid a further decline in global grain stocks.”
Citing reduced nitrate fertilizer premiums and increased production costs, Yara recorded a 7.6% year-on-year slip in earnings to NKr3.94bn before interest, tax, depreciation and amortisation (EBITDA) during the first quarter.
Prices plunged at the beginning of the year and markets were at risk of stagnating during a supply-demand stand off.
In particular, fertilizer demand slumped in Europe and was slow to emerge in Latin America and the ?xml:namespace>
Interest to buy was insipid and sales scant against ongoing concerns over the fiscal stability of the eurozone. The uncertainty over the future existence of the euro kept European importers and farmers on the market sidelines and buying was hand-to-mouth.
Despite expectations of an early spring application in mid February due to mild winter temperatures, which would have pushed demand and moved prices up, a severe cold weather snap further delayed fertilizer importing and farmer buying.
Yara notes first-quarter nitrogen fertilizer deliveries were down 5% in western Europe compared with the same period last year and imports dropped by 8%.
Nitrate prices were lower relative to global urea prices a year ago, prompting importers and end-users to consider switching to cheaper nitrogen sources.
Sensing the sentiment shift to the buy-side, importers held off purchasing until they were confident that the pricing floor had been reached. Phosphate fertilizer producers retreated to first-quarter production cuts and traders baulked at dropping prices to encourage sales.
Together with all the key players, Yara looked to the strong outlook for supply and demand fundamentals, as well as firm grain prices, as the triggers that would ignite trading and lift fertilizer prices.
European buyers came back to the nitrogen market in March and granular urea prices soared on the
US urea barge prices surged against lack of product, increasing by $200/short ton (€152/short ton) FOB (free on board) Nola across March, with deals concluded at $725/short ton FOB Nola at the end of the month.
Going forward into the second quarter, relief for Yara and the major fertilizer suppliers is on the cards given the strength of demand emerging from key markets such as
Around 2.4m tonnes of DAP was exported to India during the 2011 low export tax window and although the availability and prices of fertilizers have not yet been agreed, Chinese supply will impact on the global supply-demand balance.
($1 = NKr5.73 / $1 = €0.76)
For more information on phosphates and other fertilizers, please visit icis pricing fertilizers
Follow Karen Thomas on Twitter
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|