18 July 2012 18:41 [Source: ICIS news]
LONDON (ICIS)--Leading fertilizer producer Yara International on Wednesday said upstream operations delivered their second “best ever” quarter thanks to a combination of high volumes and prices.
The company posted a 26% year on year jump in second-quarter net income to Norwegian kroner (NKr) 2.80bn ($461m, €375m) as it benefited from better margins and more fertilizer deliveries due to “tight balance in most agricultural markets”.
In a 36-page report, Yara said nitrate sales climbed 13% on the year-ago quarter, reflecting higher sales in Europe and Latin America, while global energy costs fell 7% year on year.
Second-quarter sales increased 15% year on year to NKr21.4bn, while earnings, before interest, tax, depreciation and amortisation (EBITDA) excluding special items surged 47% year on year to NKr5.20bn.
“Total urea sales decreased by 4% compared with last year, while sales of Yara-produced urea increased by 28%,” the company said. “Industrial volumes increased 2%, reflecting growth in technical ammonium nitrates and environmental products.”
Commenting on the strong results, Jørgen Ole Haslestad, president and CEO of the Oslo-based producer said they reflect “a strong nitrogen fertilizer market and a significant increase in sales of Yara-produced fertilizer, especially outside Europe”.
“Our value-added nitrate and NPK business continues to perform well, and we are also improving our commodity cost position with production growth in Pilbara and Qafco,” Haslestad continued, adding “with these growth initiatives, Yara’s gas and oil consumption outside Europe increases to almost 45% of the Yara total”.
The urea market was tight for most of the 13-week reporting period, with prices at $471/tonne up 21% from the previous quarter and 15% on a year-ago basis. Robust demand for spring application in the US followed low purchasing activity during the first half of the season, with granular premiums increasing sharply to “well above” normal levels.
The Scandinavian producer admitted delays to new production facilities in North Africa – in Algeria and Egypt – further constrained supplies during the quarter, though prices fell in June due to the northern hemisphere buying season and “key buyers” choosing to postpone purchasing.
Prilled urea prices averaged $471/tonne FOB (free on board) Yuzhny during the second-quarter, well above the year-ago average of $408/tonne FOB. Ammonia prices averaged $536/tonne FOB Yuzhny, up from $499/tonne FOB in the year-ago period.
The ammonia market improved during the quarter, with normal demand from the phosphate sector, though continued natural gas curtailments in Trinidad, further tightened the market.
Global demand for phosphate fertilizer improved quarter on quarter, allowing the industry outside China to run at full capacity, after a first quarter that featured curtailments. DAP prices improved from around US$500/tonne FOB US Gulf at the start of the quarter to US$550/tonne FOB at the end, but the price hike only "covers the increase in ammonia costs, implying stable phosphate values".
Phosphoric acid and phosphate rock prices have declined modestly, enabling positive margins for non-integrated phosphate producers. Average upgrading margins from rock to DAP were similar to the first quarter, but one third less than in second quarter last year.
On a regional basis, second-quarter nitrogen fertilizer deliveries in Western Europe edged up 2% year on year, with imports down 3%. Deliveries for the 2011/12 season slumped 10% from the same period of the 2010/2011 season, with imports down 19%.
“Substantial winter crop damage and a late spring negatively affected European fertilizer demand for the season,” Yara said. In the US, second quarter deliveries advanced 2% year on year, but deliveries are seen down 3% than a year ago. “Demand has been strong due to high planted acreage, favourable moisture conditions at the time of planting, and minimal pipeline stocks at the start of the season,” Yara noted.
In its outlook, the firm highlighted the current strength of agricultural markets and healthy farm margins around the world. “Nitrogen fertilizer industry deliveries for the 2011/12 season in Western Europe were 10% lower than a year earlier, as cold and dry spring planting conditions impacted overall consumption.
“However, Yara continued to take advantage of its ability to export premium products to overseas markets and ended the season with European stocks below a year earlier. Second-quarter nitrogen fertilizer deliveries in Europe were primarily for immediate consumption, but pre-buying incentives for the new season are stronger than a year ago, given the recent strengthening of grain prices.”
($1 = NKr6.08, €1 = NKr7.47)
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