AnalysisYara expects bright Q4 on strong global fertilizer demand

19 October 2012 13:51  [Source: ICIS news]

By Richard Ewing 

LONDON (ICIS)--Norway’s Yara International ASA expects a strong fourth-quarter performance as higher crop prices and improved margins increase global demand for the key nitrogen fertilizers of urea and ammonia, the company said on Friday.

“Global grain production is unable to meet underlying demand growth due to adverse weather conditions in key grain producing regions, most notably in the US,” it said. “Improved margins for most arable crops are supporting continued growth in fertilizer demand.”

In a forecast accompanying its third-quarter results, the Oslo-based firm described the global farm margin outlooks and incentives for fertilizer application as “strong” and highlighted increasing rises in food prices amid “tightening supply in several regions, especially North America”.

“Following just-in-time buying patterns and limited supply growth in the 2011/12 season, global nitrogen fertilizer pipeline stocks at the start of the 2012/13 season were lower than a year ago,” Yara stated. “Pre-buying incentives for the new season are significantly stronger than a year ago, with higher grain prices and lower nitrogen fertilizer prices.

“The pre-buying phase of the European 2012/13 season has now started, with third-quarter nitrogen fertilizer industry deliveries in line with last year.”

Yara added that its fourth-quarter energy costs are forecast to be Norwegian kroner (NKr) 150m ($26.5m) higher than the year-ago period, with first-quarter 2013 energy expenses expected to jump by NKr175m from the first-quarter of 2011.

The producer confirmed the second ammonia line at Libyan Norwegian Fertilizer Company (Lifeco), in which it holds a 50% stake, has restarted and urea production will commence at the joint venture's Marsa el Brega plant during the current quarter.

Due to the North African country's civil war, plant operations were suspended in February 2011, although the first ammonia line restarted a few weeks ago, Yara said. The two lines generate a combined 2,000 tonnes of ammonia a day, with the output usually exported to Europe.

As a result of the disruption to plant operations – which were not recoverable from insurance providers – Yara’s said its share of Lifeco’s NKr478m loss for January-September 2012 totalled NKr239m.

Earlier on Friday, Yara announced a 26.6% slide in third-quarter net profit after non-controlling interests to Norwegian kroner (NKr) 2.62bn ($465m), partly on lower product prices.

Quarterly sales slipped 1.7% year on year to NKr20.8bn, while earnings before interest, tax, depreciation and amortisation (EBITDA) slumped 24.6 % to NKR4.11bn.

Yara commented: “Global Yara fertilizer deliveries were up 4% on third-quarter 2011. Urea sales increased 13%, mainly reflecting higher sales in Brazil and North America. NPK [nitrogen phosphorous potassium] sales increased 5%, driven by higher sales in North Europe. Nitrate sales decreased by 6% compared with third-quarter last year.

“Lower European nitrate deliveries were partly offset by strong nitrate sales growth in Brazil. Industrial volumes were in line with third-quarter last year, with growth in environmental products offset by declining chemical sales.

“Measured in USD [US dollars], average realised urea prices decreased 7%, nitrate prices decreased 9% and NPK prices decreased 6%. Both fertilizer and industrial margins declined compared with last year.”

In a detailed breakdown of its performance by product, Yara described global demand for urea as “positive”, with China importing more product year-on-year but Brazil and Argentina importing less urea and buyers in Europe remaining “cautious”.

Turning to ammonia, Yara underlined the current October benchmark of $650/tonne FOB (free on board) at Yuzhny as evidence of the robust demand and tight availability that has driven up Black Sea ammonia prices $50/tonne in the past two months.

“Demand from all segments; phosphates, industrial and US direct application, has been supportive,” it explained. “However, supply issues have contributed significantly to a tight market, with continued natural gas curtailments in Trinidad and reduced exports from Iran.”

Greater availability from Qafco’s ammonia plants V and VI will improve supply from the current quarter, Yara confirmed, although the curent turnaround at its Burrup facility in Australia will not be completed until November rather than this month.

Focusing on phosphates, Yara described prices as “stable” for the third-quarter. “As for urea, a lower export tax regime for DAP and other phosphate products from China has resulted in lower prices than last year,” it said.

“In addition, sharply higher prices for Indian farmers due to subsidy reduction negatively impact phosphate use. As India normally represents roughly half of global DAP imports, reduced Indian demand is strongly felt in the phosphate market.

Phosphoric acid and phosphate rock prices have remained stable compared with second quarter, and were roughly 10% lower than third-quarter last year. In addition, average upgrading margins from rock to DAP were halved compared with last year, also removing value from the phosphate value chain.”

Commenting on the third-quarter results, Jorgen Ole Haslestad, president and CEO of Yara, said: “I’m particularly pleased with our production growth this quarter, due to both higher regularity in Yara plants and increased capacity in Qatar.”

($1 = NKr5.64)

By: Richard Ewing
+44 208 652 3214

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