18 October 2013 16:31 [Source: ICIS news]
LONDON (ICIS)--Despite the clouds that hung over Yara International on Friday following a sharp slide in third-quarter net income amid lower urea and ammonia prices, the Norwegian fertilizer giant believes the market outlook is bright and "incentives for fertilizer application remain strong".
The Oslo-headquartered company said "global nitrogen demand was strong during the third quarter, but urea prices declined primarily due to a continued strong supply increase from China, during the northern hemisphere low season for fertilizer consumption".
"Increased [urea] supply from China turned the market supply driven, as the highest cost producers needed to curtail production to balance the market," Yara explained.
"For July and August, China exported 2.8 million tonnes, up from one million tonnes in the same period last year. The increase in exports is caused by increased capacity, lower coal prices, and improved availability of coal and natural gas, as well as a lower export tax.
"The average price at $308/tonne (€228/tonne) FOB (free on board) Yuzhny has resulted in significant production curtailments in Eastern Europe, and it also implies an export price level from China unattractive for the highest cost producers there," the company added.
Yara continued: "Primarily due to the weak phosphate market, the ammonia market has also turned supply driven, making production curtailments necessary to balance the market. The curtailments are mainly taking place in Eastern Europe [Ukraine].
"The average price for the quarter, $430/tonne FOB Yuzhny, is unattractive for the highest cost producers. Upgrading margins from ammonia to urea were relatively low, which is normal under supply driven market conditions.
"Phosphate fertilizer demand continued to be impacted by lower demand from India, the by far largest phosphate importer globally. Subsidy reduction resulting in sharply higher prices for Indian farmers negatively impact phosphate use," it added.
Yara said the gloomy situation in India has been compounded by high distribution stocks and weakening of the local currency that has created uncertainty for importers."Third-quarter is the peak for Indian diammonium phosphate (DAP) imports, making these developments particularly strongly felt during this time. Although there are production curtailments, these have not been sufficient to avoid continued drop in prices through the quarter. Low import demand in India has also contributed to lower prices for potash," Yara said.
Revenue for the period was broadly stable year on year at Nkr20.6bn compared with Nkr20.8bn during the same period in 2012.
"Yara reports a strong third quarter despite weaker commodity fertilizer markets," said Jorgen Ole Haslestad, president and chief executive officer of Yara.
"Our deliveries were strongest outside Europe, including Brazil where we completed the acquisition of Bunge's fertilizer business and are well underway with the integration effort. Our margins were lower overall, while value-added premiums remained robust," he added.
($1 = €0.74, $1 = Nkr5.93, €1 = Nkr8.11)
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