Norway's Yara ponders plant closures amid lower prices, margins

12 February 2014 16:44  [Source: ICIS news]

LONDON (ICIS)--Norwegian fertilizer giant Yara International said on Wednesday that it is considering capacity curtailments at some plants because of softening nutrient prices and a drive to boost cost efficiencies.

The Oslo-based firm posted a sharp fall in fourth quarter net income and revealed that lower prices and margins saw some of its commodity nitrogen plants come "close to curtailment in the fourth quarter".

"Although prices have improved in early 2014, Yara will continue to evaluate the need for temporary or permanent capacity curtailments on an on-going basis, linked to both market price developments and investment decisions," the company said, adding, "Improving cost efficiency throughout the business is another key focus area for Yara in 2014," it added.

"Eastern European nitrogen curtailments have been partially reversed as urea prices have increased, but it is unclear to what extent recently announced gas price reductions in the Ukraine will benefit local nitrogen producers," Yara highlighted.

On a more positive note, the Scandinavian company said it "entered 2014 with a strong European order book, implying a first quarter nitrate price time lag of approximately two months".

"Nitrogen fertilizer industry deliveries in Western Europe have recovered from a slow start to the new season, with fourth-quarter deliveries 8% higher than a year ago and season-to-date deliveries in line with a year ago," Yara continued.

"A continued strong farm margin situation and limited pipeline stocks at the start of the 2013/14 season point to healthy European nitrogen demand also for the remainder of the season.

"Yara's value-added nitrate and nitrogen, phosphorus, potassium (NPK) products continue to deliver strong and stable volumes and margins, which are relatively less exposed to swings in commodity nitrogen, phosphate and potash markets," it added.

Earlier on Wednesday, Yara revealed its fourth-quarter 2013 net income plummeted to Norwegian kroner (NKr) 59m (€7m) compared to NKr2.15bn during the final quarter of 2012, on the back of weak margins for commodity fertilizers.

Revenues were broadly steady year on year at NKr20.6bn compared to 21bn in the fourth quarter of 2012, while earnings before interest, taxes, depreciation and amortisation (EBITDA) was down 49% year on year at NKr1.84bn, the company added.

Yara CEO, Jorgen Ole Haslestad, said: "Yara's fourth-quarter results reflect weaker commodity fertilizer markets.

"On the positive side, we report strong production volumes and deliveries, and the industrial segment delivers higher sales and margins."

Yara's average realised urea prices were 26% lower than a year ago, while realised nitrate and nitrogen potassium phosphate (NPK) compound prices decreased by 15% and 9% respectively.

The company said NPK blend margins in Brazil were also significantly higher than last year, with global Yara fertilizer deliveries up 22% year-on-year thanks to the inclusion of recent acquisition Bunge's volumes in Brazil.

Focusing on urea, Yara noted that the highest cost producers in countries such as China and the Ukraine needed to curtail production to balance the market during the quarter. China exported 2.7m tonnes during the 13-week period versus 4.3m tonnes in the same quarter last year.

"The lower global urea price level compared to last year is caused by lower export prices from China, due to lower coal prices, improved availability of coal and natural gas, as well as a lower export tax," Yara said.

"The average price at $314/tonne FOB (free on board) Black Sea 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. Urea prices started to increase in December, reflecting lagging US imports and a higher Chinese urea export tax from November."

Turning to phosphates, Yara said demand continued to be impacted by lower demand from India because of high distribution stocks and delays in subsidy payments. In addition, Indian buyers are reluctant to step into the market to secure cargoes giving the downward price trend.

"Due to similar dynamics as in the urea market, with deferred buying forcing stronger competition for product ahead of the spring in the Northern Hemisphere, phosphate prices have rebounded sharply since November," Yara disclosed.

"Lower diammonium phosphate (DAP) prices resulted in lower prices for phosphate rock and phosphoric acid as well. Considering also lower prices of the other two main raw materials, ammonia and sulphur, upgrading margins from rock to DAP have dropped modestly compared to the previous quarter, but were slightly better than same quarter last year," the company added.

(€1 = NKr8.35)


By: Richard Ewing
+44 208 652 3214



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