Yara flags industry boost from rising grain prices

18th Jul 2012, by Agrimoney
Yara International flagged the boost to nutrient groups from tight crop markets as it unveiled as jump of nearly one-half in underlying earnings, becoming the third fertilizer group within 24 hours to unveil data ahead of forecasts.

The Norwegian group, the world's biggest nitrogen fertilizer company, highlighted that "tight balances in most agricultural markets" were supporting "increased use of fertilizers", as farmers reacted to "strong price incentives" to boost production.

Chicago corn prices have soared by more than 50% from a mid-June low, thanks to the dent to US production hopes from dry weather, while wheat values have risen more than 40%.

While, in the nitrogen market, buyers remained reluctant to build up inventories, Yara noted that "pre-buying incentives for the new season are stronger than a year ago, given the recent strengthening of grain prices".

'Delays to new projects'

As an extra boost to prospects for makers of nitrogen fertilizers, fears for a rash of new industry production capacity coming on line this year have eased.

Sector analysis group Fertecon has cut to some 5m tonnes - from a forecast in January of nearly 6m tones and in October of 7.5m tonnes – its estimate of fresh openings in urea capacity.

"Urea capacity additions in 2012 have been limited by delays to new projects in Egypt and Algeria in particular," Yara said.

"Delays and uncertainty linked to projects, including those close to completion, remains significant."

Furthermore, while China has entered a window of low-tax urea exports, which lasts until October, global prices need to stay above a relatively high $400 a tonne or so for these supplies to prove competitive.

Supply constraints

The project hold-ups had contributed to a rise of 47% to NOK5.20bn ($850m) in Yara's earnings before interest, tax, depreciation and amortisation (ebitda) for the April-to-June quarter.

"Anticipated new supply from Algeria and Egypt did not materialise during the quarter due to delays, and together with the absence of exports from China… resulted in a continued supply-constrained market balance," the group said.

The squeeze had been particularly notable in North America, where urea prices "to some extent disconnected from pricing elsewhere" thanks to farmers' preference only for granular supplies, rather than prills.

The trend helped Yara offset a flat European market, in tonnage terms, by increasing sales outside of the region by 10.3% to 2.99m tonnes.

Sector performance

Yara's ebitda beat the NOK4.47bn that analysts had expected, although its sales up 15.0% at NOK21.4bn, fell a little short of forecasts.

On Tuesday, US-based phosphate and potash giant Mosaic also unveiled quarterly earnings ahead of market estimates, if declining year on year, while Intrepid Potash announced sales results which beat guidance.

Yara shares stood 1.8% higher at NPOK285.50 in morning deals in Oslo.