A reduction in Chinese export taxes may stymie the revival in the global urea market which has helped revive profitability at nitrogen fertilizer groups, Yara International warned.

The world's biggest nitrogen group said that prices of the nutrient has recovered "substantially" from a spring low of $220 a tonne, following a doubling in imports by Brazil and India during April and May.

"The new agricultural year in India has started strongly, with [industry-wide] urea sales during April and May up 21% on the same period last year," Yara said.

And Western producers had the market largely to themselves, with Chinese exports limited to about 200,000 tonnes, curbed by the steep export taxes which Beijing applies at that time of year.

"Global urea prices have significantly since the late second quarter (April-to-June)," Yara said.

Chinese stockpiling 

However, the tax rate on Chinese urea exports had fallen to 7% as of July 1, where it is set to remain for much of the year, opening up the potential for a jump in international supplies.

"Further price increase may be capped by the availability of Chinese exports," Yara said.

"Considerable volumes of urea are stored at ports in China, for shipment when the export tax drops."

In another area of farm supplies, agrichemicals, abundant Chinese exports have spelled significant problems, with cheap supplies of glyphosate prompting a rash of profit warnings from giants such as Monsanto and Nufarm.

Coal and reminbi effects 

Yara expressed hope that Western urea producers would avoid a similar fate, with China viewed as likely to be reluctant to sell urea below $260 a tonne.

Higher prices of coal, which many Chinese fertilizer groups use for manufacturing energy-intensive nitrogen products, were likely to prompt sellers to be increasingly demanding over export prices.

A rise in the reminibi, potentially on the cards since Beijing signalled looser foreign exchange controls, "may further increase the price require to attract Chinese urea exports", Yara said.

The comments come two days after Goldman Sachs analysts forecast that higher gas prices being planned in Ukraine may hit the competitiveness of the country's important nitrogen groups.

The proposed increase in energy costs to more than $9 MMBtu from an aver of about $6.60 per MMBtu in the April-to-June period would raise the price of urea delivered from the Ukraine to the US by some 22% to $300 per tonne.

Credit Suisse analysts on Friday, restating an "outperform" rating on Yara shares, said that "urea prices may give away some of the recent gains in the slow take-up season in September/October."