Yara International shares have further to rise, even after an 8% jump since the fertilizer group walked away from a $4bn US acquisition, analysts at UBS have said, citing stronger prospects for nitrogen prices.

The investment bank raised to "buy" from "neutral" its rating on Yara stock, terming it a "top play" on nitrogen and agriculture markets, as it revised its forecast for the Norwegian group's earnings up 30% to NOK28.92 a share.

The rise reflected largely better hopes for urea prices, which looked set to average $280 a tonne this year, $20 higher than the previous forecast, and $300 in 2011, up $50 from the last estimate.

Prices of the nutrient would be helped by rising costs of raw materials both in China - which makes its urea largely from coal, whose price has jumped 20% in the last six months - and Ukraine, which utilizes natural gas imported from Russia.

"Nitrogen prices will remain elevated," UBS said, a boon to Yara, which has bought its gas through lower-priced contracts.

K+S acquisition talk

Yara may also be poised to return cash through share buybacks, after its attempt to spend $4.1bn buying America's Terra Industries failed.

The bank said it did not see any "clear front runners" as deal targets, dismissing reports of a potential acquisition of K+S as having "low credibility".

Yara has long been speculated as interested in buying at least a stake in the German potash and salt group.

UBS's upgrade helped Yara shares add 3.0% to NOK262.00 in Oslo, maintaining a rally since the Terra deal was ditched last week, although leaving the stock well short of UBS's price target of NOK300, raised from NOK275.

Russia tie-up? 

The bank cited as a key risk to its forecast the potential for Ukraine's freshly -appointed, Moscow-leaning leader, Viktor Yanukovich, to lead the country into a customs union with Russia, which could lead to a drop of up to 30% in the price of gas supplies, so increasing the competitiveness of domestic producers.

Currently, nitrogen groups' natural gas costs are being subsidised to the tune of 33%, support which looked set to wane in the face of European Union objections and "the sheer cost of funding" the purchases.