Strengthened demand from farmers in the likes of Europe and the US is enabling nitrogen markets to ride out a jump in shipments from China – spurred by shipper getting round tax increases, Yara International said.

China's urea production rose 2.6m tonnes in the October-to-December quarter, compared with the same period of 2011, "helped by lower production costs, better feedstock availability and increased capacity".

The increased fuelled a jump of 170% to 4.3m tonnes in Chinese urea shipments – despite the start on November 1 of a period of high export taxes, of 77%, set to last until the start of July, when duties are expected to fall to 2%.

Indeed, China's urea exports more than doubled in November, to 1.45m tonnes, and topped 1.6m tonnes in December – the highest since at least 2010 for any month, even ones with low export taxes.

Balancing act

Nonetheless, the benchmark Black Sea urea price - while down some 14% from the year before, on a quarter-average basis, to $385 a tonne – had proved "stable, despite record Chinese supplies", Yara said.

"Strong grain prices continue to support global nitrogen demand, even absorbing a large increase in supply from China," said Jørgen Ole Haslestad, the Yara chief executive.

Indeed, global nitrogen demand "has strengthened significantly during the second half of 2012 and into 2013, balancing the strong increase in supply from China", the group said, adding that the high export tax looked set, belatedly, to shut off this source of supplies.

"Minimal exports are expected in the first half of 2013."

China's export volumes would also be depressed "in the event of a more strict enforcement of the November 1 tax increase, and by potentially reduced utilisation rates linked to increased air quality concerns".

Use of bonded warehouses, to which stock is delivered before tax deadlines, allows exporters to lessen the impact of China's seasonal hikes in export duties.

Recovering appetite

Demand growth has been seen in regions such as Western Europe, where nitrogen deliveries recovered from a slow third-quarter to jump 15%, year on year, in the October-to-December period.

US deliveries rose 7%, while urea volumes in Brazil rose 17%, ending a soft year on a strong note.

The market has also been tightened by shortages of gas – a major raw material for nitrogen plants which do not rely on coal – to plants in Egypt and Iran.

Egypt's exports during the November 2011-to-October 2012 period, at 3.0m tonnes, represented only 61% of potential capacity.

Volumes up, profits down

Yara's own nitrogen fertilizer deliveries soared 19.0% to 5.0m tonnes during the quarter, led by a 52% jump in urea sales, while strong European demand lifted nitrate volumes by 25%.

Weaker prices of many products, including urea, limited the rise in revenues to 1.1%, taking them to NOK21.0bn.

While earnings fell 36% to NOK2.17bn, depressed by higher raw material costs and higher tax payments, the drop had been expected by investors, who nudged Yara shares 0.5% lower to NOK295.50 by the close of trading in Oslo.