Yara International has stuck by forecasts for a revival in the fertilizer market despite a 90% slump in underlying earnings in the second quarter, driven by declines in European and US sales.

The Norwegian fertilizer giant said that low global grain inventories may be poised to decline even further, given the drop of 5% in nutrient use over the last year, when lower crop prices have prompted farmers to reduce applications.

"The latest US Department of Agriculture estimate of global grain demand implies a decrease in stocks if current season grain yields do not reach last season's record levels," the group said.

"Last season's yields were supported by favourable weather conditions and a fertilizer industry running at full capacity."

Low stocks are viewed as an important factor in raising crop prices, which in turn encourage farmers to seek higher yields.

Revenues tumble 

Yara said it had already seen signs of a revival in demand for nitrates – albeit following price cuts.

"The new season prices kick-started deliveries in Europe where June volumes came in 25% above last year," the group's chief executive, Jorgen Ole Haslestad, said.

Nonetheless, Yara's overall fertilizer sales fell 14.7% to 5.21m tonnes by volume during the April-to-June quarter.

Group revenues dropped 33% to NKr16.1m, with earnings, excluding one-off factors, tumbling to NKr345m from NKr3.63bn a year before.

Analysts had forecast earnings, before exceptional charges, of NKr1.02bn.

Yara shares, which fell 4.2% in early deals, recovered to close at NKr182.93 in Oslo, up NKr1.72.

NPK shutdowns

The earnings incorporated write-downs of NKr376m on fertilizer inventories, reflecting the drop in global nutrient prices.

The group added that it was curtailing 30% of capacity for making NPK – the mixed nitrogen, phosphate and potassium nutrient – in the third quarter following a decline of 38% in sales during the April-to-June period.

Group sales of nitrates alone dropped 17%.