Shares in Yara International jumped 10% after the fertilizer giant forecast a jump in output, bolstering supplies sapped by weakened prospects for Chinese exports and delays to plant expansion by competitors.

The Norwegian group, the world's top maker of nitrogen fertilizers, forecast a 40% jump to 28m tonnes in production between 2010 and 2016, including contributions from joint ventures.

"With profitability through synergies and well-timed execution as pre-requisites, Yara believes an 8m tonne increase… is realistic," Jorgen Ole Haslestad, the group's chief executive, told investors.

The group had achieved a slower pace of expansion, totalling 3.5m tonnes, between 2006 and 2010 "with significantly lower cash flow and financial capacity" than it currently boasts.

Exports halve 

The prospects of the extra output turning into profits had risen with delays to two of three new Algerian plants in the pipeline, according to Fertecon, the fertilizer analysis group.

"Planned new capacity outside China is limited and continues to be delayed," Mr Haslestad said.

Furthermore, China looks a diminishing force in world exports, with its shipments of urea, one of the most important nitrogen nutrients, this year "to be roughly half of 2010 exports, despite roughly 50% higher average global urea prices" to incentivise trade, Dag Tore Mo, head of market intelligence, said.

Chinese shipments have been limited by a desire to maintain domestic supplies at a time when production ambitions have been trimmed by energy and environmental restrictions, with output falling last year and rising by a "modest" 3% this year.  

"China has signalled a policy in the direction of increased focus on efficient production and improvement in nutrient use efficiency, rather than further growth in production," Mr Mo said.

Pricey coal 

And, besides limits from a stringent, and seasonal, export tax regime, Chinese supplies also face the disadvantage of costs swollen by higher costs of coal, the prime energy source for its nitrogen industry.

"The sustained increase in anthracite coal prices in China has lifted the breakeven costs of Chinese producers. Current domestic urea prices are not far above costs," Mr Tore Mo said.

Current domestic prices implied an export price of $450 a tonne, including freight - up $150 a tonne on the 2008-09 year which witnessed the peak and crash in fertilizer values.

"The price level needed to motivate Chinese urea exports has increased with higher domestic coal prices and a stricter export tax regime," Mr Haslestad said.

Shares soar

Yara estimated its 2012 earnings at NOK28-55 a share, depending on whether prices fell back to a floor likely to be set by China, the market's so-called "swing producer", or were driven by strong demand $150 a tonne above the level which would jeopardise Chinese supplies.

"Global nitrogen fertilizer prices will be set by the balance between Chinese urea export availability and the farmers' increased willingness and ability to pay a higher price for nitrogen fertilizer," Mr Haslestad said.

Investors welcomed the earnings range, the centre of which, at NOK41.5 a share, was well above the NOK33.22 a share that analysts have factored in.

Yara shares soared to an intraday high of NOK252.40 before easing back to close at NOK246.50, up 7.2%.