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Yara sees 'improving trend' after tumble in nitrogen prices

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Yara International forecast an “improving trend” for its fertilizer markets, even while flagging an ammonia “oversupply”, as it unveiled better-than-expected results which sent its shares higher.

 

The Norwegian-based nitrogen giant said that the supply and demand balance in the urea market “looks set to tighten further growing forward”, thanks to a declining trend of industry expansion.

 

Expansion in global urea capacity, excluding China, is expected to fall for a third successive year in 2020, to 2.4m tonnes, falling behind demand growth for the first time since 2014.

 

A further decline, to 2.3m tonnes, is expected in 2021.

 

“Nitrogen supply growth continues to decline,” Yara said, while “fertilizer demand should benefit as increased grain production is needed to keep pace with consumption growth.

 

“Yara’s market environment is showing an improving trend,” thanks to the “combination of a tightening global grain balance and receding urea supply pressure.”

 

Urea vs ammonia

The comments follow an upbeat short-term urea market outlook earlier in the week from Russia’s EuroChem, which said that “strong seasonal import demand in the United States and Europe in the first quarter and in Brazil and India in the second quarter is likely to further improve the pricing environment”.

 

This after a late-2019 dip in urea prices, with Yara reporting average values in the benchmark Egyptian export market for the October-to-December quarter at $238 per tonne, a drop of 23% year on year, and 11.5% below the average reported for the July-to-September period.

 

The group flagged pressure from expansion in Chinese urea exports, which for 2019 as a whole near-doubled to 4.9m tonnes, although added that these remained at relatively high cost.

 

However, in ammonia, Yara acknowledged that more work needed to be done to match supply and demand, and resolve a glut which saw Black Sea export prices average $244 a tonne in the latest quarter, down 31% year on year.

 

“The ammonia market is oversupplied with some market-driven curtailments required.”

 

Yara also termed the phosphate market oversupplied, reflected in a drop in fourth quarter US Gulf prices of 34% year on year to $283 a tonne, although added that market curtailments had been sufficient to mean prices “stabilised or rebounded”.

 

Shares rise

The comments came as Yara unveiled a rise of 27% to $199m in earnings for the October-to-December quarter - with underlying ebitda up 24% at $525m, beating market expectations of a $479m result.

 

Although revenues fell by 12.5% to $3.03bn, reflecting an “unsatisfactory production performance in some plants”, besides price weakness, profits were supported by lower costs of natural gas, Yara’s main raw material cost, and by a company efficiency drive.

 

The group added that it would “by mid-2020” decide on the spin-off of its industrial nitrogens business, which it had expected to rule on early this year, but with the process unsettled by last month’s resignation of Yves Bonte, the division’s designated chief executive.

 

Mr Bonte accepted instead the role of chief executive and chairman at Belgium’s Domo Chemicals.

 

Yara shares stood 6.2% higher at NOK381.70 in morning deals in Oslo, reaching a three-month high.

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