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China turns tail to become support for urea prices

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China, for so long a depressant for urea prices, is becoming a support, as values fall to levels forcing shutdowns at its plants, Norwegian nitrogen giant Yara International said, unveiling results a little ahead of expectations.

Global urea prices, which fell to multi-year lows below $260 a tonne in the spring, as measured in the benchmark Black Sea market, have recovered to some $290 a tonne, Yara data showed.

The rebound reflects a recovery in values in China, whose prices have fallen enough to provoke some plants to mothball operations.

"Poor margins for the highest cost anthracite-based producers in China has resulted in significant production curtailments offsetting the impact of capacity additions," Yara said.

Meanwhile, China's continued growth in exports, which grew 44% to 15.5m tonnes in the July-to-May period, has tightened the country's own supplies – "supporting both domestic prices in China and global pricing", Yara said.

'Key for global pricing'

In fact, Chinese exports fell during the April-to-May period to 1.7m tonnes, showing a rare year-on-year decline from the 1.9m tonnes in the same period of 2014.

Many observers had expected a continued increase in Chinese urea exports, after the government this year altered the export tariff system.

However, Yara stopped short of forecasting that China may have set a long-term floor in world prices.

The group said that "going forward, production costs in China and the Chinese currency will be key for global pricing of commodity nitrogen".

Earnings rise

The comments came as Yara unveiled earnings before interest, taxation, depreciation and amortisation (ebitda) for the April-to-June quarter of NOK5.06bn, up 21% from NOK4.19bn last year, and slightly above analysts' expectations of a NOK5.02bn result.

Revenues were NOK27.93bn, up 20% from NOK23.31bn over the same period last year.

Earnings were share were NOK10.59 a share, from NOK8.25 a share in the same period last year.

Yara shares were down 0.4% at 406.5 crowns a share in morning trading in Oslo.

Brazilian credit

The group added that it expects import demand from key importing region Brazil to in the coming half, as credit becomes more available

Yara's Brazilian sales in the first half of 2015 were down 10% from the same time last year, thanks to low crop prices and the lack of access to credit.

The view of Brazilian market rebound echoes that of fertilizer group PotashCorp, which last week forecast a recovery for the next six months to the strong 2014 demand levels.

Shares edge down

Yara reported second quarter 2015 earnings before interest, taxation, depreciation and amortisation of 5.06bn Norwegian crowns, up 21% from 4.19bn crowns last year, and slightly above analysts' expectations of 5.02bn crowns.

Yara is set to got a boost from the sale a $580m stake in UK nitrogen producer GrowHow to US group CF Industries at the end of this month. CF broke of merger talks with Yara last year.

Revenues were 27.93bn crowns, up 20% from 23.31bn crowns over the same period last year.

Earnings were share were 10.59 crowns a share, from 8.25 in the same period last year.

Yara shares were down 0.4% at 406.5 crowns a share in morning trades on Tuesday.


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