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Yara optimistic on fertilizer demand - even in Brazil

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Global farm economics still support fertilizer demand, despite weaker crop prices, nitrogen giant Yara said – highlighting improvements in Brazil, a market which has tripped up many agrichemical groups.

The Norwegian-based group, the world's biggest nitrogen fertilizer producer, said that crop prices, while below year-ago levels in dollar terms, were "still supportive for fertilizer use.

"Global fertilizer demand is growing."

Svein Tore Holsether, giving his first results briefing as the Yara chief executive, said that "the global farm margin outlook and incentives for fertilizer application remain supportive overall".

'Improved demand in Brazil'

This trend was evident "even in dollar-based economies", whose competitiveness in crop exports has been undermined by the strength of the greenback, the company said.

However, it was "especially [true] for key crop exporting regions such as Europe and Latin America where local currencies have depreciated relative to the US dollar".

Indeed, the group singled out Brazil as a promising market, saying that, after a "slow" start to the year, "industry deliveries have picked up as expected", to stand flat in the July-to-September quarter.

"Yara sees improved demand in Brazil going forward, due to increased agricultural competitiveness compared with other exporting regions."

Contrasting views

The comments contrast with the setbacks in Brazil highlighted by agrichemical companies such as FMC Corp and Syngenta, who have blamed earnings disappointments largely on setbacks in the country as a weaker real makes dollar-denominated imports, such as many farm inputs, less affordable to growers.

The Brazilian real has been the world's worst performing major currency over the past year, which makes imports less affordable, but boosts local crop prices.

The Brazilian fertilizer industry association Anda also has a less upbeat view of the domestic nutrient sector, on Tuesday estimating deliveries to consumers at 3.77m tonnes last month, a drop of 3.6% year on year, although representing some slowdown in the pace of decline from earlier in 2015.

The deliveries took overall volumes in the first nine months of 2015 to 22.3m tonnes, a drop of 5.9%.

Anda reported a 21% slump to 1.72m tonnes in fertilizer imports last month, and a 6.1% drop to 774,099 tonnes in domestic production implying, given the pace of distribution, a run down in industry inventories.

European supply

And Yara's European nitrate production is also set to benefit from currency weakness.

"A weaker euro and lower gas prices have improved the relative competitiveness of European fertilizer capacity," Yara said.

"Based on current forward markets for oil products and natural gas […] Yara's European energy costs for fourth quarter 2015 and first quarter 2016 are expected to be respectively 550m krone and 300m krone lower than a year earlier."

But the nitrate fertilizer market will continue to be driven by the pace of Chinese supply.

"Chinese urea production and export costs are likely to remain the main reference point for global nitrogen pricing going forward, given the record volumes exported over the last year," Yara said.

Rising earnings

Yara reported earnings before interest, taxes, depreciation and amortisation (ebitda) excluding one-offs of NOK 4.61bn krone, compared to analyst expectations of NOK 4.39bn.

This was up 15% year-on-year rise, from NOK 4.00bn.

And net earnings shot up to NOK 4.1bn from NOK 1.66b last year, thanks to a one-off sum of NOK 3.2bn from the sale of the GrowHow UK business.

Credit Suisse maintained a neutral outlook on Yara shares, in a note released on Wednesday, noting that the group's earnings were 9% ahead of their forecasts.

But Rabobank trimmed its target prices for the group, to NOK 400 from NOK 430 a share.

Yara shares were trading up 2.8% in morning deals, at NOK 366.50.


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