Linked In
News In
Linked In

You are viewing your 1 complimentary article.

Register now to receive full access.

Already registered?

Login | Join us now

Yara underlines boost to urea prices from Chinese shutdowns

Twitter Linkedin eCard

Yara International shares rose to a 21-month high, despite the announcement of below-forecast results, as the fertilizer giant flagged the boost to urea prices from Chinese shutdowns, and noted "supportive" farm margins too.

Shares in the Norwegian-based group touched NOK377.30 in early deals in Oslo, their highest since January last year, before easing back to NOK372.00, a gain of 2.5% on the day.

The headway came even as Yara, the world's biggest nitrogen fertilizer producer, unveiled a drop of 13.6% to NOK709m in earnings for the July-to-September quarter, on revenues flat at NOK23.8bn.

The drop in earnings, which came in well below the NOK853m that investors had expected, reflected a weaker dollar, the currency in which fertilizer is traded, and a rise in costs of energy, a big expense for nitrogen producers, expected to continue showing into next year.

The group forecast a year-on-year rise of NOK300m in gas costs in the current quarter, and a NOK130m rise in the first three months of 2018, based on current forward markets.

'Significant curtailments'

However, Yara flagged too the boost to prices of urea, a key nitrogen product, which in the key Egyptian export market had averaged $234 a tonne in the July-to-September period, "up 21% compared to the same quarter last year."

Last month, they had increased "sharply", ending September at close to $300 per tonne, up more than 50% from spring lows, and indeed the highest in more than two years.

"The stronger prices are caused by higher export costs from China than a year ago," thanks to a jump in costs of coal, the main energy source used by Chinese nitrogen plants.

"Higher coal prices have increased production costs, so although domestic urea prices have increased, production curtailments remain significant."

'Offsetting oversupply'

These capacity cuts have spurred an accelerating decline in Chinese urea exports, which fell by 45% to 5.4m tonnes in the year to August, and by 65% to some 600,000 tonnes in July and August alone.

And this in turn is "offsetting oversupply elsewhere", which had been depressing prices before the impact of Chinese shutdowns kicked in.

Yara flagged expectations of a rise of 7.2m tonnes in urea capacity growth this year, including 3.0m tonnes in the US, where ample supplies of shale gas have prompted a wave of plant investment.

While additions are expected to slow to 3.8m tonnes next year, that remains above the roughly 3m tonnes in extra annual output that the market requires.

'Fundamentally oversupplied'

Yara too noted hope for values from the demand side, with terming "positive year to date… the price trend for cereals, meat and dairy products.

"The global farm margin outlook and incentives for fertilizer application remains supportive overall."

However, Svein Tore Holsether, the Yara chief executive, curtailed optimism at market improvements, saying that "although prices picked up towards the end of the quarter, we continue to see the market as fundamentally supply-driven".

Yara also flagged continued weakness in ammonia prices, which averaged $198 a tonne in the Black Sea in the latest quarter, down $12 a tonne year on year, close to production costs.

"Due to capacity additions in USA, Russia and Saudi Arabia, the ammonia market is fundamentally oversupplied when production runs at high utilisation rates."

By Mike Verdin

Twitter Linkedin eCard
Related Stories

Deere lifts sales hopes - even as it unveils biggest loss in 25 years

The maker of John Deere tractors flags "strengthening" market conditions, but swallows a huge writedown prompted by US tax retorms

Plant Impact agrees takeover by Croda, after failure of Bayer contract

The crop enhancement group, floored by the failure of a supply deal with Bayer, agrees a takeover by a maker of chemicals from anti-wrinkle creams to floor coatings

Cautions mount over cost to US agriculture of trucking safety clampdown

US officials reference tightened trucking rules in a cotton export forecast downgrade, while Tyson Foods forecasts an extra $200m in costs

Evening markets: Wheat futures soar to multi-month highs - but China fears undermine soy

Wheat futures jump, boosted by chart appeal, and worries over US dryness. Corn sets a six-month top too. But soy’s rally falters
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069