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Yara heralds profits growth drive, as it forecasts tighter urea market

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Yara International revealed plans for a profit-boosting drive, as it downplayed the threat to urea prices of a resurgence in Chinese exports, forecasting a tighter period for world supplies.

 

The Norwegian-based nitrogen giant said that it would at an investor day in June “launch updated and increased targets”, having “identified further earnings improvement potential”.

 

The investor day, in London, will cover topics including how Yara will “optimise our market positions” and “realise the full value potential of projects under execution”.

 

Separately, Yara on Friday revealed a tie-up with IBM to create a digital farming platform which will harness factors such as on-farm findings and “hyperlocal” weather reports to give growers “instant agronomic advice”.

 

Urea prices dip

Yara’s announcement came even as it acknowledged the prices of urea, a benchmark nitrogen fertilizer, had shown a “negative trend through most of the [January-to-March] quarter”, averaging $264 a tonne in the key Egyptian export market.

 

While up $3 a tonne year on year, that was $47 a tonne, or 15.1%, below the average value in the last three months of 2018.

 

These stronger late-year values had “attracted significant Chinese urea exports with shipments carried well into 2019,” the group said.

 

Chinese urea exports in the November-to-February period were, at 2.1m tonnes, nearly double the 1.1m tonnes shipped in the same period a year before.

 

‘Supply-demand balance to tighten’

“With the extra supply from China, and some additional supply from new plants elsewhere, the global market exclusive of China turned into a slight surplus in first quarter,” of 2019, Yara said.

 

However, this decline had been such that values in fact fell “below the Chinese price level” – a gap which became sufficiently large “to trigger import demand into China, supporting global prices”.

 

And Yara signalled hopes of sustained price support, saying that “the global urea supply-demand balance looks set to tighten longer term, as nitrogen supply growth is forecast to decline going forward, and lead times for new projects are typically three to five years”.

 

‘Improving trend’

The group forecast 2019 being the last of a four-year period when growth in global urea capacity, outside China, has exceeded long-term demand growth, of roughly 3.5m tonnes a year.

 

Capacity expansion will fall from 4.1m tonnes this year to 1.4m tonnes in 2020, and remain below the 3.5m-tonne threshold until at least 2023.

 

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

 

It added that growth in demand for fertilizers overall “is likely to pick up, as increased grain production is needed to keep pace with consumption, and global grain stocks are relatively low, particularly excluding China”.

 

Shares rise

Yara reported a 17.2% drop to $96m in earnings for the January-to-March quarter, a decline which largely reflected foreign exchange losses.

 

Underlying ebitda (earnings before interest, tax, depreciation and amortisation) rose by 23% to $464m, an “improvement” that Svein Tore Holsether, the Yara chief executive said was “largely due to higher European nitrogen margins and a stronger US dollar”.

 

Revenues rose by 5.5% to $3.01bn.

 

Although the underlying ebitda figure was a little below the $469m that investors had expected, Yara shares rose by 2.5% to NOK 397.70 in morning deals in Oslo, earlier touching a five-month high of NOK 382.00.

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