February 9, 2012

 

Yara International sees nitrate fertiliser market recovery

 

 

Following a gloomy 2011 due to the global economy, the euro zone crisis and falling food prices, Yara has seen a pick-up in activity in its fertiliser markets.

 

Fertiliser prices plummeted late in 2011 as a result, but have bounced back.

 

"There is perhaps a little bit less news about Greece and Italy on the television that has helped volumes up," Chief Financial Officer Hallgeir Storvik said on Tuesday (Feb 7) after Yara reported fourth quarter core profits in line with forecasts.

 

Shares in Yara rose 3.2% at 1112 GMT reaching a new high for the year and outperforming a 0.6% drop in the Oslo benchmark index.

 

"I think this reaction is a bit of release. They are basically indicating that there should be a pick up in demand and that they see some early signs of it," said Credit Suisse analyst Lars Kjellberg.

 

Yara said fourth-quarter fertiliser deliveries fell 14% from a year earlier due to lower grain prices and as customers were less inclined to buy up stocks of fertiliser ahead of the coming spring.

 

"Northern hemisphere fertiliser customers have been reluctant to take positions ahead of spring application, resulting in slow fourth-quarter sales overall," Chief Executive Joergen Ole Haslestad said.

 

"However, crop prices and farm margins remain healthy, and fertiliser deliveries will need to recover to avoid a decline in global grain stocks," he said.

 

A fall in food prices from record levels a year ago, plus the uncertain economic outlook hit fertiliser demand in Europe, North America and other regions, Yara said.

 

Global food prices continued to decline in December with sharp falls in cereals, sugar and vegetable oils due to bumper crops compounded by slowing demand and a stronger dollar, according to the Food and Agriculture Organisation (FAO).

 

The FAO index averaged 211 points in December, down five points from November, and 11.3% below its peak in February last year.

 

Yara's adjusted full-year earnings before interest, tax, depreciation and amortisation (EBITDA), excluding special items, rose to US$686 million in October-December, from 3.1 billion a year ago, in line with the average forecast in a Reuters poll.

 

"The result was in line with our expectations, on the operational level, and the volume decline was in line with our expectations" said Swedbank First Securities analyst Hans-Erik Jacobsen. "It is a good report with very strong results."

 

China's willingness to export depends on the global price of urea - a basic form of nitrate fertiliser - as well as on the supply/demand balance in its domestic market and export taxes.