April 30, 2012

 

 

After a slower start to the season, Yara's European deliveries had picked up in the latest months and reported first quarter core results just shy of expectations.

 

"As expected, northern hemisphere fertiliser demand is strengthening following a slow first half of the buying season," the Norwegian firm's chief executive, Joergen Haslestad, said.

 

Shares in Yara rose 2.7% at 0946 GMT on Friday (Apr 27), outperforming a 0.7% drop in the Oslo benchmark index.

 

Haslestad told Reuters Yara could hand out cash to its shareholders if investment opportunities dry up. By the end-March, it had NOK8.8 billion (US$1.53 billion) in cash.

 

"Looking ahead a few quarters and we haven't been able to find targets we feel good about pursuing, we have to discuss how to share this money with our owners," he said.

 

The company's first quarter adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell to NOK3.94 billion (US$687.1 million) from NOK4.26 billion (US$743 million) a year earlier and behind analysts' mean forecast for NOK4.03 billion (US$703 million).

 

Revenue rose 8% to NOK21.3 billion (US$3.7 billion), above analysts' expectations for NOK20.6 billion (US$3.6 billion).

 

Yara said fertiliser deliveries in Western Europe in January-March, the months when farmers in the northern hemisphere normally stock up on nutrients ahead of the spring application - fell 5% from a year earlier.

 

"Substantial winter crop damage and a late spring with continued dry conditions have negatively affected European demand for fertiliser in the first quarter," it said.

 

It said full-season deliveries were likely to fall short of the previous season, as cold and dry spring planting conditions are likely to impact overall consumption.

 

"However, Yara saw record European deliveries in March and satisfactory deliveries so far in April," it added.

 

"January and February was slow, very slow, but March was fantastic," Haslestad told a news conference.

 

In the US, nitrogen deliveries were down an estimated 10% in the quarter, it added. The euro zone crisis and falling food prices depressed demand from farmers in the second half of last year and fertiliser prices plummeted as a result, but have since bounced back, supporting Yara's margins.

 

"The main driving factor has been strong northern hemisphere demand for spring application, as purchasing activity was low earlier in the season," Yara said.

 

The threat of urea exports from China, the world's dominating fertiliser producing nation, flooding the market has weakened as a new export tax effective from July 1 will maintain the swing export price above US$450 per tonne, compared to the US$360 Yara had assumed in the "Chinese swing" earnings scenario it presented at its capital markets day in December. The potential of China to sell off surplus to the global market is a key risk to global fertiliser prices.

 

"As it is today, the Chinese will not be able to export," Haslestad told Reuters. "The internal prices in China have to come down to a considerably lower level for them to be competitive, even with a very low tax."

 

If internal prices in China did come down, that would again create incentives for Chinese players to dump its products on the global market and put pressure on prices, he said. Fertiliser prices are also closely linked to food prices as farmers, otherwise exposed to risks mostly related to weather conditions, tend to be more willing to apply nutrients when they can count on healthy margins from the investment.

 

Food prices have risen so far this year, and the United Nations' Food and Agriculture Organisation (FAO) index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 215.9 points in March, up 2.3% from December. Although below the February 2011 peak of 237.9, the index is still higher than during a food price crisis in 2007-08 that raised global alarm.