Yara International ASA reported net income after non-controlling interests for the third quarter ending Sept. 30, 2010, of NOK 1,927 million (NOK 6.68 per share), compared with NOK 349 million (NOK 1.21 per share) last year. Excluding net foreign exchange gain and special items, the result was NOK 5.00 per share, compared with NOK 0.46 per share in third quarter 2009. EBITDA for the quarter was NOK 2,486 million, compared with NOK 860 million in third quarter 2009.
“Yara reports strong third-quarter results, as fertilizer margins improved, sales volumes increased, and our plants ran at close to optimal capacity,” said Jørgen Ole Haslestad, Yara president and CEO. “A quarter ago I said that the new fertilizer season had made a promising start. I must admit that developments since then have exceeded my short-term expectations. The decline in grain production estimates has increased grain prices sharply and boosted fertilizer demand and prices. The shortfall in grain production demonstrates the need for a continuous increase in agricultural productivity, with more and better use of fertilizer as an important part of the solution. Yara is well positioned to contribute to sustainable development with high quality fertilizer and a global marketing system providing agronomic support to farmers.”
Fertilizer margins improved as realized nitrate prices were up 23 percent compared with last year and NPK prices were up 5 percent, the latter at significantly higher margins due to lower potash costs. Yara’s fertilizer sales were 5 percent above last year, primarily reflecting higher NPK sales. Industrial segment margins were strong and sales continued to grow – up 11 percent – with increases for all product groups. Fertilizer production increased 7 percent from last year, when NPK curtailments were needed. Yara’s European energy costs were up from last year, reflecting higher prices for both natural gas and oil products. Energy costs are expected to increase the next two quarters, but slightly below previous energy cost guidance.
Third-quarter sales were NOK 16,533 million, up from the year-ago NOK 14,379 million. Total tons sold were 6.55 million mt, up from 6.2 million mt. Of these, 5.5 million were fertilizer and 1.1 million were industrial, both up from the year-ago 5.2 million mt and 971,000 mt, respectively.
Nine-month net income after non-controlling interest was NOK 7,165 million (NOK 24.81 per share) on sales of NOK 47,849 million, versus the year-ago net income of NOK 2,358 million (NOK 8.15 per share) on sales of NOK 47,627 million. Nine-month EBITDA was NOK 12,324 million versus the year-ago NOK 4,155 million.
Nine-month tons sold were 18.5 million mt (15.4 million fertilizer, 3.1 million industrial), versus the year-ago 18.0 million (15.3 million fertilizer, 2.7 million industrial).
Yara noted that every month since May, the USDA has lowered its estimate for 2010/11 global grain production, largely due to drought in Eastern Europe and elsewhere. The latest estimate for grain production for 2010/11 is down 2.1 percent on 2009/10. Yara said consumption is estimated to grow by a solid 2.3 percent, while grain stocks are expected to drop 12 percent to 70 days of consumption. And, noted Yara, the fertilizer pipeline stocks are believed to be low at the start of the 2010/11 season, given the strong focus on risk and working capital.
Yara noted that Black Sea urea prices have moved up from $250/mt at the start of the quarter to $330/mt at the end. Ammonia prices have benefited from a tight phosphate market, moving up from $300/mt Black Sea at the start of the quarter to $400/mt toward the end.
Haslestad said that all product prices are now more in alignment, most notably potash, after a period of being too high. He said NPK movement in Europe has been one of the better stories for the company. “Third quarter last year we almost gave away the NPK product, as a result of extremely high potash prices.”
While Yara expects to run its NPK and nitrate plants at full capacity in the fourth quarter, there is one exception with a major nitrate turnaround at the plant in Ambes, France, which will impact the first two months of the quarter.
Haslestad said the second really good story for the quarterwas industrial, which includes its high value Air1 NOx emission product.
Very good pole position for growth projects
Haslestad said Yara is in the process of finalizing the Sluiskil urea upgrading project, with about E100 million of the total cost remaining. He said Yara’s balance sheet is now back to where it was before it began recent expansions and upgrades – Kemira GrowHow, Belle Plaine, and Libya. “So the company has a very good pole position for participating in good growth projects going forward.” He said the debt level has improved from NOK 27-28 billion to below NOK 11 billion.
“North America is not the only place where we can see potential targets and that we will grow,” he said, noting that Yara’s future acquisition plans have been garnering attention. There has been much speculation in recent weeks that Yara would be a candidate to buy Potash Corp. of Saskatchewan Inc.’s nitrogen assets should they go on the block. Those facilities consist of plants in the U.S. and Trinidad.
Chinese exports have not deterred higher prices
Haslestad told analysts that the increased Chinese exports for both urea and DAP have not been enough to stop price increases in those products. Yara estimates that China exports 1 million mt of urea in July-August, up 500,000 mt from year-ago levels. It also says 2 million mt was sold from China for September and onward.
He said that urea production in China has declined since late July, with an estimated 40 percent of Chinese urea plants curtailed due to both high coal prices and restrictions on inefficient plants.
Urea prices in China have also increased due to these curtailments and increased exports. Haslestad put them at $270/mt ex-plant and $310-$330/mt export.
As a result of the curtailments, Yara believes Chinese exports in the next 12 months will be limited and the country will function as a swing producer.
As for another swing producer, he said Ukraine is now at full production, but that there are considerable uncertainties there due to gas prices.
Overall, Haslestad said there is very limited new capacity coming online in the next 12 months.
Burrup not up to expectations
One negative noted by Yara was its minority ownership (35 percent) in ammonia maker Burrup Holdings in Australia. He said that even if there is a slight profit for Burrup this quarter, that Yara has an accumulated year-to-date loss of more than NOK 40 million from the venture. And he noted that this is for a company – Burrup – that “has a very advantageous gas contract, we have commodity prices that are basically good.”
Haslestad, noting speculation from the Australian press on what is happening with Burrup, said he would not comment further, “beyond the fact that we need to as a shareholder get a better explanation of the financial performance of that company.”
“It is correct that we have a dispute,” Bernhard Stormyr, Yara spokesman told Green Markets. “We recently had to go to court regarding the conversion of Burrup from public to proprietary company. The issue was about due process, and being able to make an informed decision on the conversion issue.”
Majority owner Pankaj Oswal has given up on plans to do an initial public offering for Burrup and wants to take the company private, a move that would remove requirements for public filings of information.
Another issue, according to the Australian press, is whether Burrup has being paying invoices that should have been paid by Oswal’s Maruti Shipping Co. Oswal has apparently countered by saying that Yara should be paying a higher price for the ammonia it takes from Burrup. It has a 100 percent offtake agreement to the 760,000 mt/y (GM April 24, 2006).
Burrup had not responded to inquiries at press time.