Yara International ASA, Oslo, reported a 130 percent increase in first-quarter EBITDA excluding special items to $1.35 billion, up from the year-earlier $585 million, beating analysts’ estimates after higher selling prices more than offset higher feedstock costs and lower deliveries.
First-quarter operating income surged to $1.04 billion, up from $322 million a year earlier. Net income attributable to shareholders of the parent company came in at $944 million ($3.71 per share), compared with the prior year $13 million ($0.05 per share).
Revenue was up 88 percent to $5.91 billion – missing analysts’ estimates – compared with the year-ago $3.14 billion.
Yara also benefited from a $223 million currency translation gain in the quarter compared with a $256 million currency translation loss a year earlier. Most of the gain originated from U.S. dollar denominated debt as the U.S. dollar depreciated against the Brazilian real and Norwegian Kroner, as well as other currencies.
Analysts had estimated Yara’s first-quarter adjusted EBITDA at $1.13 billion and net income at $608.1 billion (Bloomberg Consensus). Analysts had seen Yara’s first-quarter revenue at $6.01 billion (Bloomberg Consensus).
As a result of high gas prices, the company curtailed production at several of its European ammonia and urea facilities in early March (GM March 11, p. 1), but these have resumed production as the margin situation improved, Yara said in its April 27 results statement.
“While raw material price increases in isolation are negative for the company, higher end product prices create offsetting positive effects, as higher grain prices improve farmers’ profitability and demand incentives for agricultural inputs,” said Yara.
Yara’s first-quarter ammonia production was 4 percent lower year-over-year, at 1.72 million mt versus 1.79 million mt. The company produced 7.26 million mt of ammonia in full-year 2021.The company noted reliability issues in some sites offset improvements in others.
“But right now, the main focus for us has been to run our plants optimally financially rather than production-wise,“ Yara President and CEO Svein Tore Holsether told participants at a company earnings call on April 27.
Production of finished fertilizers and industrial products, excluding bulk blends, in the first quarter was 6 percent lower, at 4.86 million mt versus the year-ago 5.16 million mt.
The company noted finished fertilizer production improved further in the first quarter, attributing this as mainly due to the Rio Grande fertilizers plant expansion in Rio Grande do Sul state, Brazil, now ramping up. The company said it is making good progress there towards its target of finished fertilizer production.
Yara Executive President and CFO Thor Giæver said energy prices had come in a bit lower than what earnings call participants would have been able to calculate based on Yara guidance and sensitivities.
“This is mainly due to the fact that we have utilized some opportunities to source feedstock at lower than European hub pricing and also some prices on the NBP hub [National Balancing Point] in the U.K. have been lower than normal, and we have an exposure to that as well,” he said.
Based on current forward markets for natural gas and assuming stable gas purchase volumes, Yara expects its gas cost for the second and third quarters will be respectively $1.15 billion and $750 million higher than a year earlier.
Giæver clarified that the guidance for the second quarter is based on second quarter 2021 production volumes.
Turnarounds are scheduled at Tringen, Trinidad (expected impact around 30,000 mt of ammonia), and Belle Plaine, Sask. (expected impact around 120,000 mt of urea), in the second and third quarters.
The first quarter saw a decline in Yara’s delivery volumes compared with a year ago. Total deliveries fell by 8 percent, to 8.35 million from 9.08 million mt the previous year.
The company delivered 443,000 mt for ammonia trade in the quarter, compared with 458,000 mt in the same prior-year quarter.
Overall fertilizer deliveries were 11 percent lower than first-quarter 2021 at 6.10 million mt, down from 6.85 million mt, and premium products declined 14 percent.
Yara said the drop in fertilizers volume was mainly in Europe, where total deliveries were down 24 percent overall – to 2.23 million mt, but it noted it was from a relatively strong first quarter last year.
The company attributed the decline as due to high market prices, which, it said, have resulted in lower demand. It said in particular this has affected the NPK deliveries, which were down 36 percent year-over-year in the first quarter as European farmers have cut application of P and K.
Looking at the season to date in Europe, nitrogen deliveries so far in the 2021/2022 season are estimated to be 17 percent behind last year at the end of the first quarter, Yara said.
In Europe, EBITDA excluding special items in the first quarter was $154 million higher than a year earlier at $345 million, as higher prices more than offset increased feedstock costs and lower deliveries. Deliveries decreased 24 percent to 2.23 million mt, down from 2.92 million mt, which Yara attributed to mainly reflecting reduced demand and customers reluctant to take positions in the current price environment.
“In Europe, we have delivered significantly improved results despite our gas costs being more than four times higher than a year ago,” Giæver told earnings call participants.
“This is thanks to a flexible production and sourcing set-up, which has allowed us to continue operating and delivering essential products both for agriculture, transport, and industrial purposes,” he said.
On the lower first-quarter delivery volumes, mainly in Europe, Giæver noted “this may seem counterintuitive, as farm margins are better in Europe compared with several other regions.” But, he said, Europe is also where the market volatility, especially including gas prices, has been the highest, and “that volatility can reduce buyers’ willingness to take positions at least in the short term.”
The Americas’ first-quarter EBITDA excluding special items was $374 million higher than a year earlier, at $516 million, mainly driven by higher nitrogen prices but limited energy cost increase, leading to strong production margins. Underlying fixed costs increased 11 percent – partly due to inflationary pressure in Brazil – while total deliveries decreased 3 percent to 2.79 million mt, but with an increased share of premium products.
In Africa & Asia, EBITDA excluding special items in the first quarter was $80 million higher than a year earlier at $126 million, mainly reflecting improved production margins on ammonia. Total deliveries increased 3 percent to 1.08 million mt, driven by higher deliveries of commodity fertilizers in Asia, partly offset by lower premium products deliveries – particularly in China, where domestic prices are decoupled from global price dynamics.
Deliveries to industrial customers were marginally lower in the first quarter than a year ago, at 1.81 million mt versus 1.77 million mt, as Yara continued supplying what it described as “essential products” to a number of industrial uses, including transportation. Industrial Solutions EBITDA excluding special items in the first quarter came in $113 million up year-over-year, at $192 million.
Looking ahead, Yara noted industry consultant projections showing increased global nitrogen capacity growth in 2022. However, it sees a continued tight market driven by high grain prices, supply disruptions, and low global inventories.
“In Europe, nitrogen industry deliveries season to date in the 2021/22 season are estimated to be 17 percent behind a year earlier. Deliveries were slow in the first quarter and are likely to end behind last year for the season as a whole,” the company said.
“Although higher grain and oilseed prices provide stronger economic incentives for farmers, higher fertilizer prices have shifted optimum application rates somewhat lower.”
Commenting on Yara’s financial results, Citibank said Yara managed to react to the European gas disruption by raising prices quicker than seen earlier, Bloomberg reported.
The company regained the fourth-quarter lag in its order book, bolstering first-quarter performance, Bloomberg cited Citi analysts, including Mubasher Chaudhry, as writing.
According to the report, nitrogen is Citi’s favored nutrient due to the development outlook being tight and crop dynamics across the key regions of Europe and Latin America showing favorable farmer profitability in the coming period.
Paris-based Kepler Cheuvreux sees “a strengthened case” for very strong profitability going forward after Yara’s firm first-quarter earnings, Bloomberg reported.
Kepler analyst Magnus Rasmussen maintained a cautious view on volumes going forward, he said in a note to investors, but noted that Yara has proven ability to capitalize on the current market environment, as cited by the Bloomberg report.
Separately, Nordea Bank Danmark analysts Hans-Erik Jacobsen and Kristine Aasberg assume strong fundamentals are likely to prevail as severe supply limitations (due to a considerable reduction in Chinese exports and expectations of lower Russian exports) will keep the fertilizer market tight.
Demand in Europe has been weak this season, but Nordea considers this a temporary setback and expects farmers to adapt to a new, higher-volatility environment, according to a Bloomberg report.
Yara Production and Deliveries
| ‘000 mt | 1Q-2022 | 1Q-2021 |
| Production1 | ||
| Ammonia | 1,723 | 1,792 |
| Finished fertilizer and industrial products (excluding bulk blends)1 | 4,863 | 5,160 |
| Yara Deliveries | ||
| Ammonia trade | 443 | 458 |
| Fertilizer | 6,102 | 6,854 |
| Industrial product | 1,805 | 1,767 |
| Total deliveries | 8,351 | 9,079 |
1 Including Yara share of production in equity-accounted investees, excluding Yara-produced blends
Yara Deliveries
| ‘000 mt | 1Q-2022 | 1Q-2021 |
| Crop Nutrition Deliveries | ||
| Urea | 1,378 | 1,369 |
| Nitrate | 1,361 | 1,592 |
| NPK | 2,078 | 2,449 |
| CN | 422 | 477 |
| UAN | 303 | 383 |
| DAP/MAP/SSP | 102 | 147 |
| MOP/SOP | 212 | 149 |
| Other products | 246 | 289 |
| Total Crop Nutrition Deliveries | 6,102 | 6,854 |
| Europe Deliveries | ||
| Urea | 184 | 293 |
| Nitrate | 994 | 1,156 |
| NPK | 590 | 924 |
| CN | 93 | 137 |
| Other products | 370 | 412 |
| Total Deliveries Europe | 2,232 | 2,922 |
| Americas Deliveries | ||
| Urea | 618 | 630 |
| Nitrate | 311 | 366 |
| NPK | 1,154 | 1,115 |
| CN | 272 | 296 |
| DAP/MAP/SSP | 83 | 108 |
| MOP/SOP | 181 | 119 |
| Other products | 172 | 247 |
| Total Deliveries Americas | 2,790 | 2,881 |
| North America | 905 | 958 |
| Brazil | 1,483 | 1,465 |
| Latin America excluding Brazil | 403 | 457 |
| Africa & Asia Deliveries1 | ||
| Urea | 576 | 446 |
| Nitrate | 56 | 70 |
| NPK | 335 | 410 |
| CN | 57 | 45 |
| Other products | 57 | 81 |
| Total Deliveries Africa & Asia | 1,080 | 1,052 |
| Asia | 870 | 811 |
| Africa | 210 | 240 |
| Industrial Solutions Deliveries | ||
| Ammonia2 | 132 | 150 |
| Urea2 | 381 | 396 |
| Nitrate3 | 320 | 280 |
| CN | 52 | 47 |
| Other products4 | 374 | 406 |
| Water content in industrial ammonia and urea | 546 | 487 |
| Total Industrial Solutions Deliveries | 1,805 | 1,767 |
1 The Africa and Asia business also includes Oceania
2 Pure product equivalents
3 Including AN Solution
4 Including sulfuric acid, ammonia, and other minor products