Yara International ASA told investors last week that it is aiming for a 10 percent share of the global fertilizer market, compared to its current six percent. Like several Wall Street analysts, Yara is seeing good fundamentals for the fertilizer industry in the next few years, particularly in light of ethanol/biofuel demand for corn and current corn and wheat prices.
“Current demand fundamentals make the fertilizer industry an attractive business for strong players,” said Yara President and CEO Thorleif Enger. “Historically low grain stocks-to-use ratio and high grain prices point to an increase in planting and fertilizer applications in the next season. Strong growth in biofuel demand and a limited increase in new fertilizer capacity before 2010 further underpins the overall healthy supply-demand balance in the nitrogen fertilizer market.”
Yara says the 10 percent goal will require both organic growth as well as step growth initiatives. Three categories of step growth are envisaged;
- an increased production capacity in low-cost gas areas.
- an expansion of market positions in high-growth markets, such as Asia and Latin America, specialty fertilizer and industrial applications.
- the pursuit of merger and acquisition opportunities in mature markets where the acquisition valuation mainly depends on distribution and market positions, and less on production assets.
“Our recent growth initiatives in Fertibras, China BlueChemical and the Qafco-5 expansion, show that the combination of Upstream’s technical expertise and global sourcing, Downstream’s unique distribution and marketing system and Yara’s product knowledge, make our company an attractive growth partner,” says Enger. “Through these initiatives we are expanding our presence in two of the world’s biggest and fastest-growing nitrogen fertilizer markets, where there are also future consolidation opportunities.”
In the meantime, analysts have been giving the nod to major North American fertilizer companies. This is quite a respite for the North American industry, which in the past year has been wracked by Katrina-spurred high gas prices, lower 2006 spring demand, and a slow-to-start fall season. Yara is hopeful that it saw the high for European gas prices this past summer, and North American producers are hoping again for another mild winter to keep 2007 economics rosy.