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Fertilizer demand rising after sub-par harvest

10/19/2012 @ 10:51am

Tight global grain supply after poor harvests this year should help boost demand for fertilizer in coming quarters, said the chief executive of Norwegian producer Yara International ASA (YAR.OS) Friday, after the company reported a sharp fall in net profit for the third quarter.

Chief Executive Jorgen Ole Haslestad refrained from predicting a rise in prices, but said "we would be surprised if urea prices fell a lot going forward."

Yara is the world's largest producer of ammonia, which is used to manufacture fertilizers. The company also produces a range of fertilizers from commonly used nitrogen-rich urea to more complex products such as NPK and nitrate.

Global grain production is expected to fall 3.5% in 2012 compared with a year earlier, mainly due to the U.S. drought, Yara said. Global grain stocks are currently at a four-year low, equivalent to between 65 and 70 days of consumption, and the U.S. Department of Agriculture expects demand to outpace supply in 2013.

"This is a concern to the world, and a challenge to us," said Mr. Haslestad.

It's a paradox that higher food demand and higher food prices haven't already boosted fertilizer prices, said chief financial officer Torgeir Kvidal, partly blaming cheap Chinese exports.

"They [the Chinese] don't export much more this year than last year, but they export at lower prices due to lower export taxes," he said. "Why do they accept lower export taxes? One argument could be that economic activity is lower in China. Maybe limiting production and saving energy [there] isn't as important" as it was.

Lower prices pushed Yara's third-quarter net profit lower, to 2.62 billion Norwegian kroner ($465 million), compared with NOK3.57 billion a year earlier. Analysts had expected a net profit of NOK2.46 billion.

However, China is increasing export taxes by end-October, said Mr. Kvidal, which means that "prices may increase. Our sales people are reminding [customers] about that."

Yara boosted its production in the third quarter, with ammonia production up 14% on the year, helped by the restart of the Libyan Lifeco plant, the restart of the U.K. Billingham plant and added production capacity at the Qafco plant in Qatar.

Finished fertilizer production increased 7% on the year in the third quarter, on higher Qafco volumes and smoother operations at all of Yara's plants.

The Libyan Lifeco plant is expected to have another production line up and running within a month, said Mr. Haslestad.

"Last week, the second ammonia production line returned to production. At the end of last week, the first urea line came up. We are expecting the other urea line up in three to four weeks," he said.


-Write to Kjetil Malkenes Hovland at kjetilmalkenes.hovland@dowjones.com
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October 19, 2012 10:46 ET (14:46 GMT)
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