Investor Relations

Outlook 2008

The global financial turmoil is impacting economic growth. No industry can expect to be unaffected by the sharp economic slow-down, but food demand is less income-elastic than most consumer and investment goods, and world population growth is continuing.

However, the fertilizer industry has since September 2008 experienced an unprecedented slow-down in deliveries and decline in international fertilizer prices. Global fertilizer deliveries are lagging significantly behind last season, and the lower deliveries have triggered substantial production curtailments. A large drop in Chinese fertilizer exports, which are constrained by high export taxes, has further reduced supplies.

Current grain, fertilizer and fuel prices promise historically high farmer margins for major crops and regions, supporting strong fertilizer demand for the current season. The supply curtailments will result in a tight market in the spring, if farmers choose optimal application rates based on strong farm economics. If they do not, food production will be negatively affected, tightening grain markets and requiring a recovery in fertilizer demand next season.

Yara is prepared, possessing the operational and financial flexibility to meet a potential scenario where farmers, due to uncertainty, risk aversion or lack of financing, reduce fertilizer application this season. Applying its flexible business model, Yara is minimizing third party sourcing and is able to cut production whenever necessary.


The majority of Yara’s operational costs are variable, reducing the financial consequences of such curtailments. Yara’s position is also improved by a substantial reduction in its expected European energy costs compared to last year based on forward energy prices. During 2008, Yara increased the proportion of its European energy costs linked to spot pricing, to approximately 75 percent, which resulted in significant savings as energy prices declined.

The necessary level of investments to maintain current capacity and implement basic productivity investments is estimated to be NOK 1,500–1,700 million per year. Yara’s total investments in 2009 will be significantly higher due to the establishment of the Lifeco joint venture in Libya, the on-going expansion of urea production in the Netherlands, upgrading of phosphate mining capacity in Finland and the expansion in the plant in Canada. Yara’s financial solidity is expected to remain strong.

Going forward, Yara will benefit from the Saskferco acquisition, effective 1 October 2008, and the Lifeco 50/50 joint venture established 9 February 2009. These initiatives increase the share of Yara’s energy consumption outside Europe from 30 to 38 percent.

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