Yara is a global company that primarily focuses on the production, distribution and sale of nitrogen chemicals. The main application is fertilizers, while industrial uses are also an important segment. Yara uses its scale and flexibility to ensure reliable supplies of mineral fertilizer and related industrial products to customers worldwide.
Yara benefits from scale, as the world’s largest producer of ammonia, nitrate and complex fertilizer, with more than one quarter of global ammonia trade. Historically, the backbone of Yara’s production system has been located in Europe. However, its new growth is shifting towards regions with more competitive gas resources.
Yara has developed an unrivalled global presence in the fertilizer industry. Its global distribution and marketing network includes charted shipping capacity and more than 200 terminals, warehouses, blending plants and bagging facilities. Local sales and marketing units provide customer services as well as agronomical support, sharing knowledge and working with farmers worldwide to increase yields and improve crop quality and nutritional value.
Yara’s business model has built-in flexibility, to enable quick responses to changing market conditions. The majority of Yara’s operational cash cost is variable, driven by raw materials, energy, freight and third-party fertilizer sourcing. Purchases and plants can be halted at short notice in response to delivery slowdowns.
Increased energy costs in Europe can be mitigated by lower cost imported ammonia, given that most of Yara’s European production facilities have access to deep-sea import/export terminals for ammonia and Yara is the global leader in trade and shipping of ammonia. Yara controls the world’s largest storage capacity for fertilizer, giving it the capacity to build up inventory before peak seasons, handle volatility in deliveries and take advantage of geographical arbitrage opportunities.
Yara has set a considerable increase of its global market share as a long-term objective, reflecting an optimal utilization of its marketing and distribution system. To reach this objective will require productivity gains in the existing business, as well as organic growth and further step growth initiatives. Such initiatives will focus on increasing Yara’s production in low-cost regions, expanding market presence in high-growth markets and participating in consolidation in mature markets. For all growth categories, scale, synergy and timing will be important factors, along with capital discipline.
Yara continued to deliver on its growth ambition during 2008, through several important initiatives.
On Oct. 1, 2008, Yara acquired Saskferco at an enterprise value of USD 1.6 billion. The Saskferco plant in Belle Plaine, Canada, is one of the world’s most efficient at producing nitrogen fertilizer. Upon completion of its capacity expansion project in mid 2009, the plant will have an annual capacity of 725,000 tons ammonia, 1,115,000 tons urea and 230,000 tons UAN. The plant benefits from the favorable development in North American gas prices and is well located to serve the huge Mid-West nitrogen fertilizer market.
2008 and 2009
In 2008, Yara decided to improve phosphate rock sourcing for its NPK production by increasing production in Siilinjärvi, Finland; investing EUR 60 million in modifications of rock upgrading equipment.
In 2008, Yara contracted for construction a new world-scale urea plant to replace old assets at its Sluiskil production site in the Netherlands for a total investment cost of EUR 400 million. The plant will produce 1.3 million tons urea from 2011, and takes advantage of urea upgrading margins on excess ammonia capacity in Sluiskil. The new plant will also improve the site’s energy efficiency, environmental performance and maintenance costs.
In 2009, Yara’s production in competitive gas areas is increased with Lifeco, a 50/50 joint venture in Libya established Feb. 9, 2009. Yara contributed USD 225 million in cash to match the Libyan contribution of existing plant assets totaling an annual capacity of 900,000 tons urea and 700,000 tons ammonia. The attractive valuation reflects the premium that our Libyan partners placed on access to Yara’s marketing network through a long-term marketing agreement and Yara’s operational and project management expertise.
Yara’s long-term market prospects are attractive. Increased agricultural productivity and new environmental solutions are demanded in a world with population growth, changing dietary patterns and ecological pressure, including water scarcity and land shortage.
2008 was a year of contrast in the fertilizer industry. Global fertilizer markets continued to be strongly demand-driven until August, as the supply-demand balance for grains appeared stretched, fuelling fertilizer import demand particularly in Asia. Concerns about grain supply due to adverse weather resulted in further crop price increases to record levels in June 2008. Fertilizer markets tightened further during July and August, as increased export taxes on Chinese production after May 1 restricted global export supply.
Market sentiment turned sharply in September, as the financial crisis reached the wider economy. Globally, fertilizer demand was slow during fourth quarter. Grain prices and other agricultural commodity prices declined from August, driven by the financial crisis and the strong 2008 global grain crop.
Deliveries were sharply reduced in regions where the main fertilizer application occurs during the latter part of the year. Brazilian fertilizer deliveries were down 41 percent during the quarter, and total Brazilian deliveries down nine percent compared with 2007. Amid declining fertilizer prices, a difficult financing environment and general uncertainty, buyers in the northern hemisphere chose to postpone purchases. European and US nitrogen deliveries were down 15 percent in the second half of 2008, compared to the previous year. Slow demand led to significant capacity curtailments towards the end of 2008.
Nitrogen chemicals sales to the process industry declined due to the economic slow-down. However, deliveries for environmental applications continued to grow.