Investor Relations

Outlook 2009

The long-term fundamentals for fertilizer demand are strong as global grain consumption growth remains robust, requiring continued improvements in agricultural productivity. Grain production in 2009 exceeded demand slightly, due to favorable weather conditions.

Despite a fall in soft commodity prices from the peak in 2008, prices remain at historically high levels, reflecting the need for production increases to match further expected growth in demand. 

Fertilizer demand has picked up from last season when financial stress and risk aversion among distributers and farmers led to de-stocking in addition to lower application. Global nitrogen and phosphate markets turned demand-driven towards the end of 2009, with only minor high-cost nitrogen capacity outside China currently curtailed.

Non-competitive potash pricing, making buyers hold back in expectation of further price declines, hampered Yara’s NPK sales in 2009. However, by end 2009, the phosphate market strengthened – and improved sharply into 2010. The Chinese potash contract for 2010 deliveries also brought more NPK buyers back into the market as they saw a lower downside risk on potash prices. However, it remains to be seen if this price level is low enough to achieve normal NPK deliveries for the remainder of the season. Since the beginning of 2010, Yara has been running its NPK plants at full capacity without any indication of stock build-up.

During 2009, the upside in global nitrogen prices was dampened by Chinese urea exports. In the short term, this ceiling is lifted substantially as a 110 percent export tax was implemented 1 February 2010, and is expected to remain in place until the end of June 2010. The development during fourth quarter 2009 also demonstrates that the ceiling after June 2010 will be soft, as export prices continued to increase even with only a 7-10 percent export tax, due to tight domestic energy supply and strong domestic fertilizer demand.

During over-supplied periods in 2009, global urea prices were set by a floor reflecting Ukrainian gas costs. The price for Russian gas supplies to Ukraine has significantly increased from the beginning of 2010, but it appears that Ukrainian fertilizer producers are not yet paying a gas price reflecting the new Russian border price. Longer term, it is likely that an increased gas cost will be passed on to fertilizer producers, increasing the Black Sea urea floor price significantly. Sales of nitrogen chemicals to European industry continue to increase due to restocking and higher industrial activity.

The necessary level of investment 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 2010 will be significantly higher due to the ongoing expansion of urea production in the Netherlands and purchase of the remaining ownership in Balderton.


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