Investor Relations

Market conditions 2010

The price level of agricultural commodities has reached historically high nominal levels. Grain stocks have been falling sharply and prices have increased, triggered by lower grain production, particularly in the former Soviet Union (FSU). The drought in the FSU primarily affected wheat and barley production. However, tighter supply and demand balances for most other agricultural crops, including sugar, cotton and coffee, clearly demonstrate that the challenges to supply go beyond the problems in the FSU.

The year started with a relatively strong first quarter in the global nitrogen market, due to just-in-time purchasing by many key markets during the 2009/10 season. The market turned supply-driven during the second quarter, with production curtailments forced on the highest cost producers, including the Ukraine. From June on, prices increased every month, driven by increased demand as agricultural markets tightened. The global nitrogen market again turned demand-driven, with all producers outside China aiming to operate at full capacity.

The increased demand was primarily supplied by higher Chinese urea exports and increased production levels in the Arab Gulf. China exported a record 7.0 million tons of urea in 2010, compared to 3.3 million tons the year before.  Roughly half of that volume was exported in the fourth quarter, due to attractive export prices. Urea production in China declined sharply during the second half of 2010, due to higher coal costs, gas shortages and stricter energy efficiency and emissions regulations.

NPK volumes and margins recovered from a weak situation in 2009, when production was curtailed due to lower farmer applications of phosphate and potash. European nitrate markets also improved strongly, with demand increasing following a grain price rise, while supply was limited with low inventories and no new production capacity.

Nitrogen sales for industrial applications have recovered from the decline that followed the financial turmoil of 2008. A major growth area is products for NOx-abatement of truck emissions, which was initiated by new European legislation in 2006. Legislation along the same lines was implemented in the USA early in 2010, creating a new and rapidly growing market for Yara’s products. The trend remains strong, with more countries preparing similar regulations. 

The broad economic recovery, along with recent unrest in North Africa and the Middle East, has increased European oil and gas costs significantly compared to one year ago. Elsewhere, North American fertilizer production continues to benefit from lower gas prices following the development of new domestic non-conventional gas resources.

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