Investor Relations

Market conditions 2011

After increasing in through 2010, prices of agricultural commodities remained at a high level during 2011, although declining modestly through the year.
Packing of citrus

The FAO Food Price Index average for 2011 reached its highest level so far, and exceeded its previous 2008 peak by 14%. Even the price level at the end of the year exceeded the 2008 average. Despite the very strong incentives to farm on more acreage, and to increase fertilizer application in order to increase yields, estimates the US Department of Agriculture that grain production during 2011/12 will only match consumption, leaving global grain stocks unchanged.

Fundamentals for fertilizer demand remained strong through 2011. However, macro­economic turbulence, modestly declining crop prices, and a higher fertilizer price level all contributed to reduced willingness to buy earlier than necessary. Fertilizer markets turned weaker in the fourth quarter, as normal pre-buying for the Northern hemisphere spring did not take place due to increased risk aversion.

For urea, the supply-demand balance was not only supported by strong demand, but also by stronger restrictions on Chinese urea exports.

From exporting 7.0 million tons in 2010, the official number for urea exports reached only 3.6 million tons in 2011. In addition, due to strong export taxes, as much as 1 million tons are likely to have been exported either in small bags (<10kg) exempted from export tax, or sold into Vietnam without paying export tax. In addition, exports of fertilizers containing both nitrogen and phosphates increased sharply, adding to nitrogen leaving the country. Consequently the tax changes in China supported the urea market more than the overall nitrogen market.

The global market price for urea was largely determined by the balance between Chinese supply costs including the tax, and strong demand from the rest of the world. Increased exports came mostly from Iran, due to new plants, and improved capacity utilization in Russia and Ukraine.

First half 2011 saw increases in nitrogen fertilizer use both in Europe and North America. As this was anticipated, the additional supply was to a large extent secured already during second half 2010, when Chinese urea was available. So for the calendar year 2011, increased urea imports by India and Brazil are the most important demand contributors to the tighter market.

Due to strong farm economics, demand for phosphate and potash fertilizers, including NPK, also improved in 2011. But towards the end of the year, the market for these nutrients was negatively affected by reduced Indian demand, as the Indian Government allowed P and K prices at the farm gate to double during the year. The phosphate market was also negatively affected by significantly higher Chinese exports.

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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