The Board of Directors believes the long-term fundamentals of fertilizer demand are strong, as a growing and increasingly prosperous world population continues to drive demand and land available for agriculture is becoming more scarce. More efficient and balanced fertilizer use globally is a crucial element of achieving sustainable improvement in agricultural productivity. With its global market presence and product portfolio Yara is well positioned to help improve agricultural productivity and to address the global challenges of water scarcity, air pollution and global warming.
New fertilizer export capacity start-ups outside China during 2013–2015 are estimated to be in line with historical trends of consumption growth. However, further capacity delays are evident compared with these estimates, and a combination of increased domestic energy consumption and falling oil and gas production in several markets is likely to impact nitrogen capacity utilization rates in several countries in the short term.
Urea export volumes from China are, according to the country’s current 5-year plan, expected to be kept stable at a level around 5 million tons per annum. The Board of Directors believes that actual exports may vary significantly from year to year, as global food and fertilizer prices together with industrial activity levels in China influence the availability and profitability of export tonnage. However, the low energy efficiency and high emission levels associated with existing nitrogen production capacity in China indicate a rationalization of the industry over time which would limit the risk of larger urea export increases.
There is significant potential for high price volatility in the markets for agricultural commodities where supply is limited and customers have a low sensitivity to price changes. Weather-related setbacks in agricultural production could further increase fertilizer demand, while a significant drop in agricultural prices, e.g. in the event of improved harvest prospects, could lead to a temporary slow-down in fertilizer deliveries. However, substantial harvest increases are required merely to avoid a future decline in inventories.
Yara’s value-added nitrate and NPK products continue to deliver strong and stable margins which are relatively less exposed to swings in commodity nitrogen, phosphate and potash markets. Continued strong food demand and increased focus on food chain efficiency and quality are expected to support this trend.
Yara’s growth ambitions imply significant investments, including further potential M&A activity, which the company aims to execute without issuing new equity, except for the very largest acquisition targets. The Board of Directors estimates that Yara has a growth investment capacity between USD 1 billion and USD 2 billion per annum within its current credit rating, but underlines that the focus on growth opportunities will remain combined with strict valuation and capital discipline, seeking opportunities where Yara has the best relative synergies, at the right time of the cycle.