Fertiliser manufacturer Yara International has seen its operating profit and revenues increase over the last three months through higher product prices, although net income was affected by a write down and currency effects. But the company warns that the high price of natural gas feedstock makes fertiliser production uneconomic, which could in turn affect future food security.
The Norwegian multinational made an EBITDA of $750 million on revenues of $4.49 billion in the three months to September 30th 2021, compared to $645m and $3.08bn in Q3 2020. But net income fell to a negative $143m from $240m in the prior year, following a $355m impairment charge after the divestment of Salitre phosphate mining assets in Brazil, plus a currency translation loss of $148m.
Finished fertiliser volumes rose to 5.45m tonnes in the quarter (5.36m tonnes in Q3 2020), but natural gas feedstock prices soared to $11.7MMBtu from $2.4MMBtu a year earlier.
Yara says EBITDA excluding special items for its Europe region was 37% higher year-on-year as higher prices more than offset lower deliveries and increased feedstock costs. Deliveries fell by 9% in “an overall slow market where customers were reluctant to take positions early in the season”.
The company has reacted to sharply rising gas prices in Europe by curtailing some 40% of its European ammonia production, “including both scheduled maintenance and market-driven curtailments”, but says its high operational flexibility allows unprofitable ammonia production to be replaced with sourcing from Yara plants outside Europe, and through its global ammonia trade and shipping network.
“The impact on finished fertiliser production has been limited so far, but Yara is closely monitoring the situation going forward. Yara is committed to supplying its customers, provided that sufficient margins are available,” it states.
The global outlook for the nitrogen market is strong, driven by demand fundamentals, low global inventories and limited pre-buying so far this season, reports the company. Industry projections show increased nitrogen capacity growth in 2022, but actual production growth is expected to be lower, and below historical trend consumption growth.
“Sustained nitrogen curtailments in Europe over the winter would likely lead to an even tighter market situation in 2022,” it warns.
Yara’s president and chief executive Svein Tore Holsether observes: “European nitrogen production is essential to global food security, and we are therefore concerned about the impact current European natural gas prices will have, especially for the world’s poorest regions. However, Yara will do its utmost to supply farmers and support global food production.
“The current situation clearly demonstrates the need for more resilient food supply chains, and I call on authorities, international organisations and food value-chain players to work together to secure global food supplies,” he concludes.