By Kjetil Malkenes Hovland
OSLO--Tight global grain supply after poor harvests this year
should help boost demand for fertilizer in coming quarters, said
the chief executive of Norwegian producer Yara International ASA
(YAR.OS) Friday, after the company reported a sharp fall in net
profit for the third quarter.
Chief Executive Jorgen Ole Haslestad refrained from predicting a
rise in prices, but said "we would be surprised if urea prices fell
a lot going forward."
Yara is the world's largest producer of ammonia, which is used
to manufacture fertilizers. The company also produces a range of
fertilizers from commonly used nitrogen-rich urea to more complex
products such as NPK and nitrate.
Global grain production is expected to fall 3.5% in 2012
compared with a year earlier, mainly due to the U.S. drought, Yara
said. Global grain stocks are currently at a four-year low,
equivalent to between 65 and 70 days of consumption, and the U.S.
Department of Agriculture expects demand to outpace supply in
2013.
"This is a concern to the world, and a challenge to us," said
Mr. Haslestad.
It's a paradox that higher food demand and higher food prices
haven't already boosted fertilizer prices, said chief financial
officer Torgeir Kvidal, partly blaming cheap Chinese exports.
"They [the Chinese] don't export much more this year than last
year, but they export at lower prices due to lower export taxes,"
he said. "Why do they accept lower export taxes? One argument could
be that economic activity is lower in China. Maybe limiting
production and saving energy [there] isn't as important" as it
was.
Lower prices pushed Yara's third-quarter net profit lower, to
2.62 billion Norwegian kroner ($465 million), compared with NOK3.57
billion a year earlier. Analysts had expected a net profit of
NOK2.46 billion.
However, China is increasing export taxes by end-October, said
Mr. Kvidal, which means that "prices may increase. Our sales people
are reminding [customers] about that."
Yara boosted its production in the third quarter, with ammonia
production up 14% on the year, helped by the restart of the Libyan
Lifeco plant, the restart of the U.K. Billingham plant and added
production capacity at the Qafco plant in Qatar.
Finished fertilizer production increased 7% on the year in the
third quarter, on higher Qafco volumes and smoother operations at
all of Yara's plants.
The Libyan Lifeco plant is expected to have another production
line up and running within a month, said Mr. Haslestad.
"Last week, the second ammonia production line returned to
production. At the end of last week, the first urea line came up.
We are expecting the other urea line up in three to four weeks," he
said.
-Write to Kjetil Malkenes Hovland at
kjetilmalkenes.hovland@dowjones.com
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