Yara restated a caution of “shortages and price spikes” in Europe’s nitrogen fertilizer market, as the group, while reporting bumper profits overall, said that high gas prices were keeping some factories in the region closed.

The Norway-based fertilizer giant said that the global nitrogen market outlook “indicates a continued tight supply situation going forward”, as reflected in prices which “have strengthened significantly over the past year”.

Gains were “driven by continued demand growth and supply limitations linked to Chinese exports, Ukraine war, sanctions and natural gas price increases”.

Yara itself achieved an average of $650 per tonne for its benchmark European nitrate supplies in the July-to-September quarter, more than double the $311 per tonne a year before.

Although below the $659 per tonne achieved in the April-to-June quarter, the group also reported a recent bounce in prices back towards early summer highs.

Risk of nitrogen shortages’

The group, while noting that market conditions “vary between regions”, singled out Europe as vulnerable to volatility – a reflection of the region’s unstable prices of natural gas, a key raw material for Western nitrogen producers. (Many Chinese rivals use coal as their energy source.)

Much of the region’s capacity remains mothballed by the high prices, with Yara reporting its own curtailments of 900,000 tonnes in finished fertilizer terms.

“Yara… cannot produce at negative margins,” the group said.

The capacity cuts had contributed to a shrinking in European fertilizers stocks to “historically low levels” of less than 600,000 tonnes as of September – the lowest reading for the month on data going back eight years.

Against such a supply squeeze, Europe faced “a risk of nitrogen shortages and price spikes during winter, especially if natural gas availability deteriorates”, Yara said.

Price rationing

Europe’s farmers had in fact proved more willing than buyers to stock up ahead on nutrients, seeking even over the summer to purchase some of their needs for the spring 2023 application programme.

Even so, Yara’s deliveries in the region in the July-to-September quarter fell by 5.9% year on year to 1.98m tonnes.

Deliveries in other regions showed “more pronounced” slowdowns, with volumes down by 39% year on year in Brazil and 18.8% in the rest of Latin America, and by 32% in North America to just 436,000 tonnes.

Yara attributed the Americas’ declines a “demand reduction driven by higher prices”, as well as to some operating hiccups at North American plants.

High nitrogen prices “have shifted optimal application rates lower”, in reducing the return to farmers from high fertilizer usage.

‘Returns are up’

The comments came as Yara unveiled earnings of $402m for the July-to-September period, compared with a loss of $143m a year before, on revenues up 39% at $6.22bn.

Underlying earnings before interest, tax, depreciation and amortisation (ebitda) grew by 31% to $1.00bn, well ahead of the $768m figure that investors had expected, according to a Yara poll.

“Our returns are up, with strong margins more than offsetting lower deliveries, thanks to the strong efforts of our entire organization,” said Svein Tore Holsether, the Yara chief executive.

Reflecting the “robust” performance, the Yara board proposed an extra dividend of NOK 10 per share for the October-to-December quarter, and said it would “consider further cash returns including share buy-backs in the coming quarters”.

Yara shares soared by 6.4% to a four-month high of NOK 451.90 in afternoon trading in Oslo.

Is Europe’s nitrogen market really so vulnerable to price spikes? For analysis of the outlook, click here.