Fertiliser maker Yara International has today reported a bigger-than-expected drop in third-quarter earnings as falling prices squeezed margins, and warned it may cut production.
Yara, which last year capped its European ammonia production due to a surge in gas costs, said it had produced at almost full capacity during the third quarter and would optimise production in response to market conditions.
"There is a risk of new nitrogen curtailments if slow European demand continues," the Norwegian company said.
Its July-September earnings before interest, tax, depreciation and amortisation, and excluding one-off items, fell 60% to $396m. Analysts in a company-provided poll had on average expected a profit of $630m.
While the company expected a "supportive" outlook for fertiliser sales, the timing of deliveries was uncertain, it said.
"Although agricultural fundamentals are supportive, nitrogen markets remain sensitive to geopolitical and commodity market volatility," CEO Svein Tore Holsether said.
Revenue fell 38% year-on-year to $3.86 billion, reflecting lower ammonia prices, while analysts had expected a 29% drop on average.
Yara said gas costs for the fourth quarter 2023 was estimated to be $520m lower than a year earlier.
Gas is a key feedstock to make ammonia, a fertiliser which provides plants with nitrogen necessary to build proteins and to bind the sun's energy through photosynthesis.
Prices of urea, made from ammonia and the most commonly used fertiliser globally, have increased since the end of June, although gas prices have roughly doubled in the same period.
During the third quarter Yara idled annual capacity of 80,000 tonnes of ammonia, or 6% of its European capacity, and 130,000 tonnes of finished product, or 3% of its European capacity, compared to 17% and 10% respectively in the second quarter.
Yara's share price has fallen over 10% so far this year.
European farmers have had a tough season with drought and floods ruining crops, lowering demand for fertilisers, CEO Svein Tore Holsether also told Reuters today.
"Stocks are low and there are many who have waited with purchases of fertilisers, and whether those comes in the fourth quarter, the first quarter (of 2024) or the second quarter is uncertain," Holsether said.
"There is so much that is up in the air - there is high inflation, high interest rates, the farmers have gotten paid less for their produce," he added.
Holsether said other important food-producing areas in the world such as Argentina and Australia had also been hit by drought, while Russia had strong output.
