Norway’s Yara swings to small Q2 net profit, announces cost and capex reduction plan

Yara swung to a net income of $3 million in the second quarter of this year from a net loss of $298 million in April-June 2023, with the Scandinavian group unveiling plans for a cost and capex reduction program worth $300 million to strengthen financial performance.

Over the next 18 months, Yara will aim to reduce fixed costs by $150 million and capex by the same amount. “This will be achieved through a targeted approach, prioritising high-return core business, and scaling down tail-return activities,” the firm said in a statement.

Yara’s Q2 EBITDA excluding special items nearly doubled year-on-year to $513 million, mainly reflecting higher deliveries, improved margins due to lower energy costs and a more stable market environment, as well as the year-ago period being impacted by inventory write-downs and position losses.

Total deliveries were 4% higher compared with a weak Q2 2023, driven by increases in Europe, Asia, and clean ammonia.

Production volume increased due to lower curtailments compared with the same quarter a year ago, Yara added. (See breakdown below)

Based on current forward markets for natural gas as of 11 July, and assuming stable gas purchase volumes, Yara’s gas cost for Q3 and Q4 of this year is estimated to be $15 million higher and $70 million lower, respectively, than a year earlier.

On the delivery front, Yara noted its Europe deliveries were up 7% year-on-year at 2.22m. tonnes on the back of a late spring and successful launch of the new season price. An upward trend was also seen in Africa and Asia – 1.22m. tonnes versus 1.12m. tonnes – and clean ammonia, up 11% year-on-year to 454,000t, due to higher production levels.

Industrial solutions deliveries were stable at around 1.64m. tonnes, with the Americas the only region to record a fall – down 1% year-on-year at 2.64m. tonnes – with that slip blamed on flooding in Brazil.

“I’m pleased to see improved results, with higher margins and deliveries in a more stable price environment. However, returns are not at satisfactory levels,” said Svein Tore Holsether, Yara President and CEO.

“We have been through turbulent, volatile years which Yara has navigated well, but we now need to adjust our priorities and cost base, to improve Yara’s profitability.”

Upbeat outlook on new capacity downturn

Looking ahead, Yara sees farmer incentives close to average levels and demand fundamentals supportive for upcoming seasons. The Oslo-headquartered major feels urea pricing in 2023 and 2024 to date has been demand driven, with prices offering positive production margins also for swing producers.

With lower supply growth anticipated, the company points to a possible tightening supply and demand balance longer term.

Yara also revealed it plans to take a final investment decision (FID) on one, or both, of its proposed blue ammonia plants in the US Gulf in the second half of next year.

The group is mulling a pair of 1.2-1.4m. tonne/year low-carbon projects with partners BASF and Enbridge, with generous tax incentives from the US government and lower feedstock costs suggesting it could produce blue ammonia at a cash cost of $90pt versus $400pt in Europe.

Selected production and delivery data

• Ammonia – Q2 production hit 1.78m. tonnes versus 1.42m. tonnes the prior year. This brought first half production to 3.52m. tonnes, up from 2.8m. tonnes.
• Urea – Q2 production was 1.15m. tonnes versus 1.04m. tonnes. First half production hit 2.31m. tonnes, up from 1.87m. tonnes in first half 2023. European deliveries increased in first half 2024 to 522,000t, more than double those of 223,000t in first half 2023. Deliveries to Africa and Asia increased from 1.031m. tonnes in first half 2023 to 1.277m. tonnes this year.
• Nitrate – first half 2024 nitrate production was 2.698m. tonnes, a moderate increase on the 2.489m. tonnes produced in first half 2023. European nitrate deliveries in the first half were 1.782m. tonnes versus 1.674m. tonnes.

By Richard Ewing, Deputy New Editor/Head of Ammonia at Profercy