Yara profits show European production not in danger for now despite higher gas costs

Yara released its third quarter earnings results this week and even though they lagged some investor expectations, they did show that despite higher energy costs, European producers continue to be profitable.

This secures European urea production from meeting the same fate as several Chinese producers which have significantly curtailed production and in large part exited international export markets as they failed to remain profitable.

Yara’s Q3 EBITDA earnings increased by 16% year on year to $402m, despite the European weighted average gas cost increasing by $2.50/MMBtu to $8.2/MMBtu.

Yara forecast a positive outlook despite expectations of even higher gas prices in Q4 2018 and Q1 2019 versus previous quarters.

Production volumes of urea gained in Q3 year on year to 1.59m. tonnes from 1.39m. tonnes to bring the year to date total to 1.16m. tonnes, up from 1.08m. tonnes in 2017.

The higher volumes and increased earnings were supported by rising international urea prices amid shortfall in global urea supply.

Western and Central European production accounts for a sizeable 5% of global production at around 9m. tonnes per year. As such, a reduction in supply would send global urea prices on another round of price increases. Currently, China and Iran general absence from export markets, the latter due to sanctions, have pushed prices to over three-year highs.

By Michael Samueli, Market Reporter

Email: Michael.Samueli@profercy.com