Yara’s Higher Fertiliser Prices Boost Margins, But Lower Q2 Volumes
Yara Q2 Earnings and Market Impact Overview
By Jesus Calero and Alexander Gudbrandsen
July 17 (Reuters) - Norwegian fertiliser maker Yara reported second-quarter core earnings around 20% below expectations on Friday, as a surge in nitrogen prices boosted margins but prompted farmers to postpone purchases.
Delayed Purchases and Inventory Build-Up
Delayed buying caused inventories to build, contributing to a fall in quarterly operating cash flow to $682 million from $878 million a year earlier.
CEO's Perspective on Farmer Purchasing Decisions
CEO Svein Tore Holsether told Reuters purchases had been delayed because prices peaked when many farmers had no immediate need for fertiliser.
"If you don't need products for immediate application and you can delay your purchasing decisions, that's likely what is happening and that's what we're seeing as well," Holsether said.
Market Activity and Analyst Insights
However, Yara said buying activity was already picking up in core markets in July, while low nitrogen imports suggested significant volumes still remained to be purchased.
Analyst Commentary on Future Demand
"The key debate going forward is whether weaker Q2 prebuying largely shifts into later quarters or signals more persistent demand destruction," Citi analysts said in a note.
Impact of Geopolitical Events
The Middle East conflict exposed the trade-off behind Yara's quarter, as supply disruption lifted urea prices and margins but also pushed buyers to defer purchases.
Renewed tensions now raise the risk of tighter supplies next season, Yara said.
Financial Performance and Cost Factors
Earnings before interest, tax, depreciation and amortisation, excluding special items, rose 39% year-on-year to $906 million, but below the $1.13 billion expected by analysts.
Breakdown of EBITDA Drivers
The quarter showed how elevated and volatile fertiliser prices cut both ways for Yara, with stronger margins lifting EBITDA by $520 million year on year, while lower volumes and mix reduced it by $240 million as deliveries fell 17%.
Natural Gas Costs and Production Impact
The company added natural gas costs were expected to be $75 million and $115 million higher in the third and fourth quarters, respectively, than a year earlier.
Natural gas is a key input in fertiliser production, meaning swings in gas prices can have a significant impact on costs for producers and prices paid by farmers.
Stock Market Reaction
Shares in Yara were down 0.8% at 0935 GMT, after dropping 5.7% in early trading.
($1 = $1.0000)
(Reporting by Jesus Calero and Alexander Klyve Gudbrandsen; editing by Bartosz Dabrowski and Matt Scuffham)
