October 20, 2021

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High gas prices force Yara to cut production - its fall on the Oslo Stock Exchange

High gas prices force Yara to cut production – its fall on the Oslo Stock Exchange

Yara reported Friday morning that rising natural gas prices in Europe are forcing the company to reduce ammonia production. Yara is already working on some maintenance projects, including this one, Yara’s production of European ammonia is now being reduced by 40 percent.

Ammonia is an input factor in the production of Yara’s main products: fertilizers in the form of urea and nitrate products.

The stock fell immediately from the start when the Oslo Stock Exchange opened on Friday, and just ten minutes later the drop was 2.5 percent. Then prices fell and throughout the morning the drop was more than four per cent.

In doing so, NOK 4.3 billion was wiped away from Yara’s market value.

– Yara is now limiting the loss. You’re spending money as long as you’re producing ammonia with gas purchased on the spot market, says Carnegie analyst Morten Norman.

– Therefore, Yara’s doing this is not considered a bomb. Norman adds that because Yara can import and purchase ammonia from third parties, the company can maintain production of both urea and nitrate.

Six factories were affected

Ammonia is the most important building block in fertilizer production, and Yara is now working to reduce ammonia production in the following plants:

  • Brunsbüttel in Germany
  • Herøya in Porsgrunn
  • Sluiskil in the Netherlands
  • Ferrara in Italy
  • Hal I England
  • Le Havre in France

Yara is now copying US fertilizer maker CF Industries, which announced on Wednesday that both of its UK plants will be shutting down completely.

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However, the stock market welcomed the news from CF Industries. The stock of CF Industries has risen on the New York Stock Exchange in the past two days with relatively high trading volume. Yara shares initially followed in the same footsteps, rising about four percent on Wednesday and Thursday. Autumn Friday erases price hikes.

Analyst Kenneth Seifertsen recommends buying Yara's stock.

Analyst Kenneth Seifertsen recommends buying Yara’s stock. (Photo: Brian Cliff Olgen)

– Yara’s reduction in ammonia production may be a problem next year, and that’s why the share is going down. CF Industries shares rose because CF Industries has primary production in the United States – where gas prices are much lower than in Europe – and CF will benefit from higher global fertilizer prices, notes analyst Kenneth Seifertsen at Pareto Securities, and asserts:

While there are global prices for fertilizers, there are significant regional differences in the raw materials used. European fertilizer production is now being reduced in a period of increasing demand, and therefore global fertilizer prices will rise significantly. However, the difference in gas prices makes buying shares in US-based companies relatively more attractive.

Big price increase

CFO Thor Jeffer tells DN that Yara has a habit of producing excess ammonia, and that’s about 1 million tons per year.

Yara is the largest producer and trader of ammonia in the world. If we cut that production, all other things being equal, it will increase nitrogen prices. We will cover the ammonia deficit by collecting it from warehouses outside Europe, or buying from third parties, Giæver says.

A year ago, the price of gas was $4 per million British thermal units, while now it is between $20 and $24 per million British thermal units. A British thermal unit corresponds to just over 3400 kWh

Yara CEO Svein Tore Holsether confronted the evolution of gas prices at the Pareto Conference on Wednesday, then responded:

When it is an important part of our cost base, it turns out. At the same time, crop prices rose sharply in the same period. Holseither stated that there is a significant degree of volatility across all markets during the day, and if we look at the broad lines, food prices are also rising and at the highest level since 2011, according to TDN Direct.

Confronting DN, Giæver explains:

– The spot price of gas has never been higher since Yara was founded in 2004. Now we aim to continue delivering the finished goods to our customers, and so far there is no significant impact on the production of the final product.

Giæver says Yara postponed some maintenance a year ago, when staff were reduced as a result of the pandemic.

Now we can get rid of some routine maintenance, like checking and replacing major components in factories, says Jeffer.(Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.