Yara International's (YARIY) CEO Jørgen Ole Haslestad on Q2 2014 Results Earnings Call Transcript

Jul.18.14 | About: Yara International (YARIY)

Yara International ASA (OTCPK:YARIY) Q2 2014 Earnings Conference Call July 18, 2014 3:30 AM ET

Executives

Thor Giæver – Head, IR

Jørgen Ole Haslestad – President and CEO

Torgeir Kvidal – CFO

Egil Hogna – SVP and Head of Downstream

Dag Tore Mo – Head, Market Analysis

Analysts

Bengt Jonassen – Carnegie

Per Haagensen – RS Platou Markets

Eirik Melle – Danske Bank Markets

Thor Giæver

Good morning, and welcome to the presentation of the Yara’s Second Quarter Results. Today’s presentation will be by our CEO, Jørgen Haslestad; and our CFO, Torgeir Kvidal. After the presentation, we will have a Q&A session. And with that, I am pleased to introduce Yara’s CEO, Jørgen Haslestad.

Jørgen Ole Haslestad

Thank you, Thor. And also from my side wholeheartedly welcome. It is a beautiful weather out there and I must say I thank all of you which has taken the time to come and listen to us, but firstly welcome to Yara House. And I hope that you got the same feeling as we tried to. This is trying to get a picture of Yara. It’s open, friendly and it’s built in a cost conscious way. And that’s also then the way that we at Yara would like to give an impression to the shareholders that we are also now able then to show you through our new building. And welcome then from my side also then to the Q2 presentation.

We are able then also in this quarter to deliver strong results. We did see some lower nitrate deliveries in Europe, but you remember that we had extremely strong deliveries in first quarter. So this is actually a consequence in Europe, very early spring that we had.

We are able to continue the strong NPK deliveries and also then the value-added premiums. And this is proof of our business model which we have been talking about to you for many quarters, and very pleased that this is now ticking in, in accordance with what we mean and believe it should be.

We saw some improvements over European commodity margins due to the lower gas prices that we do have in Europe for the time being. And the Industrial segment also continued with good growth.

This resulted in NOK 8.26 per share, and we had a small currency effect that was mainly due to the fact that the dollars have weaken to Norwegian kroner in the quarter.

Looking at the fertilizer market development over the quarter. We still have robust fertilizer demand based on the farm economics. We have seen stable urea prices. There has been curtailment both in Ukraine and in China, and we had an average price in the quarter of US$299 per ton. This is US$40 lower than last year – last quarter.

The Western European nitrogen deliveries were 8% lower in the quarter, but season-to-date this is 2% higher, and I will come back to this a bit later. The tight phosphate market obviously helped the NPK prices in the quarter. And we saw a strong demand for our value-added fertilizer products.

You have seen reports coming out related to falling mainly grain prices. And if we look at then on the right side of the slide, you can see here on cereals, we have a drop over the last couple of months. And in dairy, that is then flattening out a bit, but we have then sugar and we have meat and other products which are then increasing.

Looking at the food prices in general in total, we can see here, 2011 was the extreme on the high side and then 2010 is sort of the low side. And if you look upon then ’12 and ’13, we are actually in the middle of where we should be.

And that means if we compare that to 2005, 2006, 2007, considerably above from that time normal price level, which means that there are still considerable basis for the farmer then to fertilize in an efficient way.

What is also then not included in this graph here is the fruit and vegetables, the cash crops. Cash crops is not part of what FAO is reporting. And the reason for that is as Dag Tore says, this is actually a local business and that very much goes to the local markets as such. And this is more driven all the local trends in the markets locally, but as obviously then we know all over the world there is a tendency to eat more fruits and vegetables. So this is also then where they are requiring NPK. So for us, it is absolutely still a good environment seen from a farmers’ point of view.

Looking at the nitrogen deliveries in the quarter and so far in the season, we see here in the U.S. an 8% reduction compared to last year. And this is – we do believe there are several reasons, but there are two main reasons we believe and that is that there are – here some pipeline effect due to the high figures last year. So this is a good – you could see also then if you look upon tendency, it’s a bit higher than what you would believe it would be.

And then there is about 4% lower corn plantation in the U.S. And as we know, corn is heavy user of nitrogen that’s why you need nitrogen. And the 4% lower planted corn is about 2% lower nitrogen use, so at least 2% of the 8% is due to the lower corn areas.

If we look at Europe, as I said, it was 2% up, but as long as we have the conditions that we do have today and so far, which means that the farmers they have an interest in fertilizer in the most efficient way, you can look upon Europe as some sort of stable. It’s 100 and that is the differences between the seasons and the quarters are actually better, because we saw it last year that it was a late spring, and then late spring means that they are buying the products late, but we also then – through the late spring, then there is a bit less used fertilizer in particular in the grassland because they do not have the same amount of cuttings as you have if you have an early spring.

Also then on grains, on cereals, you have – actually you are not doing then the third or fourth topping. So but otherwise you can look upon Europe as stable and this is actually the level that we do have and you can see it on a very, very stable level year-over-year.

Then looking upon China. As I said also then last year – last quarter, the good thing is that we are not seeing more production growth than what we see actually it is very stable. We have to remember that every year over the last four, five years, we have 10% increase of the capacities, which means that there is quite a few plants which are coming onstream in China.

It is flattening out now in 2015 and 2016, but still we have some overhang of plants which were planned to be built and are coming onstream and those are modern plants. The modern plants very much using low efficient coal and that they can produce at a low price, but the fact that they are – we are not seeing this increase here. It means that there are quite a few plants which are curtailing. And they are curtailing due to the fact that the prices are at a level where they actually cannot make money.

And if we look at the urea price, you can see here it is flattened out and we believe at some sort of a floor when we have the coal prices as we have seen. And if you compare the prices last year and this year in the same period, it’s almost the same prices, which means that it looks like this is then the floor, we had also coal prices at the same level and the floor in China is at this level.

We had a peak here in March and this is we believe due to the India tender that was about 1 million ton which India took and they took it almost only from China that was delivered, that’s why we have this peak. We are getting now into the low tax season, July 1, the 15% tax. You remember that’s 40%, 45% -- 40 ringgit, which are – tax which are still on there, but the 15% which were last year 77% in this period. And this year it has been 15% and now it’s actually nothing except for the 40 ringgit – 40 renminbi I mean.

And would that have the same effect as it had last year, we don’t believe so. It could have some effect that there will be some more increased volumes coming out, but as we do believe that we are some sort of at the floor. There are unlikely that we will see considerable more volumes coming out of China. And the prices in China today is 260 for prilled and 290 for granular. The interesting thing in this regard is that the Black Sea is then considerably higher and also then at a stable level.

Looking that at the deliveries. We have seen a good growth also in this quarter and season of the NPK deliveries in overseas. And this is mainly to Asia and to Latin America. And this is again the story about the cash crops, because those volumes are going into the cash crops which have a stable level. And Latin America is fruit and vegetables, but also then flowers. In some countries, flower is an important element and they like NPK.

If we look at the deliveries by quarter, you can see here we had extreme strong delivery last quarter and that was due to the fact that we had the early spring in Europe, and they took all the products that they could which resulted then in a lower off-take, but the fact that it is as high it is, we can say this was then where we were, not see increase, however exporting has then continued and we then see here it would have been – if we hadn't had the export volumes, then this would have been even lowered down because that’s the European volume and then the export volume comes on top of it. So, also here then a good development.

Looking then at Brazil. We have seen here in this season that there is an increase of 7% year-over-year from 2010 to 2014. Does this mean that you can now see an exponential development of the fertilizer use in Brazil? No. We don’t believe that.

This is a stable growth which we can see here which will then continue. The reason that we have somewhat higher sales in Brazil in 2014 is due to the fact that we have – in the first quarter, we have the maze which are then planted and fertilized. And at the time of planting, it was very good and high maze price and that drove the need for fertilizer.

We think that this is an effect which actually is one-time and it will then continue on the stable development as we have seen in Brazil over years.

Looking then at the increase of deliveries from Yara. This is then the Bunge effect. Bunge and the combination of the two of us. And so far we are very pleased of the combination of the two. Very often when you are combining entities which are as large as both of us are, you normally don’t see one plus one is two, but because there are customers which do not want to only have delivery from one, but I must say we are so far very pleased with the customers reaction, and have seen then extremely good deliveries so far in Brazil.

So then Torgeir, you take us through the more details of the financials. Thank you.

Torgeir Kvidal

Thank you, Jørgen, and good morning to all of you from me too. And as Jørgen said, it’s now my pleasure to dig into more details on the second quarter performance of Yara.

If we start with the EBITDA, then you will see that we had an EBITDA in the second quarter close to NOK 4.2 billion. And you know that we categorize Yara’s earnings as strong if the CROGI or cash return on gross investment is above 10%. And in this quarter, we have a CROGI annualized of 14%. Those of you who are more familiar with ROCE or return on capital employed, I could mention that ROCE was 15% in the quarter. So it was a strong financial close of the northern hemisphere fertilizer season for Yara.

If we then go deeper into the development from last year to this year in the second quarter, you could see that our EBITDA increased with NOK 188 million. The biggest improvement was from gas prices in Europe for Yara. Yara’s gas price dropped 33 – or Yara’s gas prices dropped to 33% from last year, so we had a saving year-over-year of NOK 660 million. That’s slightly higher than the NOK 600 million saving that we guided on a quarter ago based on the forward prices.

But you also see that we have an improvement from last year based on fertilizer prices. So although realized urea prices dropped with 9%, we increased our total markets, thanks to the fact that we are not selling that much urea, we are selling more nitrates and NPKs. And the realized nitrate prices are up 5% from last year and NPK premiums improved as the realized NPK prices were in line with last year, while commodity prices and DAP and MOP dropped.

Then those improvements were partly offset by a negative volume or mix effect. And you can say as a starting point that may look a little bit strange for you when we said that our total sales volume were up 2% from last year. But that increase was due to higher sales in Brazil, mainly in both plants there which has a lower margin. So if you take away our Brazilian sales as such, our sales declined at 17% from last year as also Jørgen already have touched upon. And that was a drop of 21% in Europe due to the early spring where we have higher deliveries in the first quarter, and due to the fact that we had record deliveries last year in second quarter with the late spring last year.

Sales outside Europe declined slightly less, but it was still down 12% and that was mainly due to lower urea sales from our joint ventures in Qafco and Lifeco in Libya.

Then you can see we had a small positive effect on special items where we had positive effect this year of sales of minority ownerships in some distribution companies in Baltics, while last year we had a small negative effect by some historical sales gain – historical sales taxes in Brazil.

And then you can see we have a big other negative element, and that’s mainly related increased fixed cost, and half of that is related to Brazil. And that is, you could say compensated by a positive volume effect in Brazil. So when it shows our volume effect here in total of NOK 512 million, actually that is including a positive effect in Brazil of more than NOK 300 million. So if it hadn't been for increased sales in Brazil, Yara’s volume effect this quarter would have been roughly or more than NOK 800 million down. And as said, that is the phasing effect from both in first and second quarter and compared with the good deliveries of last year.

And then finally you see that we have other small positive currency effect, and that is translation effect as the U.S. dollar on average this quarter was stronger than a year ago on the average. And that gives a positive effect as Yara is positively exposed to U.S. dollar on its operations.

Then if we look slightly at the segments and how their EBITDA developed. I can start by saying that all segments delivered strong earnings in the second quarter. Downstream had a CROGI of 20% in the quarter, Industrial had a CROGI of 18% and Upstream had a CROGI of 12%. Upstream’s earnings were flat from last year. So you could say the improvement they have on gas prices were offset by lower commodity prices on urea and on ammonia, while Downstream benefited from the higher upgrading margins on nitrate and NPKs. And then you also have in relative terms big improvement in Industrial. And Industrial came in at the same earnings as they have in first quarter this year, which at that point told you was a record underlying result for Industrial. So they came in at the same level also in the second quarter.

When I say underlying, you may become a little bit suspicious and say, what do I take out of them? And the answer is that I take out historical positive effects in some of the previous quarters where we have big sales gain from selling ownership in our industrial gas business back some years.

Industrial improvement was due to better margins partly as commodity prices dropped and they were able to expand their margins. It was also by the fact of Industrial gradually introduced more and more technology in part of their sales, and as such improved those margins.

And it’s also volume effect. Industrial increased its sales from last year with 6%. And it’s a steady growth in all their product groups with one exception and that is for technical ammonium nitrate for explosives, where we see a cyclical slowdown in the mining industry.

But the area where Industrial have been growing most is in the environmental product and specifically what we call Air1, which is a high quality urea solution for NOx abatements from trucks and cars, and that continues to grow steadily at a high speed. So it decreased in total 29% from last year. And you see the biggest market for us currently is Europe but the fastest growing in absolute terms is U.S. and in relative terms it’s Brazil, which is the major part on the small hat that you see on top of this slide.

In this quarter we have passed the milestone of having delivered more than 1 million ton of product over the last 12 months.

Moving on then back to fertilizer products. We have underlined the good earnings on nitrates. And in this slide, you see the realized quarterly nitrate premium above urea. And as you can see, there have been a trend over the last years, we have been able to increase that due to good food prices particularly on more high quality crops, but also by steady focused marketing of the advantages of these products compared with more commodities like urea.

And then you see, we had a special step-up in the second quarter of this year on the nitrate premium and that’s also due to the fact that we had a very tight nitrate supply demand balance in Europe and were able to keep up the seasonal price all through the end of the season.

If you ask me then what – the starting price that you have announced for the new season, at what level is that? And we could say that starting price is slightly up from last year, and we already have a nitrate premium now in July in line what you saw in the three first quarters of last year. So a good start.

If you look at our other major upgraded fertilizer products, NPK, we also have a very positive margin development there. Like I said the margins that we produce on NPKs in addition to commodity urea is as you see on the left side and upgrading from phosphate rock to standard phosphate fertilizer and then a premium on top of that again as illustrated on the right hand side. And both of these have improved in this quarter compared to last year.

The phosphate upgrading has gone up as phosphate rock prices have declined over the last year. And you can see that on the right hand side as commodity fertilizer prices have declined. We have been able to keep up the prices of NPKs again due to good markets in high value crops and also focused marketing. And a part of this is also that we gradually by focused marketing and segmentation is moving product from more commodity like crops over to more cash crops. And it’s an increase sales outside Europe in this quarter on NPK, while the sales of NPKs in Europe dropped due to phasing effects and very strong deliveries last year as also mentioned on nitrates.

Another story that I am very pleased to talk about is the gas price development in Europe. And as mentioned, our gas costs in the second quarter were down NOK 660 million from last year. And if you look at the forward prices on gas, we expect significant gas cost declines also in the third and fourth quarter. If you use the forward prices, we will have a reduced gas spill of NOK 950 million in the third quarter and NOK 700 million in the fourth quarter.

We already commented quite a lot upon volumes as such including Brazil we increased the volumes by 2% and you see that is in this slide due to the increased sales of NPK blends there, but also the other product group which is mainly phosphate and potash products sold to a large extent in Brazil. And then you see that we had a decline in nitrates. Nitrate sales were down 28% due to lack of availability and early ending of the season in Europe. And NPKs were down 8%. All of that drop was in Europe, while outside Europe were slightly up.

And urea was down 20%, and you can see all that decline was from joint venture and third-party products, where the major drop was from availability of products in Qafco, which have had significant turnarounds in the quarter, and from our joint venture in Libya where we’re mainly been running ammonia and not the urea plants in the quarter.

Then a comment on our stock situation by the end of the season in Europe. Our total stocks in tonnage is up 46%. That is mainly due to the addition of the Bunge activity in Brazil. If we take away that, still our stocks are up 10% compared to last year. But last year, I would say was a record low stocks after a very strong second quarter. So if you compare then back to two or three years ago and take out Brazil, actually we are 20% below those levels. So we start this season with a very tight stock situation.

And then my final slide which is a theme that is close to my heart and that is the generation and the use of cash in Yara, and here expressed as the net interest bearing debt. We started the quarter with a net interest bearing debt at NOK 2.6 billion. Then we had cash earnings of close to NOK 2.8 billion. We also released NOK 1.4 billion in reduced net operating capital and that’s mainly coming from lower receivables as we came to the end of the fertilizer season in Europe. Then we have used close to NOK 1.6 billion of that cash in investments.

It is maintenance investments to improve the regularity of our system to continue to expand our marketing, particularly in Brazil, and it’s also some expansion projects ongoing like the TAN project in Pilbara in Australia.

And then we serviced our shareholders by paying out NOK 2.6 billion in dividend in this quarter. And then we have quite a significant other effects on the cash here [ph], which is related to phasing of VAT [ph] payments, salary payments and also translation effects on the debt which is not included in the P&L as such. So we ended the quarter at net interest bearing debt of NOK 3.3 billion. And that is still a very solid balance sheet. It gives a debt to equity ratio of 0.06.

So it is a strong balance sheet to continue to deliver cash flow to the owners and to generate further growth.

And with those comments, I give the word back again to Jørgen for him to summarize and comment on Yara’s prospects.

Jørgen Ole Haslestad

Thank you, Torgeir. Yes, we are also for the prospect the outlook in next quarters seeing strong farm economics overall and we have also then has to remember this element of our products coming into the fruits and vegetables area. We do believe that the prices coming out of China are, as I said, have bottomed out, and obviously the coal prices will have an effect, but we see unless there are major or we believe unless there are major changes in the coal prices in China, we will see the price picture coming out of China as we have seen it so far.

There are very little capacity outside China coming onstream in the next couple of years before it starts to tick in something from the U.S., but here also than China, but also Ukraine is a question, how much would then continued to be curtailed in Ukraine. Today it’s a considerable amount of volumes which are curtailed in Ukraine.

And so far, Egil is mentioning that the deliveries are in line with what we expect, and we are seeing good deliveries so far in the third quarter.

And also as Torgeir mentioned the gas effect on commodities is something that we, looking forward believe will continue then in the next quarters to come.

We have mentioned in Q4 presentations that we intended to spend about NOK 14 billion in investments, and we also said the investments here that we are making, we make in our own production facilities to a great extent in addition to what we buy in the OFD in Columbia, but very much to upgrade our own facilities. And there that the board approved yesterday the expansion of Uusikaupunki and we see here the island of Uusikaupunki with our plant. And due to the strong demand of NPK outside Europe, we are now expanding our capacity in Uusikaupunki with about 250,000 tons. And we are also then – we have done some upgrades on the harbor facility.

Actually we had done some dredging which means that you can now take big ships into Uusikaupunki and that is also very favorable for the export out to Asia. If we look at the CapEx that we are now within the next 1.5 years plowing into Uusikaupunki, we have about EUR 200 per ton capacity add-on CapEx spending.

If you would have compare that with greenfield new plant, it would have been four times as expensive, which means that this is a very good money when we are able then to expand our facilities and that’s also then what we’re trying to tell you then in the fourth quarter where we laid out our expansion program for investments investing our own plants make a lot of sense when there is a good need for our products as you have seen that there are in the market, thanks to good marketing activities that we have now over years been driving and obviously very good products that we do have.

We are expecting that this will be completed within 2015 and this is also then another element. If we had done a greenfield plant, it would have taken us four years. So lower costs and much quicker results from deliveries. So very pleased with this expansion and we will come back to you with some other stories in the next quarter to come with regards to where and how to invest into facilities like this to increase our value-added volume capacity. So, so far thank you.

Question-and-Answer Session

Thor Giæver

Okay. We will then get ready for the Q&A session where Jørgen Haslestad and Torgeir Kvidal will be joined by Yara’s Head of Market Intelligence Dag Tore Mo. So once we‘ve just done the physical reorganization. We hope there are some questions, and if you have a question, please raise your hand and we will bring you a microphone. Okay. We’ll take the first question from Bengt Jonassen.

Bengt Jonassen – Carnegie

Good morning. I have several questions actually. If I look at NPK, production is down 10% year-over-year, some comments on that, if that’s maintenance? On the expansion, how many similar possibilities do you have in your portfolio? The NPK expansion in Porsgrunn, is that on plan and should we expect production increase from the second half this year? Then a question to Egil. It’s six months since you signed the OFD transaction. Has the company developed in line with expectations since the signing? On the nitrate price, you said Q3 deliveries in line with expectations. How does that compare to last year, because last year you were forced to cut your prices starting in Q4. And finally on Qafco 5 and 6. When do you expect production back at nameplate capacity?

Jørgen Ole Haslestad

Qafco 5 and 6 is back. There are smaller modification still, but we are through then the maintenance activities, so they are back in operation. The expansion related to, you said Porsgrunn and other areas. We talked about the expansion in Porsgrunn and we are on time. We hope then to take that to the board in September, and we hope by third or fourth quarter then to push the button.

Related to the expansion potentials we have in Porsgrunn that you have mentioned, we have an expansion in our asset production in Sweden and we have also an expansion in Le Havre as a consequence of the expansion in Porsgrunn.

Torgeir Kvidal

Yes, I could comment upon the NPK production volumes and I don’t recognized your figure, Bengt, and that I remember a figure for this quarter and actually we said that total fertilizer production were up 2%, but that was mainly limited by urea, the joint venture parts of that. And also nitrate is down to 3% due to the Tertre stop in the first quarter which went into April.

On NPKs actually, the production volumes in the second quarter was up 13% and we also have quite a good production performance on that in the first quarter. So NPKs or NPK plants all over is running very well and we have had record productions in plants, for instance in Porsgrunn also of course reflecting the debottlenecking there. So we are up at running Porsgrunn at an annual rate in Porsgrunn for instance in this quarter of 2.2 million ton, which is accordance to the step-up – previous step-up project but we could double-check your figure where you had – you surprised me by the 10% down.

I think you may have all the figures there, but we’ll see on it. So it’s a good performance on NPK production.

Jørgen Ole Haslestad

And probably as we have Egil here today then he can comment upon then the prices and the expectations.

Torgeir Kvidal

On OFD?

Jørgen Ole Haslestad

On OFD, yes.

Egil Hogna

So if I start with OFD in Columbia, they have performed according to expectations this year. We still expect to have closing in the third quarter of this year. Regarding nitrate deliveries, they are both in line with expectations and in line with last year, and the order intake in July so far is higher than last year.

Thor Giæver

Okay. I think the next question is from Per Haagensen.

Per Haagensen – RS Platou Markets

Good morning. Two questions for me. First one is on nitrates. I am trying to get my head around how to think about nitrates. At the Capital Markets Day, you gave guidance for an average margin of around US$85. This quarter, you have close to US$160 – or second quarter you are close to US$160. Now we are running at a level around US$100. So clearly you will be above the US$85 for this year. So what’s the reasoning behind that? Is it your product portfolio that is different, how should we think about it and how should we model it going forward? And the second question relates to gas prices. Three years ago, you went from contract to spot. Now prices are down 30%. What’s your thinking now? Will you continue to be spot exposed? Is that a good place to be, or would you like to increase that and what’s your thinking around those things [ph]? Thanks.

Torgeir Kvidal

If I could start just on nitrate prices and back to the scenarios of the Capital Markets Day then. And I know that those scenarios in a way is partly over interpreted because we – it remains to say that this is not forecast by Yara, but there is what you say is relevant scenarios where you don’t have to make judgment and interpolation. And you are right that in that we used US$85 per ton as nitrate premium. That was just the last five year average as such as the reference point.

And then we agree maybe with you that currently with the market that premium should be more than that when the market gradually appreciates nitrate more and more, and the agronomic effects of it and also the environmental effects of it. So the US$85 was just five year history, and as I showed in the slide, it has been higher the last year. So I said it is probably crop prices, but also point to [indiscernible] organization. I think this is a continuous good marketing effort as such.

And then there were clearly some tightness in the first and second quarter without the premium, but that’s also reflecting that there hasn’t been with much new nitrate capacity globally. So these are old plants. So it was not only our Tertre plant, that’s partly failed in production but we also have [indiscernible]. And in that situation with the strong demand, you can have nice fly-ups like this.

Dag Tore Mo

And with regards to gas, we are staying at spot.

Torgeir Kvidal

And of course you get this question and prices have dropped, should you fix the price. And we have got a question regularly over the last three months. And so far maybe until the last week, when it’s come a little bit up again but still not very, very good levels, we have earned a lot of money on staying spot. So our overall strategy is to continue to stay spot. We believe that overtime that is the cheapest way to buy. We are able to do it also because we have some natural hedges in our business model as such.

And part of that is the flexibility that we have that if prices peaks in Europe on gas, we can shutdown part of the ammonia production and import ammonia as well.

Dag Tore Mo

And maybe just that if it was a question of fixing the price at current levels maybe that would have been very interesting, but that’s not straight forward. The forward price is already $10 in the first quarter of 2015.

Torgeir Kvidal

Which is also historically quite good gas price for the first quarter as such.

Thor Giæver

More questions at this stage? If you, on reflection – yes, we have another one, Eirik Melle.

Eirik Melle – Danske Bank Markets

Hi. I just have a question about the nitrates. You already commented on the change for the second quarter, but if you look at the first half of this year, it’s still down 11%. Could you just comment, elaborate a little bit further on it?

Torgeir Kvidal

Yes, on nitrate volumes as such, and I think that comes partly back to availability as such as we had one of our biggest nitrate plants partly out through the season and that availability was escalated in a way since you had an early spring and we are not able to deliver so much into June for the current season. So it’s very much availability, but of course we got it back also in better prices as such.

So our belief is clearly that nitrate should continue to grow and take market share due to environmental effects, but also due to agronomic effects with good prices of high value crops.

Thor Giæver

Another question from Per Haagensen or more than one it could be, let's see.

Per Haagensen – RS Platou Markets

Thanks. I’ll limit myself to one follow-up. This is mainly to Dag Tore really. With production in Ukraine being 50% or what it used to be, and Ukraine primarily delivering to near markets. Is Yuzhny a good reference price to use in terms of looking at urea prices and the effect on Yara’s earnings or should we use something else? Thanks.

Dag Tore Mo

Yes. Yuzhny is maybe not a very good reference. So consequently from what you are saying, there is reduced volumes through that port, but there is also quite a lot of Russian urea going out of the Black Sea from other ports. So for instance one of the publications, ARGUS, that has changed location from fob Yuzhny to fob Black Sea because Black Sea is still a relevant source, but with clearly less liquidity than before. But when you look at the relative pricing from the main hubs around, it’s still kind of fairly in line I would say with what has been historically. So it’s still a relevant place to follow.

Thor Giæver

More questions? Should you come up with more in the meantime, we do have a conference call at 2:00 P.M. Oslo time this afternoon, but until then thanks for attending the presentation.

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