Yara International ASA (YAR) Earnings Call Transcript & Summary

Greetings, and welcome to the Yara's Third Quarter Results 2024 Conference Call. [Operator Instructions] I will now turn it over to Maria Gabrielsen, Head of Investor Relations. You may now begin.

Thank you, and welcome to everyone to this telephone conference. I'm here together with representatives from Yara's management in the room. We have our CEO Svein Tore Holsether; our CFO, Thor Giæver; our EVP Corporate Development, Magnus Ankarstrand; and our Head of Market Intelligence, Dag Tore. We are not planning to give a presentation as we hope you all just watched our webcast so we will, therefore, go straight into questions. So operator, if you could please open the first line for us.

Our first question comes from Lisa De Neve from Morgan Stanley.

The first question I have is -- do I understand it correctly that during the webcast, you sort of stated that you may have shelved your Porsgrunn green hydrogen projects. And if so, I mean, could you just share why and what would need to happen for you to maybe move back into green hydrogen even over the mid-term? That's my first question. And the second 1 I have is how are you looking now at the European farmer environment I mean, demand has been a little bit sluggish in the third quarter in terms of pre-buying. Do you expect that to come through potentially in the fourth quarter and to see a catch-up in demand? Or should we be more thinking about that potentially coming back in the spring of 2025?

Lisa, I'll start. It's Svein Tore. And with reference to your comment on the green hydrogen. And as you correctly point out, we said that we had shelved that one, and that relates to the full conversion. We did open our pilot plant earlier this year, and we are in the process of ramping that up and embedding that into the production at Yara. So that remains, but when it comes to the full conversion of the whole plant that we've been working on, it depends really on a number of factors coming into place like availability of renewable energy and at the right price, it's about grid connectivity as well. And also a system that enables profitable or at least an even playing field so that there's no first-mover disadvantage. These full-size conversions are large and at the moment, the premiums that you could get are not at the level that would justify full-scale conversion of the plant. So a number of factors need to come into place. We don't see that at the moment. And as we also said on the webcast, we are moving ahead with products that make economic sense and give a return and not only for sake of doing green investment. They need to go hand in hand for this to be sustainable in the first place. So that is what we meant with the statements on shelving the green hydrogen plant in Porsgrunn. And I'll hand over to Dag Tore on farmers.

Yes. I mean the same thing of the buying of nitrogen for the season in Europe, it's always hard to predict because it's, of course, depending on the sentiment and the expectations on the buyer side. Let's say, last season, for instance, many left it very late, and we got the price spike in the first quarter, quite significant price spike, let's say, last season, buying in fourth quarter would have been very profitable, particularly in November and December. So this kind of -- this is a game, right? I mean, the buyers try to optimize their buying behavior. And I can also mention relative to that, that you have a similar pattern in the U.S. U.S. and Europe are fairly similar in this regard. And in the U.S. have been even slower than Europe. U.S. was a net nitrogen exporter both in July and August, have a huge buying requirement to be covered between now and April. So this is not straightforward just to forecast from season to season. There's a shift depending on what kind of buying pattern the large buyers foresee or expect?

Our next question comes from Christian Faitz from Kepler.

Yes. Two questions, please. First of all, would you believe you still can be a consolidator for European fertilizer assets that might be on the market at this point in time. And the second question is any update on the Sluiskil CCS project in terms of timing and cost, et cetera?

Christian, this is Thor I can have a go at both these. Consolidation, I mean, we -- our priorities at this stage are very much on our existing business, improving our returns, getting the business and portfolio set up for sustainably improved returns. And in terms of growth, as you know, we are exploring large-scale ammonia production in the U.S., and that's also the focus in terms of our growth. And yes, so any sort of consolidating action with -- by -- as a start point, be a lower priority compared to those 2. In terms of the Sluiskil CCS project in Sluiskil, Netherlands, it's on track. It's on time and on budget, all green status.

Your next question comes from Alex Jones from Bank of America.

The first 1 in the presentation, you talked about a couple of reasons for stronger premiums this quarter. Can you discuss how sustainable you think those are, whether you're just getting back towards long-term average earnings in those subsegments, phosphate, NPKs third party in Brazil or whether there's any element of overearning in Q3? And any comment about those in Q4 specifically would also be helpful. And then the second question on the Tertre transformation project that you announced a couple of weeks ago. Can you give any guidance at this stage on the cash costs that might be involved just in restructuring and closing the ammonia capacity there?

Yes. Alex, it's Thor again. Firstly, on the premiums. I mean, this is the bread-and-butter of our commercial organization. We are constantly working on, if you like, our controllable part of this, which is about how much value can we extract for the additional productivity that the combination of our products and agronomic services can -- yes, how much we can extract there. I would say, currently, there is a limit in at least to some crops and that the broad-acre crops pricing is not particularly high, probably more upside there going forward, but that's sort of an external factor that we need to just relate to rather than influence ourselves. But as part of the portfolio work that we are doing to improve returns, then that will involve both looking at our production and market portfolio. So I think then as you know, on the external factors, for example, an increase in urea price in the absence of higher crop prices in itself puts more pressure on premiums, but it's our job to counteract that and work on the controllables, including the portfolio and how we optimize where we sell those premium products. In terms of the Tertre transformation I'll just make a brief comment, but this is an early announcement of an intention to transform, and we need to let that process run according to the local regulations. So at this stage, we don't have any more color on that, but in all likelihood we will revert further down the line.

Your next question comes from Chetan Udeshi from JPMorgan.

Just following up on Alex's question previously, I didn't hear the response very well. So I just wanted to confirm, I mean, these phosphate margin improvement, the improvement in Brazil trading business I mean these are all -- in theory, these are all sticky improvements. There shouldn't be a one-off within those improvements, unless, of course, the prices, et cetera, crash, but in theory, these should continue in Q4. Is that right?

Chetan, thanks for the question. It's a good clarifying one. I sort of limited my comments to Alex's question to the sort of the nitrate and NPK premium space. So you're right that in terms of the margin improvement that we delivered this quarter, that's been more about these effects on phosphate, potash and Brazil third-party margins. Certainly, the level we have this quarter is more representative of, should we say, normal average margin levels or in the case of DAP or the upgrading margin on phosphate, it's slightly below, but basically in line with average now and last year, it was 0. On Potash a slightly smaller effect. But again, we had significant headwinds last year because prices were falling so strongly. On Brazil, we're above normal, $42 per ton versus an average of $30. So that 1 is probably the 1 that's a bit ahead of normal. But here also, of course, that's our job to work to maximize that 1 at any given time. I think probably the cautions are in reverse order. On Brazil, pay attention to the season because the third quarter is the main season. So we're selling much more product there than in the other quarters. So you got a bigger effect. And on DAP, we published the price curve. So you can see that the difference is probably assets greatest when comparing year-over-year this quarter as we move into next quarter, it looks to be a positive effect, but smaller.

But I was of the view that you do have your own rock production in Finland. So why is the P margin moving so much? Is it maybe that you buy some of your requirements, raw materials from others because I'm just confused and to be fair, I didn't even think about this as a driver for earnings for Yara. So I just wanted to clarify how does it work for Yara in P especially?

Yes. No, we do produce phosphate ourselves, but we also buy. So that's why we don't normally have sort of big effects on the phosphate rock price in isolation. But the key 1 for us is the upgrade from rock to DAP translated into NPK. So that's the caution as well that these aren't sort of -- we're not selling much DAP. We're selling a lot of NPK. So in any given quarter, these are sort of -- these will be estimates, but we have to call it out this quarter because it was such a big swing.

Understood. And maybe if I follow up on Brazil because clearly, it seems there's quite severe drought across Brazil, even river levels are much below normal. Like what is your sort of impression of the planting season so far, demand, et cetera, in Brazil? Is there a risk that you might have already sold into the market, but eventually the use of some of these crop inputs by farmers might be limited because of not very good weather? And how does that impact market dynamics as we think about Q1 globally? And the second question, I was just curious, you produced much more than you've sold in Q3. Is this something that you think will continue? Because at some point, I guess, the 2 has to balance out, right? Because otherwise, you're just building inventory and typically when you build inventory, I guess, your margins benefit. So I'm just curious how do you see the trend into Q4? Are you still producing more than you're selling? And at what point that might have to be changed?