UPDATE 2-Yara says late spring hits sales, shares slip

Fri Apr 23, 2010 5:41am EDT

Related Topics

* Late spring in EU and North America delays limit sales

* EBIT jumps 94 pct as fertiliser prices rise, tops view

* Production up to full capacity in Q1, eyes summer stops

* Repeats eyes M&A after losing battle for Terra

* Shares down 2.7 pct on rising Oslo market

(Adds further details)

By Wojciech Moskwa and Richard Solem

OSLO, April 23 (Reuters) - Norway's Yara International ASA (YAR.OL), one of the world's biggest makers of fertiliser, said a late spring is delaying and curbing sales, sending its shares down even after high prices boosted its first quarter.

Yara said fertiliser markets have improved substantially from the downturn witnessed in late 2008 and 2009, but the outlook is clouded by weaker grain prices following a strong harvest last year and higher energy costs.

Yara said a late spring "in key regions of Europe and North America" has delayed first application of fertiliser by up to a month and "risk-averse distributors are delaying purchases until they see farmers ordering for the second application".

"A late spring will mainly imply a delay of fertiliser sales from first to second quarter, but can also reduce overall demand for the season as the growing phase is shortened," Yara said.

Chief Executive Joergen Ole Haslestad told a news conference that he believes that global grain prices have hit bottom and strong consumption would boost demand for fertilisers.

"We are balancing on a really sharp edge," Haslestad said, as the impact of lower grain prices is balanced by strong expected growth in global grain demand which would require additional use of fertilisers to boost productivity.

Earnings before interest and tax rose to 2.32 billion Norwegian crowns ($391 million) in January-March from 1.19 billion a year earlier, topping an average forecast for 1.88 billion from a Reuters poll of 16 analysts.

VOLATILE MARKETS

"Yara has increased production to full capacity again in the first quarter and prices have continued to increase," Haslestad said, adding that the company was "prepared for volatile markets going forward" and may again curb production over the summer.

Yara said curtailments may be needed because NPK (nitrogen, phosphorous and potassium) deliveries may not fully recover this season due to the late spring, weaker grain prices and a weaker euro.

The global nitrogen-based fertiliser market may also remain weak due to allocation of more natural gas for fertilizer production in India, domestic gas subsidies for Ukrainian producers and higher urea export from China, Yara said.

"Going forward, in coming quarters we do not see much upside on our estimates despite the better than expected first quarter," Handelsbanken analyst Anne Gjoeen said in a note to clients.

Last month Yara lost a takeover battle for U.S. peer Terra Industries to CF Industries (CF.N), scuppering its U.S. expansion plans. [ID:nLDE6211HM]

Haslestad said the decision to walk away from the bidding war underlined Yara's "strict focus on financial discipline". Yara also pocketed 666 million crowns pre-tax profit in the quarter as a break-up fee from Terra, which initaly agreed to merge with the Norwegian group before CF made a higher bid.

He reiterated that Yara would continue to look for mergers and acquisitions in the highly fragmented fertiliser world.

"It's a pity that we could not buy Terra, but we are not getting desperate," Haslestad said. "There are lots of opportunities out there... the market is very fragmented still and needs consolidation." (Editing by Mike Nesbit) ($1=5.922 Norwegian crowns)

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