These are the good times
Editorial from the September/October issue of Fertilizer International
2021 is turning out to be a very good year for profits and earnings. Take Nutrien and Yara International, for example, the fertilizer sector’s two biggest companies by market capitalisation.
Nutrien generated record earnings of $3.0 billion and free cash flow of $1.9 billion in the first half of 2021. These represent year-on-year rises of 36 percent and 40 percent, respectively, compared to the first half of last year.
“We delivered record earnings across our global business for the second quarter and first half of 2021 and expect the remainder of the year to contribute to a full year record,”
commented Mayo Schmidt, Nutrien’s president and CEO. He attributed the company’s record earnings to a strong operating performance and, importantly, its ability to capitalise on higher fertilizer prices.
Similarly, Yara International’s first-half 2021 earnings were up by 27 percent to $1.4 billion, while its net income rose from $105 million to $553 million. Furthermore, the Norwegian-headquartered company has generated a mighty $3.0 billion in free cash flow over the last four quarters. Yara specifically credited higher product prices for boosting its financial fortunes.
And what a year it’s been for fertilizer prices, as the following mid-August benchmarks show:
potash cfr Brazil ($678/t), DAP f.o.b. Tampa ($669/t) and urea f.o.b. NOLA ($423/t) being up by 180 percent, 102 percent and 80 percent, respectively, year-on-year.
Unsurprisingly, the key questions for the fertilizer market currently are what’s driving the current price rally – and, crucially, will it last?
Analysts have previously advised that market fundamentals could keep fertilizer prices elevated throughout 2021. As Chris Lawson, CRU Group’s head of fertilizers, commented in our March/April guest editorial: “This is very much a demand driven rally. Capacity will respond to high prices and bring the market back to balance.” As always, the main question was when.
As recently as mid-June, CRU’s advice was to: “Beware the bubble – this is no commodity price supercycle.” Yes, fertilizer prices are still on an upwards trajectory and delivering robust margins for producers. Yet, in CRU’s view, enough capacity will eventually emerge to burst the current price bubble.
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“Capacity is ample, and more is being built across the nitrogen, phosphate and potash segments. High crop prices are expected to continue well into 2022 – but we anticipate oversupply to pull fertilizer prices lower by the turn of this year,” said CRU.
While CRU still believes there is no commodity supercycle, some of its key identifiers – namely demand disruptors and capacity constraints – could eventually support this happening.
Foremost among emerging ‘demand disruptors’ is the accelerating green ammonia revolution (see article). This, in turn, is being driven by what CRU calls the astonishing level of interest and investment in green ammonia, with new projects being announced almost daily.
CRU therefore expects the potential for a fertilizer price supercycle to increase as the market for ammonia as a low-carbon fuel and hydrogen carrier expands in future. Nevertheless, green ammonia is still unlikely to have a significant demand impact until much later this decade.
So, what of the more immediate outlook for prices? Rabobank in its recent Semi-Annual Global Fertilizer Outlook expects high fertilizer prices to remain for the rest of 2021.
Fertilizer prices, notes Rabobank, are currently at their highest levels since 2012.
This rally, in turn, is linked to rocketing soybean, corn, and wheat prices. These have either more than doubled or nearly doubled between mid-2020 and mid-2021 – prompting farmers to increase fertilizer application rates in pursuit of higher yields and revenues. These fertilizer demand pressures have also undoubtedly been exacerbated by supply constraints.
“After several years of low margins, farmers in the US took the opportunity to refill soil nutrients, which further incentivized heavy applications,” says Matheus Almeida, senior analyst – farm inputs at Rabobank.
Despite this, Rabobank expect higher availability to pressure urea prices in 2021’s second half, while excessive phosphate price levels are eventually expected to soften demand and prompt a price decline. Potash is expected to buck this trend, however, with a tight balance sheet spurring further prices rises in 2021.
In the short-term, any downward price correction also looks like being relatively minor. On that basis, the good times of 2021’s first half should translate into a very good year overall.
Editor of Fertilizer International
3 年Just wish to point out this editorial was written in late August as a commentary on buoyant H1 revenues & earnings. The subsequent European energy crunch and ammonia production shutdown this autumn has clearly been a sobering corrective. What can I say? I guess writing anything titled "These are the good times" is inviting hubris!