Ladies and gentlemen, thank you for standing by. I would like to welcome everyone to Yara's Q4 results 2023 Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the 1 once again. Thank you. I will now hand the call over to Maria Gabrielsen, Head of Investor Relations. You may begin your conference.
Thank you and welcome to everyone to this telephone conference for Yara's Q4 results. I'm here together with some representatives from Yara's management today. We have CFO Thor Giæver, our Head of Market Intelligence, Dag Tore Moe, and EVP Corporate Development and CEO of Clean Ammonia, Magnus Ankarstrand, as well as other representatives from Yara. We hope you have all seen the presentation we've had today, and we will therefore go straight into questions. So operator, may you please open the first line?
Thank you very much. Our first question comes from the line of Christian Faitz from Kepler Cheuvreux. Please go ahead.
Yes, thank you. Good afternoon and good morning, everybody. Couple of questions, please. There's been quite a few asset transactions lately. First part of the question is, would any of those assets have been of interest to you? And then the second part of the question is, if any interesting assets still come up for sale - I'm thinking, for example, of blue ammonia projects in Texas - would you be interested to buy a project in progress rather than build your own? And on your own ammonia projects, blue ammonia projects, you mentioned in your presentation an FID, which might come in the second half of 2025. What if there is a political change in the U.S. - in brackets, God forbid, obviously - but that could make any blue ammonia projects that are still in the planning stages nil and void? Thank you very much.
Hey, thanks, Christian. Hi, this is Tore. I mean, first of all, on asset transactions, we are typically well aware and informed of the opportunities that are there. So if we are not involved, you can usually assume that we've considered but decided not to. And then, of course, linking to your second question, we do have ambitious growth plans and a lot centered around clean ammonia, very much focused on the projects that we've described that we are in the process of maturing in the U.S. I think on the question of political change - Magnus can maybe comment more - but what we've seen so far is that there's probably quite some diversities.
So we say, if you're looking at the broad range of incentives, there's probably more risk around the sort of pure green type, for example, electric vehicles and so on, than the more industrial-focused activities that our projects are targeting.
Yeah. Maybe to add, I think our projects in the U.S. are focused around CCS, so the 45Q section of the Internal Revenue Code. That has been in place for quite a while before IRA as well, even though that gave it a boost. But I think also, importantly, we don't consider large-scale investments based on subsidies or government incentives alone. It's a combination of competitive edge around those projects, such as feedstock cost, scale, etc. So it's more things than just a subsidy.
Okay, great. Thank you both, and congrats on the results.
Thank you. Our next question comes from the line of Aron Ceccarelli from Berenberg. Please go ahead.
Good morning. Thanks for taking my question. I have one on supply. My understanding is that most of the supply addition are largely behind us. Maybe can you give us an idea of how the operating rates are in Europe at this stage for the industry? And considering that cost of gas could become cheaper this year, how do you think potential increase in operating rates and impact on pricing? Thank you.
Yeah, I'll say Dag Tore here. I think that there is still some curtailments in Europe, but it's a bit hard to judge exactly how much. I mean, the companies tend to be more eager announcing the curtailments than announcing the restarts. And I think that you can assume, as you say now, with gas prices at or below $9, it fluctuates a little bit, there is positive margins. So there have been some announced restarts. We have announced restarts ourselves, Romania, other places. So I cannot give you a precise number, but I think your point is valid, that given if this gas situation continues, there is likely to be a higher production level of nitrogen in Europe in 2024 than what we've seen in 2022 and 2023. So that everything else equal, that is a negative factor for the pricing environment.
Thank you. Maybe can I ask you one on your deliveries in Africa and Asia? I think that was a good starting for ahead of the planting season there. Maybe can you elaborate a little bit more on what you're seeing there and how you see exports coming from China at this stage? Thank you.
Yeah, I can start on the Yara part and Dag Tore perhaps on the Chinese exports. But yeah, you're correct. We had a 13% increase in our Africa and Asia unit year-over-year, and virtually all of that was thanks to improved demand in Asia coming up to the main application season there. And also compared to, as in a lot of areas, quite a slow Q4 in 2022. In terms of Chinese exports, I mean, that's very limited, if any at all, right now. But Dag Tore, you can share something.
Yeah, I think, of course, this is another. You mentioned two important supply issues here in your two questions. Those are maybe the top two on the supply side for 2024. I think that the industry was kind of hoping for some clearer signals from China before the lunar holiday that they have now started. I guess it's the 10th that it's today, but they have been traveling around for a while already, scaling down. So I doubt that we will get any clarity before they are kind of back in full swing after their holiday. Consensus seems to be that it's logical to expect kind of a resurfacing Chinese export sometimes during Q2 and that the level of exports then for the rest of the year is one of the uncertainties on the supply side.
I could maybe just add sort of on looking at history, sort of the Chinese exports tend to be quite strongly correlated with stronger margins globally. So that if you are, shall we say, concerned about increasing Chinese exports, historically, they've tended to be for positive reasons.
That's very clear. Thank you.
Thank you. Our next question comes on the line of Priya Patel of UBS. Please go ahead.
Hi, just one question from me. You mentioned in the presentation that you're rolling out the fertilizers using the green ammonia produced from your Porsgrunn plants. How do you think about pricing these green fertilizers? Do you expect to receive a premium versus the fertilizers that you make using grey ammonia?
Yeah, thank you. Yeah, it's correct. We are commissioning our pilot project in Porsgrunn right now. I think we have some of the volumes contracted as well, and we are certainly seeing and expecting a green premium on those products, considering the significant reduction or, I mean, the lack of any carbon footprint in those products. But we can't comment specifically on levels, but there is a green premium.
Okay, thank you.
Thank you. Our next question comes on the line of Rikin Patel of BNP Paribas. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. I had one on volumes. So you had an interesting graph in the presentation showing the catch-up rates for application in Europe. Could you maybe just provide a bit of context on how you see volumes shaping up for Q1? I suppose if I look historically, at times, you've been able to hit the 7 million-ton mark overall. So I'm just curious what sort of recovery potential you see for Q1, especially given the comp for last year should be relatively easy.
Yeah, so it's always sort of a tough one to sort of try and predict the exact increase. But as you probably saw in the presentation, we've shown at least if you, as you point out, last year was not a spectacular year either. And of course, a lot of volatility with very high prices in the first part of the season. We've compared it to going a couple of years further back, which was a more normal level. And if we were to achieve that level for this full season, that would be about 6% increase. You've seen the market generally tighten earlier this year, and we can certainly confirm that we've seen that in our orders and deliveries as well. But there's also sort of there's a sensitivity to weather factors, spring planting conditions.
Also, as we get into the Q2 , how buyers are positioning themselves in terms of pre-buying for the next season. So many moving parts here, but the positives are, as we highlight, that overall, the deliveries are running behind both in Europe and the U.S. The incentives are better than a year ago. Of course, we've seen the market respond consistent with those factors.
Thanks. Makes sense. Just had a second one on cap allocation. You mentioned earlier your ambitious growth plans revolving around the blue ammonia projects in the U.S. I suppose when you think about cap allocation strategy over the next sort of 2-3 years, how do you sort of calibrate those growth plans and the CapEx, if and when it does come, up against the need to, I guess, recover the base dividend following the cuts today? Thanks.
Yeah, so I mean, as we've noted in the presentation, we are working towards FID most likely in the second half of 2025 on these projects. And in parallel with that, we are, of course, planning for the funding of those. I can refer a bit back to the capital markets day where we emphasized that we are looking at a range of levers here, including our own portfolio in terms of improving the efficiency and potentially making changes there. Divestments are certainly an option within that. And also, as you know, we have a potential IPO or other funding linked to YCA, as well as the now improving earnings trend. So I think all those factors will be considered in parallel with maturing the project. So we'll be, of course, more specific on this as we approach and reach FID.
Okay. Thank you very much.
Thank you. Our next question comes on the line of Charles Bentley of Jefferies. Please go ahead.
Hey, great, guys. Thanks for taking the question. So just my first one was just around position adjustments. Can you just confirm what the quantum was in Q4 that was relevant versus what the kind of sensitivities would have shown? And also just anything we should be bearing in mind in total as we think about the 2023 versus 2024 base? That's my first question.
Right. So sorry, the audio was a bit poor here, but I think you were asking about the sensitivity adjustment factor, right, based on that we weren't, so we can, Maria, add if needed here. And you can, of course, dive more into this with IR also after this call. But we had a higher curtailment in the Q4 last year around 29% for ammonia and 14% for finished fertilizers. So there's some detail on that, of course, within urea, nitrates, NPKs, and so on that I won't go into here. And maybe the final comment is that, of course, it's the deliveries rather than the production as such that set the sensitivity.
So, in a way, for any given quarter, if you look at, "Okay, what are the deliveries in the reference periods compared to what a, shall we say, normalized production-level sensitivity looks like?" So, a few moving parts here, and I'm sure we can help you get more into the detail of this individually.
Great. I was specifically asking around the position adjustments, so essentially the prior year write-downs that we need to consider from 2023.
Yeah, okay. By segment?
No, no, just at a group level.
Yeah, so I mean, the start point, of course, the write-downs, particularly in the first half of 2023, being a significant part of the earnings picture. So we're getting questions sort of, "How should you think about that as you model into 2024?" Again, I think it's something you should see together with the sensitivity adjustments. And I think probably a short version is to be careful to sort of, shall we say, 100% adjust these movements out. Because as you may recognize from our communication earlier this year, write-downs are an accounting element that you do kind of at the end of the month. But every day, particularly during the first half of the year, you would have been selling products that were, shall we say, either at low or sometimes negative margins. And that's why we've talked about position effects that were larger than the actual write-downs.
But it's also, of course, last year was exceptional. When you're going into this year, you also need to pay attention to what the sort of price and market dynamic is. But I think the overall message is sort of be careful with simply just removing the write-downs from your base.
Very clear. So my second question was just around, sorry to keep hanging on, about the FID on Texas Blue on your blue ammonia project, sorry. But my understanding was you're meant to be making that later this year. I mean, just in terms of kind of a delay to that FID, can you just talk around the kind of considerations there?
No, we have always had FID in 2025. We have some principal approvals that are likely to take place during this year, but FID is 2025.
Okay. Is there any kind of update with respect to the MOU with your Japanese partner?
Yeah, no, I'm going to talk about that. No, I think we are working with a range of partners, including the ones that we have announced. We do that development, obviously, in tandem with the project development. I mean, these are, as you know, large projects that take time to develop. But so we continuously work both on the supply side as well as the uptake side with those partners.
Great. Thanks very much.
Thank you. Our next question comes on the line of Chetan Udeshi from JP Morgan. Please go ahead.
Hi, thanks. I have a question. I'm intelligent. Go ahead.
Apologies, Chetan. We're having difficulty hearing you. Could you move closer to the microphone, please?
Is this better?
Much better. Thank you.
Okay, fine. I had a few questions. Let me start with the first one. I was just listening to you that you've actually seen the market pick up in January, and we can see that in the urea prices. But we've actually seen no movement on the nitrate prices in Europe. Can you throw some light on what's going on with nitrate and why is that not following the urea price trend so far? The second question was, I was looking at your slide 23 where you're talking about how your nitrate business will actually benefit from decarbonization of ammonia. I mean, I understand what you're trying to say, but I'm just curious, why would your competitors not do the same?
Because importing ammonia and upgrading it into nitrate locally in Europe, I think many of the existing nitrate players would have done that already in the last two years of very high European prices. So why would those competitors not do the same? And the last question is, I mean, the sale of OCI's IFCO business in Iowa, I would have thought Yara should have been the most interested party in that business, just given that your footprint in the U.S. is much smaller. So any thoughts around why was that not the case? Or was it just a question of who offered what rather than Yara not necessarily being interested in that business? Thank you.
Okay, thanks for a nice bouquet of questions, Chetan. I can start on, I mean, in terms of the nitrate part, I think we, of course, had a weaker development on urea prices in the Q4 and then a rebound this quarter. So that's part of the picture that, in a way, that meant we, at the time in the Q4 , had a very strong nitrate premium. And then it's, of course, reduced now, not because we've reduced any prices, but urea prices have risen. But there's no doubt that the momentum we've seen now gives us the opportunity to increase our own prices. But of course, we'll announce that as and when we do it. On the nitrates, I think thanks for the opportunity, I think, to talk to some of the key reasons.
I mean, first of all, what we are doing here or planning to do to bring in low-carbon ammonia to strengthen this part of the business is not something anyone has done before. And also, it's something we are better positioned to do. And of course, CBAM isn't effective yet. So that's also another. It's not a sort of boost you would get now, but it certainly will be in a few years. So why can we do this? Well, first of all, start with our footprint in Europe. We have a larger and more flexible and better-located network of plants than anyone else. All our plants are close to port, and most of them are flexible on ammonia sourcing. That's not the case for most of the rest of the industry.
We also have the world's leading ammonia trade and shipping network, and we also have these project opportunities in the U.S. So all of these and then there's the shifting our energy mix and so on that's also a benefit. So I think there's a long list of synergies for Yara here that essentially no other player can tick off all the same boxes.
Can I just add maybe towards that? What's the logic in the slide in the presentation is that we don't think the European nitrogen market can be satisfied with nitrate products. There is simply not enough nitrate capacity globally, and it's not growing. There's hardly any investments going on in nitrate. So we believe that it is the urea price that is setting the nitrogen prices in Europe, and that will remain the case for the coming decades. Europe cannot do without urea. So if there are others that are I'm sure also others would try to look at opportunities similar to this. But as Thor mentioned, there are many inland plants, and others are in a more difficult position in actually making the logistics work. But yeah, to make that point as well.
On the OCI IFCO question, I mean, Magnus can probably add here. But I would say sort of generally speaking, it's often a challenge with these kind of acquisition opportunities is that they're fully priced. And then, of course, there's also the fact that we have our own projects that we expect to be highly profitable that we are working on. I don't know if you.
Yeah, no, and obviously, we don't comment on processes we are or not a part of. But I think we have our portfolio strategy. We have our capital discipline and plan, and sort of we execute according to that.
Thank you.
Thank you. Our next question comes on the line of Tristan Lamotte from Deutsche Bank. Please go ahead with your question.
Hi. Thanks for taking my questions. First one, I was wondering if I could try again on this number in the bridge for price/margin. Based on the sensitivity, it comes out with $1.4 billion impact. The amount that was shown in the bridge was $970 million. So I was wondering if you could bridge that difference there. I know that part of it is due to volume, maybe $200 million or so. But what's the delta?
Yeah, without sort of going into the numbers in detail, but yes, the largest effect reason for the sensitivity is giving you a bigger negative price effect is that, as we mentioned in the presentation, that the reference period, Q4 2022, was a period where we did not produce or sell at the level of, shall we say, full production that the sensitivities assume. The other significant element is that we did already in the Q4 last year have a falling price environment. So we did already have some write-downs there. And again, negative position effects that were larger than the write-downs because the write-downs just reflect your status at the end of the month. So they're the two main factors there. And then, as you know, I mean, we have a large global business with many elements.
There are probably others that play in here, but they're the two main ones.
Great. Thank you. And the second question, the urea spot price for Middle East urea granular is $360 per metric ton at the moment. Europe is now the marginal cost urea producer with a higher gas price. What do you see as a normal range for urea prices now is $300 a floor, do you think? And drawing on from that, you did 1.6.
You fell out at the end there. You said drawing on for that, and then we didn't hear anything more.
Hey, Svein. He has dropped from the conference call team.
Oh, okay. So, I know. Dr. Thor Giæver, do you want to comment on the—I mean, I can start in terms of urea price. Of course, we will not give a projection for urea prices. What we've seen lately are, I suppose, elements of demand-driven pricing, right? Because urea prices are now higher than the production cost in any region. So there was a question about what's the floor price here, which would—Dr. Thor Giæver, at this stage, would be China?
Yeah, China combination with Europe maybe. I guess if you just look at the economics, I think that probably the floor price from China is maybe somewhere between $250-$275, maybe something like that. There's been falling coal prices also, not only gas. And in Europe, we have to say that the gas price is 10 round numbers, consumption factor of 20 or something, or $200 gas. We have carbon power, something that probably costs maybe by variable costs also below $300 in Europe, I suppose, right now. So as you mentioned, that $360, the latest one in Arab Gulf is actually $385 now.
So, that's clearly. We clearly have a demand-driven situation where, well, as I said earlier, the question there, I think there's still some curtailed capacity in Europe, but we have to expect that to be a timing issue because there are positive margins, so that right now, there shouldn't really be market-related curtailments anywhere.
Just to quickly mention for anyone sort of looking at these swing price factors, always keep in mind, are you looking at an export or an import region? China clearly is an export region while Europe is an import region. That means that there is a freight advantage for the plants located in an import region.
Thank you. Tristan Lamotte now joins us back.
Hi. Sorry, I think I got cut off for the end of that. The end of the question was just that you did $1.7 billion in EBITDA in 2023. Do you see this as a more normalized level of EBITDA going forward? And what do you see as a normalized level of EBITDA? And what kind of range would you expect between the low and the peak cycle?
No, I mean, we don't guide on financial results, but you've seen and we did highlight in the presentation that we've had a sequential improvement from second to third and now Q4 . So it's clearly a positive development both for the Q4 and what we've seen in the market so far. And then longer term, of course, we do have a positive view in terms of there being very little of new capacity coming into the market from now onwards, really, and for several years. So we are positive longer term, but the sort of short to medium term, we are well aware, along with all of those of you who follow this market, that it's harder to call a shorter-term development.
As we say in the report, there are plenty of factors pointing to a positive situation, volume catch-up, and improved margins in the first half of this year.
Thanks so much.
Thank you. Our next question comes on the line of Aron Ceccarelli from Berenberg. Please go ahead.
Hi. Thanks for taking the follow-up. I understand it's not the core part of your business, but I was looking at the MOP and SOP deliveries in Americas, and they were up around 28%. Maybe can you provide some color around that, please?
I think that's probably one we'll need to, I suggest, you take with IR afterwards because we don't have quite that sort of region product, shall we say, expertise available on this particular call.
No problem. Thank you.
Thank you. Our next question comes on the line of Charles Bentley of Jefferies. Please go ahead.
Great. Thanks very much. I just wanted to ask a couple just as a follow-up, just on Sluisk g in the CCS project. So I mean, can you just give any indication? I know you've kind of disclosed it will capture 800,000 tons of CO2. That seems to me like it'd be something like 25% of overall CO2 from the project, from the plant. Is that right? Is it on one or a couple of lines of the project, of the plant, or is it just at a lower capture rate? And then just in terms of where you think that would go to in terms of end product, so would it be more on the nitrate side? I mean, yeah, I would assume it would go into nitrates. It was just to kind of confirm on that.
Yeah, I can. I mean, you're right in that this is, it doesn't cover the full ammonia production in Sluisk. It's one of the units, and it's also a roughly 60% capture rate. So I think those two factors probably account for if you're sort of looking at this in relation to the total output there. Where this ends up, I think you're right, certainly nitrates is part of it, but that will be, I think, part of our as we approach, shall we say, job one on the production here, we will, of course, look for where are the most promising and profitable opportunities to sell that low-carbon product.
Then, I mean, just in terms of I don't know. At what point would you explore and kind of commercial exploration on that basis? Has that already begun? Is there anything kind of mature already?
Yeah, absolutely. I mean, this is of course, with this project, with the U.S. projects, I mean, maturing the market side, getting agreements in place is a core activity for our commercial organization. So that's very much on the way. And then we need to optimize a bit sort of in terms of the given that we don't have a whole lot of green or blue tons right now, there are limits to how far we can go in landing firm arrangements until we are closer to production.
Great. And maybe just that as well, that I mean, the CO2 we capture from that plant, it's a processed gas. So there's an important distinction there compared to other CCS projects, for instance, within cement or waste engineering plants where you capture the flue gas. So I mean, the CO2 that we capture here is already captured through the process in a way, which is, of course, important for the business case, I thought.
Absolutely. Thank you.
Thank you. As a reminder, if you'd like to ask a question, please press the star, followed by the one on your telephone. That's star one to ask a question. Our next question comes on the line of Molly Gorman of Verticon. Please go ahead.
Hello. Molly Gorman from Verition here. I just wanted to ask regarding your green ammonia pilot project, if there's any indication of when that would start and what sort of volumes?
Yeah. No, the volumes I think we announced before, it's around 20,000 tons of ammonia, which will equate to anywhere between 45,000-70,000 tons of finished fertilizer, depending on which grade. And that project, it's in commissioning phase now. We have, during commissioning, produced the first tons, but sort of normal commissioning and testing of the facility now.
Is there any sort of specificity about what sort of time this year that might be?
The phasing this year? Yeah, it's commissioning now. So I mean, we have not sort of specified this by month, but the tons are coming now, and we'll be ramping up during this year.
Yeah. I mean, and it's like any other plant startup. I mean, you gradually increase capacity throughout the year, but exactly how much also depends a lot on how the commissioning goes.
Thank you very much.
Thank you. We have a further follow-up question from Tristan Lamotte from Deutsche Bank. Please go ahead.
Hi. Thanks for taking another question. I was wondering if you could just talk about the farmer economics that you're seeing by region. We've heard a lot about pressure on farmer P&Ls in parts of Europe, but you've talked about improving economics. I'd be interested to hear about the different trends by region and by product, if possible. Thanks.
I can maybe start here. Of course, when we presented Q3 , we were kind of asking a bit sort of why weren't the volumes why weren't the market more active now? Because we saw already then that the incentives when you compare, typically, or in our case, nitrogen prices to crop prices like wheat and corn and so on. But then we mentioned that, okay, higher interest rates could be contributing to not buying the product so early. And also, in some cases, that some farmers may have bought product at higher prices in the previous season and then seen them drop, and for that reason, also, we're waiting. But now, essentially, buying-wise, we're in the main season now. There aren't many customers in the northern hemisphere that either would have need to have bought by now or should be doing it very soon.
So in a way, those timing elements are less important. Dag Thor , do you want to talk?
Yeah. Of course, it's a little bit tricky because there have been such a strong short-term volatility also. So it changes by month a little bit. But what we try to flag is that we had very high prices in 2022 and in part of 2023, that we think that those seasons were really a bit distorted by these facts. So that at least now, we are closer to average, I would say, both on the food price side and the fertilizer price side.
That appears to be no further questions at this time. I will now turn the call back over to Maria Gabrielsen, Head of Investor Relations.
Just want to say thank you for everyone for dialing in and for your good questions. Thank you and goodbye.
Thank you. This does conclude today's conference call. We thank you for participating, and you may now disconnect.