Greetings, and welcome to Yara's Third Quarter Results 2024 Conference Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. 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 representative from Yara's management. In the room, we have our CEO, Svein Tore Holsether, our CFO, Thor Giæver, our EVP Corporate Development, Magnus Krogh Ankarstrand, and our Head of Market Intelligence, Dag Tore Mo. 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. Thank you.
Thank you. Our first question comes from Lisa De Neve from Morgan Stanley. Your line is now open.
Hi. Good afternoon. Thank you for taking my two questions. 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 project? 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 midterm? That's my first question. And the second one 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 catch-up in demand, or should we be more thinking about that potentially coming back in the spring of 2025 ?
Thank you very much.
Thanks, Lisa. I'll start it, 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 Herøya. 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 a level that would justify a 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 the sake of doing a green investment. They need to go hand in hand for this to be sustainable in the first place. That is what we meant with the statements on shelving the green hydrogen plan in Porsgrunn. I'll hand over to Dag Tore on farming.
Yeah, I mean, the phasing 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 a price spike in the first quarter, quite significant price spike. So let's say last season, buying in fourth quarter would have been very profitable, particularly in November and December. This is a game, right? I mean, the buyers try to optimize their buying behavior. And I can also mention relative to that, that in the U.S. 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. The U.S. was a net nitrogen exporter both in July and August, and 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 is shifts depending on what kind of buying pattern the large buyers foresee or expect.
It could be more on this, demand.
Our next question comes from Christian Faitz, from Kepler. Your line is now open.
Yes, thanks very much. Good afternoon. 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? The second question is, any update on the Sluiskil CCS project, in terms of timing and costs, et cetera? Thank you.
Yeah. Hi, Christian, this is Thor. I can have a go at both of these. Consolidation, I mean, 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 yeah, so any sort of consolidating action would, you know, by as a start point, be a lower priority compared to those two.
Thank you.
In terms of the CCS project in Sluiskil, Netherlands, it's on track. It's on time and on budget, all green status.
Great. Thanks very much, Thor.
Your next question comes from Alex Jones, from Bank of America. Your line is now open.
Thanks for taking my questions. The first one, in the presentation, you talked about a couple of reasons for stronger premiums this quarter. Can you discuss how sustainable you think those are? You know, whether you're just getting back towards long-term average earnings in those sub-segments, you know, 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? Thank you.
Yeah. Hi, Alex, 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, you know, is about what, how much value can we extract for the additional productivity that the combination of our products and agronomic services can... Yeah, how much we can extract there. I would say, you know, currently there is a limit in, at least for some crops, in that, you know, the broad acre crops pricing is not particularly high, probably more upside there going forward.
But that's, that's sort of a, an external factor that we need to, just relate to, rather than, than influence ourselves. But, as part of the, portfolio work that we are, doing to improve returns, I mean, that will, that will involve both looking at our, our production, and market portfolio. So I think, then as you know, you know, on the external factors, for example, an increasing, urea price in the absence of, of higher crop prices in itself, puts more pressure on premiums, but it, it's our job to, to counteract that, and, and, 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 that this is an early announcement of an intention to transform, and we need to let that process, you know, run according to the local regulations. So at this stage, we don't have any more color on that, but you know, in all likelihood, we will revert further down the line.
Thank you.
Your next question comes from Chetan Udeshi, from JP Morgan. Your line is now open.
Hi, thanks for taking my questions. You know, 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 improvements, you know, the improvement in Brazil trading business, I mean, these are all, in theory, these are all sticky improvements. You know, there shouldn't be a one-off within those improvements, unless, of course, the prices, et cetera, crash. But, you know, in theory, these should continue in Q4. Is that right?
Yeah. Hi, hi, Chetan. Thanks, thanks for the question. That'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. But you're right, that you know, in terms of the margin improvement that we deliver 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 shall we say normal average margin levels for 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 zero.
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 one is probably the one that's, you know, a bit ahead of normal. But here also, of course, that's our job to, you know, work to maximize that one at any given time. I think probably the cautions are in reverse order. On Brazil, pay attention to the season, 'cause third quarter is main season, so we're, you know, selling much more product there than in the other quarters, so you get a bigger effect.
And on the AP, we've published the price curve, so you can see that the, you know, the difference is probably at its greatest when comparing year-over-year this quarter. As you 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, you know, 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.
Yeah.
especially?
Yeah, no, but 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 one 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, you know, we're not selling much DAP, we're selling a lot of NPK. So in any given quarter, these are sort of, you know, 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, you know, clearly it seems as, 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 know, you might have, you know, 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, the market dynamics as we think about, Q1 globally? Second question, I was just curious, you know, you produce much more than you've sold in Q3. Is this something that you think will continue?
Because at some point, I guess, the two 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? Thank you.
Yeah, I can start on the last one, and maybe I can talk a bit with Dag Tore Mo on the Brazil one. But it's a combination in the third quarter of, I mean, third and fourth quarter for the Northern Hemisphere are sort of off-season, you know, it's pre-buying. You don't use much fertilizer as a farmer in those periods. But the fertilizer industry is always, you know, trying to run a commercial strategy to incentivize sales throughout the year. So this is also the background for, you know, the nitrate price reset in May, June, you know, in any normal year, and so on, to reset and get the sales moving.
But having said that, it's quite normal that in that sort of third and fourth quarter space, deliveries are a bit lower, and quite normal that the first quarter, and sometimes into second quarter, is quite hectic. So I would say seasonally, that we produce more than we sell at this time of the year is normal, at least when you have a good production performance, as we have, and it's also quite normal in the first half of the year, that we sell more than we produce.
So, as an overall, sort of given our comments on the markets and so on, we are certainly, you know, very happy to be producing well now, and also positive about that working capital effect, which is, you know, as we mentioned, primarily due to good production, and also due to rising prices, which is clearly positive. On Brazil, I mean, in the third quarter, it sort of, overall volume-wise, a bit below our expectation, but as we pointed out, mainly in the third-party, you can see it mainly in our third-party sales, where we have also chosen to prioritize margin over volume.
And that part of our business is essentially where we flex. Moving into the fourth quarter, I don't know, Dag Tore Mo, whether you have anything to add in from on Brazil or not?
The impression we get, or what we observe, is that there's nothing alarming of the developments in Brazil. Some pockets of weather problems, as you mentioned, that's quite normal, but overall, it's it seems to be running fairly smoothly, with very strong import programs on foreign potash, fairly normal on nitrogen, and lagging a little bit on phosphate. That can have something to do with also the relative pricing among the three. So it's I would say it's an fairly okay development as far as we can observe.
Thank you.
Your next question comes from Aron Ceccarelli from Berenberg. Your line is now open.
Hello. Hi, good afternoon. Thanks for taking my two questions. I have a just follow up from to Chetan's question. So when I see your production is up 9% year to date, with deliveries up 2% only. So just to understand if I see if I understood it correctly, you expect Q4 production to continue to be up and then to balance later? And if so, what kind of impact should we expect for your in your cash flow? And the other question is, it was good to see a stabilization in Industrial Solutions. Maybe you can elaborate a little bit on what's driving that and what you expect for Q4? Thank you.
Yeah. Hi, Aron, I'll address both questions. On, I think the short answer is yes, I think it's normal to have a similar trend in the fourth quarter that we produce more than we sell. And in addition to it being off season in the fourth quarter, also December tends to be a yeah lower delivery month because, you know, lots of places don't operate throughout the whole month. Yeah, so it. And that's important also in terms of the modeling to you know always have a year-over-year analysis, so that you capture those kind of seasonal effects and on the other side, be very cautious with running sequential quarter- on- quarter analyses.
Yeah, in terms of the industrial segments, I mean, they, as we mentioned in the report, probably the structural negative there, to take that first, is that we are noticing the lower industrial activity in general in Europe. But otherwise, I mean, that segment, much as we've pointed out for several of the crop nutrition segments, is performing well on the sales and marketing side. And extracting good premiums there also, you know, based on us having a leading network with high security of supply, that is generally appreciated by industrial customers.
Thank you. Maybe if I can follow up on it. If I'm not mistaken, Yara is, at the group level, long ammonia. I should think about, you know, after this kind of strategic review you're doing in terms of asset base, will Yara remain long ammonia at the group level?
Yeah. Let's, I can maybe, Magnus can chip in here, as well, but, what we probably one of the big items in terms of our portfolio work and our growth strategy is, future-proofing Yara, Europe on the, and particularly on the ammonia slash energy side. So today we, you know, we do notice, and you can see particularly in our Europe results, lower returns, and that is a lot due to high energy costs in Europe, but also translates into high ammonia prices. It's actually in ammonia that the main, for our Europe segment, that's the main feedstock rather than gas.
So over time, we expect to need to source more ammonia from outside Europe, and then feeding into the growth strategy, this is an important part of why U.S. ammonia projects look like attractive opportunities for us. So now whether we end up as long or balanced, it's probably a bit secondary in that equation, because what we're going on in, you know, in addition to that Europe restructuring needs, we also see a lot of potential in new ammonia applications. So, we're planning for and expect to be selling more ammonia into, for example, shipping fuel, power generation, hydrogen cracking.
It's sort of a lot of opportunities there, so that where we end up in terms of the overall balance, I think we'll need to see along the way. You know, if you want to add, Magnus.
No, I think, I mean, we are and have sort of been fairly balanced on ammonia at the group level, and of course, having different positions in different parts of the world, and also combining that with third-party sales and third-party purchases, is sort of core to optimizing our, you know, and getting the arbitrage out of our bigger position. Then, of course, going forward, that large midstream capacity that we have and that flexibility is obviously a key strength and opens up several opportunities for us, where new projects in the U.S. is a significant one. I think it's particularly sort of our flexibility and ability to source large amounts of ammonia into our own system, but also the combination of our third-party sales and sourcing that, you know, puts us in an especially good situation with regards to new supply.
Thank you.
Your next question comes from Tristan Lamotte from Deutsche Bank. Your line is now open.
Hi. Appreciate the sequential. Looking sequentially at quarters is a little bit tricky. But just trying to get some more understanding here. If I take a normal seasonality and apply it to Q4 versus Q3, is that a fair way to look at it? So should we really be looking slightly lower than the five eighty-five level here? Or is there something in Q3 that we should be excluding here quarter- on- quarter? So I think you gave year-on-year, a hundred and 20 million of positive effect in the price bucket, but we're still 75 million short versus what you actually achieved. So I'm just trying to understand better how that might impact Q4. Thanks.
Yeah. Hi, Tristan. This might be sort of getting into a detail level, but we may need to offer to extend this one into a conversation with IR. But I would say in terms of the seasonality part, when you compare our deliveries year-over-year, the main reduction was in commodity products in Southern Europe and in Brazil. So I think in terms of, you know, the big movements and our patterns of, let's say, production of premium products and sales, you know, there isn't anything that sort of is abnormal or a big change year-over-year.
And then as you look at the fourth quarter, as Thor has touched on, there's, you know, there's always at this time of the year, you know, it's all, it's more sentiment driven than physical need driven. So, how this pans out during the quarter, we need to, I think, all watch the markets and try to deduce at the end of the period what that looks like and how it compares to last year.
Your next question comes from Bengt Jonassen from ABG Sundal. Your line is now open.
Yes, hello. Thank you for taking my questions. I have two questions, if I may. Alluding back to the third-party volumes in Brazil. From a modeling perspective into the fourth quarter, could you give a comparable figure on your margin per ton? It was -$1 in Q3 2023. What was it in Q4 2023? And secondly, on your fixed cost target of $2.4 billion year-end 2025, I see that you have changed your base from 255 due to down $17 million due to divestment. Should also your target follow that revision, or was that included in your previous target given three months ago? Thank you.
Yeah. Hi, Bengt. It's Thor. On Brazil, we had a third-party sales margin in the fourth quarter of last year of $40 per ton, so quite similar to what we have this quarter.
Thank you.
But in terms of this, in terms of fixed cost target, we, you know, divestments, are included in the performance. But what we'll not, as we, as mentioned, the, the other effects this quarter, which, you know, we do, we do not include. So, we had some one-off items that were, yeah, also fixed cost related, that, that are, that are not linked to a change of either a divestment or, or, or a, or a structural reduction. So we keep those out of it, but portfolio effects, including divestments, are included. We will, as we, as we, you know, progress in the, in the project here, we'll, we'll provide more detail here on exactly what is in the achievement.
I think probably the last overall message is what you've seen in this quarter is very much the first wave. It's smaller divestments, and it's some immediate external costs, and other savings that were immediately available to us. The majority of the achievement will be linked to the second phase, where we have structural targeted action under development now that we plan to implement from the stafrt of next year.
Thank you.
We don't have any pending questions. I'd now like to hand back over to the management for further remarks.
Okay. Just a big thank you for everyone for dialing in, and, if you have any more questions, please contact IR. Thank you, bye.
Thank you for attending today's call. You may now disconnect. Have a wonderful day.