Good day, and thank you for standing by. Welcome to the Yara Third Quarter Results twenty twenty. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Sylvia Nygard. Please go ahead.
Thank you, and welcome to the telephone conference for our third quarter results. My name is Silje Nygur. I am the acting Head of Investor Relations. And I am here today together with our CEO, Svein Turo Hustace, our CFO, Tore Hjever, and head of marketing intelligence, Dag Turimo. So we just recently have the presentation.
We have no further introductory comments. So then we open up for questions. Operator, will you take the first question, please?
Of course, I will. Thank you, ladies and gentlemen. And your first question comes from the line from Joel Jackson. Your line is now open.
Hi. This is Bria Murphy on for Joel Jackson. Thanks for taking my questions. You mentioned limited impact on your finished fertilizer production from curtailments given your ability to source some ammonia from elsewhere. What percentage of this shortfall is being made up with purchased ammonia versus Yara produced ammonia outside of Europe?
Yeah. Hi. Hi, Bria. This is, this is Tore. This is, I mean, as you as you've seen, we have about 40% curtailment on ammonia, in Europe at the moment.
But we have plants outside Europe that that, you know, are pure ammonia producers like Freeport and and Trinidad, also Silva in Australia that normally sell ammonia direct into the market. Our ammonia plants in Europe are are are all set up to to supply our our plants. So I think you can assume that the, you know, the the equivalent, sourcing need is is required in Europe. I mean, in in Europe, we are net short. So we so at any given time, we do source some ammonia from externally.
So on that basis, that means that we are it it will be somewhat below 40%, that we are let me think about this. So we are we are we are, we have a higher totality. So, yes, the number will be slightly less than 40% additional for the from the sourcing side.
Okay. Thank you. And then just, I guess,
as a follow on, is any other Yara European production at risk of closure if gas prices stay at these high levels? And can you please elaborate on what what's most at risk?
Yeah. Of course. I mean, as as we say, we have to monitor the situation quite closely. It's probably unnecessary to say it's quite unprecedented to see both gas prices at this level in Europe and and also the volatility where you can sort of be be swinging between 30 and $40 just in the space of a week or less. And then in addition, you have the price side of, you know, what the the products that the plants are producing.
So we you know, at this time, we we we're not going to, if you like, speculate in the development. We're aiming to produce and supply finished products. We've been able to do that so far. But, but as we said in the presentation as well, we need to do that in a in a financially viable manner as well. So it's it's certainly possible that we'll need to, make, make further adjustments going forward.
But that can be both ways. I mean, we as as you've seen, we've, we've had a strong development for most nitrogen prices as well, and that's that's why even though even though the ammonia margins in some cases or in most cases these days are negative, the the fully integrated margin, so far overall has been has been good enough for us to to to continue with the finished product.
Okay. Thank you.
Thank you. And your next question comes from the line from Lisa Denise from Morgan Stanley. Your line is now open.
Hi. Good afternoon. Thank you for taking my questions. I have two. First and foremost, how should we think about the fixed cost associated with with the European ammonia curtailment?
And and also, how should I think about the associated cost from sourcing ammonia elsewhere? And I'm not talking about the fact that you buy you you pay more for a ton of ammonia because price are going up, but it's sort of any sort of freight cost that we have to take into account or anything else. That's my first question. And then coming back to the previous question on on ammonia, I'm aware, I and and maybe I'm wrong, that you normally sell about half a million tons of ammonia straight into the market every single year. How much of that is contracted, or is this just all spot?
Thank you very much.
Yeah. Hi. Hi. Hi, Alicia. This is, Toad again.
I mean, on the on the, first question on the fixed costs, we are I mean, these are temporary curtailments we're making here. So we, and in those situations, typically, we we will, we will take the opportunity to do some maintenance, maybe training and and, you know, as a as a rule, we're we're not we're not doing layoffs, for example. So this doesn't, doesn't tend to impact fixed costs, very much. And and as you know, I mean, fixed cost is a especially today, is is quite a small share of the of the total cost for for these units. In terms of the I'm not quite correct me if I sort of misunderstood the sourcing cost question, but I I I heard you were maybe asking about freight rates and and and so on.
Of course, it's when you when you need to do do more sourcing, especially internationally these days, that that can incur some extra costs. But probably mean, they're not quite the same proportion as fixed costs, but, I mean, I overall, these will probably be not be the largest elements in the equation compared to the size of cost of sales and and and selling prices and and and upgrading margins these days. So that's did that cover your question?
No. That's very that's very helpful. Thank you very much.
Thank you. And the next question comes from the line from Sam Parry from Credit Suisse. Your line is open.
Hi. Thanks for taking my question. And given the current high prices, do you are you seeing any down trading in finished products? And then I guess related to that, at at what level do prices become sort of unaffordable for for farmers?
Yeah. I can, I can maybe start on this, but, you know, you can can add as needed? I mean, clearly, I mean, price with with price increases of the this magnitude, it's it's reasonable to expect that there is some demand destruction, going on. Whether that's short term or longer term, will will will depend on on how the situation evolves from here. But and at the same time, of course, there are curtailments.
So there there, as as always, the market is using prices to find a balance. As we as we touched on in the in the reports, but we we think there's probably quite a big difference between the regions there. And and for example, in Europe, it's, you know, and and probably similar in in The US. These are farms are will normally be operating sort of close to optimal and, in terms of fertilizer rates and and and may make adjustments here in a way that, whereas there may be other parts of the world where, the the cost developments now could mean the difference between between whether you're, whether you're applying fertilizer or not. And and and that can be also more of a concern, with way beyond the ARRA as as as Sven had also touched on today.
Yeah, do you guys wanna add? Okay. I think that's seems like my com comments covered it, Sam.
Great. Thank you.
Thank you. The next question comes from the line from Alexander Jones from Bank of America. Your line is open.
Thank you. Good afternoon. Two questions, if I may. The first one, I think in your prior quarterly report, you mentioned that gas prices have gone up, that nitrogen prices have gone up sufficiently that your margins were offsetting the gas price. Are you able to give us sort of similar color on how that trade off is playing out for Q4 so far, admittedly, given pretty high volatility you mentioned on both gas and finished product prices?
And then the second question around some of your premium products. You've talked in the past about a sort of value based pricing approach here, more set on base, you know, the yield the farmer's getting rather than necessarily the input cost. How is it going with those products in terms of passing through high gas prices to farmers? Thank you.
Yeah. I can hi, Alex. Tore again. I'd look for fourth quarter. I mean, let let's, we can't we can't get into kind of what the fourth quarter overall will look like, as you can imagine, both given our our non guiding policy and also that it's it is there is a high volatility in the market now.
But if we look at the situation now with with gas prices around $30 urea,
if you take Egypt,
now latest at 845, nitrates with a premium over that. I mean, there are there there are decent margins for for these products now. So without, without going into sort of a detailed comparison to last year, I think that's that's the overall statement. And ammonia, of course, is is, is more problematic, but only in a way if you're a pure ammonia producer. And as mentioned, that's not really our our situation in, in in Europe.
Yep. And, just to clarify, it's important that we don't see this only as gas price. Europe in our isolation, this is about, utilizing, the network that we we have, our global position, our global plants that can supply ammonia. We're the world's biggest trader of ammonia. We have ammonia chips and a network that enables us to flex the operation.
That's one of the advantages with a significant part of our nitrate and NPK production is that we can switch to ammonia as we've done now in this quarter as well. And then going forward, it will be a dynamic evaluation of how to optimize our system. And with regards to your point on value based pricing, that is ongoing work, and it's important that in the middle of an energy crisis, now that we we we don't forget about the the the need to restructure, the whole energy system, but also how fuel is produced to continue the the road towards decarbonization. And and here we are with the progress that we see. The farmers have a role to to play.
It's about creating additional sources of income for the farmers to create incentives for more than producing kilos, but also how it is produced, how nutritious the food is, the quality of the food, how efficient was it produced, in terms of land usage, but also water usage. And and and all these are factors where we can combine with our products and economic advice to to improve, which makes the farmers more resilient, both economic but also to to to deal with the with the climate change, and it adds additional revenues in our model as well, and it supports the transition to a lower carbon system. Of course, this will take some, some time, but, definitely, the the interest is there. And then I would also like to to add that we do see when it comes to green hydrogen and green ammonia. There are many initiatives and interesting discussions with regards to clean ammonia going into the to the shipping industry, and we've seen some announcements in that as well in in in the recent weeks on progress on that.
Thank you.
Thank you. The next question comes from Charles and Jean from SEB. Your line is open.
A couple of questions have partly been answered or explained, so more of a follow-up. First, on the situation with the curtailed capacity in ammonia in Europe. Are you able to if this kind of continues now throughout Q4, will you then be able to replace that ammonia volume with sourcing from your plants or buying ammonia outside of Europe?
Yes. Bruce. Thore again. I mean, that's what we're doing right now. And, you know, how this plays out for the full fourth quarter, again, you know, it is gonna depend on that, dynamic both, between gas prices and, and nitrogen.
I should also add there are regional differences there. And for example, on ammonia, you're seeing different levels between between, the European region and and the Americas, for example, and and and that is something that we can that we can sometimes have a charge on. We are better placed than others there because because we are the largest and most global, producer and trader. So, but, yeah, it it's we we can't we can't guide on on what this will be because of the because of the volatility and the situation. Situation.
But we are, we are certainly able to to source what we need for the time being.
And, of course, it's also a dynamic discussion with with a number of our, our customers as, as well as we we touched on the on the fiber part the ag part of the business, but we also have a significant industrial footprint in Europe. And we've been through a very rapid increase in the cost and the structure of some of our of the contract research and take some time to phase it in, and then we've been optimizing for short term now. And then as we have dialogues and make products available, it's about pricing that at a level that is reasonable for us as well. That takes a bit more time. But then, in in the meantime, we've been supporting that with having the flexibility on bringing in, ammonia.
So so there are many moving parts on that.
Understood. And then on kind of your with the current curtailment of the ammonia production in Europe, is that having an immediate effect on your gas purchases in Europe? So now with 40% of the capacity being curtailed, also your gas purchases in Europe is currently down 40%? Or how should we think about that?
Yes. That's roughly the right way to think about it. We we of course, we have different plants with with different scale and and efficiency. So so, you know, it's it's it won't be exactly like that, but in principle, yes, that's how it works.
Yeah. Just to main related to your kind of guidance or outlook on on GetScope as that is based on kind of stable or normal purchase volume. So so I guess with the situation, then obviously, the negative effect from that will be lower.
And we already already appreciate you guys trying to model the fourth quarter, maybe have a bit more of a challenge than normal.
Yeah. Okay. Thanks.
Thank you. The next question comes from the line from Rikin Patel from Exane BNPP. Your line is open.
Hi, all. Thanks for taking my questions. Firstly, on free cash flows and the next development you saw there during the quarter. I suppose you flagged the reverse in prepayments from Q2 before, but maybe if you could just explain why there was such a sizable outflow on inventories? And then going into Q4, should we expect some normalization in those inventories?
Then just on CapEx, what exactly are you spending on in Q4? Is it mainly turnarounds? Or are there any other sort of projects in there, which is resulting in that quite high implied expenditure? Yes.
I'll start on the inventory. I think your the reason for the inventory increase, I mean, on the one hand, just for anyone, we do present two sets of numbers here. One is the KPI on the on the improvement program where our operating capital efficiency has continued to improve quite a lot in the quarter. So the number of operating capital days is is is down again. But on an absolute level and quarter over quarter, we have a significant increase partly, as you say, related to prepayments, which was as expected and partly, linked to inventory value, because with higher both gas prices and product prices, you know, that typically each ton in inventory has a higher, has a higher value.
So when you look into the fourth quarter, I guess, again, we can't we can't guide on where we'll be at the end of the quarter. But at least right now, I think it's fair to say that prices have continued to increase. So all other things equal, if anything, probably our inventory values have have increased a bit further. But then, of course, it depends on on how we produce and
and deliver throughout the quarter. And
then, we can I didn't quite catch your second question?
It was related to CapEx in q four. I guess you're having quite a few turnarounds right now, so I'm just curious, what what you're likely are spending on in q four.
Yeah. I mean, the the turnarounds are actually the the ones we've taken are are scheduled. So the as as we say, the the the 40% curtailment is is a mix of planned turnaround and and market related curtailment. So the, but the turnarounds are in the, if you like, within our CapEx guidance. There's also some some, planned growth projects in there.
And then you may have seen we've we've reduced our full year guidance saying that there's about 200,000. So we had 1,300,000,000.0 for the full year. We've reduced that to 1.1, but it's basically phasing into next year. Some of some of the projects not the turnarounds, but some of the other projects that that are, where where at least the the spending is moving everything near the top of of next year.
Okay. Thanks.
Thank you. The next question comes from the line from Adrian Tamango from Berenberg. Your line is open.
Hello. Good afternoon. Thank you for taking my questions. Is this current situation with natural gas pricing spiking made you think again about your policy around hedging and forward purchases of natural gas?
Yeah. Thanks, thanks, Adrian. I mean, what can I say? We we've had a we've had a very consistent, long term, I should say, base policy, not just within gas, but also within most parts of currency and in general that we we are the largest and most international and diversified fertilizer company. There is a strong correlation over time between foods, energy, and fertilizer prices, and, and we have a high operational flexibility.
And and and that those factors underpin our sort of low to no hedge policy. And that, of course, is not to say that there are I mean, you'll always find times where, you know, isolated, you you could have done something clever, but over time, we then therefore view hedging as a as a, as a cost rather than a rather than a benefit. And I I I think, you know, in the situation so far, we feel that particularly the operational flexibility here well, and the correlations, you know, the the the gas prices as gas prices increase with Europe clearly being the swing region now, that brings up, nitrogen prices as well. And, and and we have assets that, that generate higher returns in that situation. And then combined with the flexibility that we can use in Europe, you know, this this, this is a situation that we are are managing quite well in our view, with with ICE going into hedging.
Okay. And, in terms of European, capacity, the fund that you have to shut down, does this trigger any impairment testing going forward?
I think this is, in principle, we do impairment testing continually, and we have done that also for this quarter and and and have have not, not any any assets You can you can see, I mean, we have in the past, flagged in in our annual report some units that are sensitive. But I think, again, I mean, looking at the overall situation so far, a bit related to the the previous question, energy price higher energy prices have come with higher nitrogen prices. And, and and when when we can use our flexibility to to basically keep operating and and keep achieving decent margins on upgraded products, then overall, that that should mean we we we don't necessarily have impairment indicators. But that being said about, I mean, there just to to add, of course, that that doesn't mean that from time to time, you can have plants that we've had in the past or operations where where you are challenged, but that is often maybe more linked to rather than the global development, it's linked to, for example, whether you have sufficient scale, whether you do, whether you are upgrading products or not.
So as mentioned earlier, it's it's an advantage, especially these days, to be upgrading rather than purely producing, for example, ammonia. And it's also linked to market access, and and and our our plants and our system generally has more options for market access than, than, maybe some of the smaller, more local players.
Yeah. That's clear. Thank you.
Thank you. The next question comes from the line from Bank Yunathan from ABG Sundal Courier. Your line is open.
Thank you very much. I have a couple of questions on following the steep price increases on nitrates. Do you see NPK following those price increases? That's the first question. The second question, do you see any order book destruction or order book this this time compared to last year?
Is it quite normal, or is it lower? And final question would be on your natural gas cost guidance. Given that you have reduced purchases as of today, is there a one to one relationship between the reduction in percentage and your gas cost guidance? Thank you.
Thanks. Thanks, Ben. I think probably the main observation on NPKs versus nitrates is that clearly, on the cost side, it's within gas and nitrogen that you have the steepest cost increase as well. So I think there's a there's a logic in that nitrates along with other nitrogen products have risen far more than than p and k. So so from that as as you know, our p and k prices have been rising as well.
So so, you know, it is an environment where virtually all product prices are rising and and and but but there is a difference between pure pure nitrogen, straight nitrogen, and and the others. In terms of order book, I mean, as we touched on, yes, I mean, there there are prices price increases at this level do lead to demand destruction. We we, I think, yourselves, we'll we'll need to to to to see when the season is over how much this has been. But as as mentioned, we we think in in in in the more mature regions like Europe and The US, it's it's probably going to be more on the margin. I I should say more marginal, than than maybe other parts of the world.
But, you know, bear in mind that we started the season with quite low inventories and also, you know, not very high prebuying. So it's not like there's a big overhang in the market. And the last thing I would say is that, you know, right now, it's a bit of, you know we we could have had a much longer order book, but we you know, given the volatility, we we we don't want to sell far forward. So so it is a, you know, a dynamic between the, between the the buyers and the sellers here, and and this is mainly about, about Europe. In terms of the energy diving, I think, yes, in in principle that you can sort of reduce it pro rata with our curtailment.
I think the only, comment to that is that, you know, we we tend to curtail a bit more in the in the smaller units with a bit with a bit, lower energy. Directionally, I I think it's the right way to think about.
Thank you.
The next question comes from the line from Morten Norman from Carnegie.
A lot of my questions have been asked already, but you mentioned that you have a net short position in Europe with regard to ammonia. What's the size of that in, let's say, in a normal year? And you also said that you're able to source the ammonia that you need. And what do you think is the mix between sourcing from third party and your captive production outside of Europe? And if you have any can you have any flavor of how much volumes you have sourced for the fourth quarter?
Thank you.
Hi, Martin. I think some of this we can probably revert to you after the call. But you can in terms of our you know, we are structurally normally, long, in the range of half a million to a million tons globally. The European shortlist within that is probably a bit larger than that. So let's say around a million, thereabouts, maybe a bit more.
But you can also, you you can you can kind of analytically get to this by looking at our production capacities by product. Yeah. And in terms of the the mix right now between own plant and sourcing, I mean, that's that's commercially a mix that we're that we we we don't want to go into granular detail on.
Understood. It's something that that that that this is part of of the strength of our ammonia trade and shipping as well that we have both our own captive farms, but also a huge network of other suppliers as well. And then it's about optimizing that.
So the
physical movements are optimized from a logistical point of view that this isn't one to one, but clearly, we've tested our system with a rapid increase in prices now in third quarter, and we have been able to maintain production in Europe at, at full capacity almost. So so so it's been a test, and and, I'm really pleased with how our organization has responded to this.
And and just while we're on that topic, and, Lisa, if you're still on the line, I know you I I realized belatedly, you did ask about our contract structure on on ammonia sales, but I I would place that in the same category that this is commercially a sort of level of granularity that we we we don't want to to go into externally.
Okay. Thanks.
I might have seen a charge in there.
Thank you. The next question comes from the line from Andrew Stott from UBS. Your line is up.
Good afternoon, everybody. Thank you for the opportunity. So I've got three things I wanted to tackle. One is, clearly, topic du jour on the Q and A so far, which is the mitigation strategy. I had a reasonably straightforward question.
How durable is this? I mean, it's working at the moment. You're cutting enough production to boost pricing. You can source ammonia anywhere between $600 and $850 according, at least, to my data. So it works.
Why wouldn't you do that for a sustainable period of time on on the obviously, the condition that European prices of gas remain so high? Are there any practical limits? Are there certain sites? I'm thinking Germany and Italy, for example, where you couldn't import ammonia. So I totally understand what you're saying on the flexibility, but just how durable is it is the question.
Shall I stop there, or do you want me to ask the other two?
Yeah. We can we can take that one first. Great. Thanks.
So so so, you know, as you've seen the increase in the gas price, this quarter came, quickly, and, we've been able to to to to deal with that, with a combination of increased prices and using the flexibility that we have in our ammonia sourcing system. And then for the for longer term, of course, we will continue to source ammonia from elsewhere, but in parallel with that in order to maintain production at the highest level possible and optimize profits. We are also then in constant dialogue with customers as well to ensure product availability, whether that is through surcharges in the short term to contract negotiations and formula based pricing that will then go into the pricing of the product as well. So this will
be a combination. So that's
what we're doing right now isn't exactly how we will deal with it going forward, but we have been able to deal with it in a good way now in the short term, and then we're working in the midterm mid to long term as well to to maintain and, and utilize the flexibility that we have in our system. And, Toren, if you want to add
Yeah. Yeah. I think maybe, and Doug too, the comment is, if appropriate too, that sort of a longer term scenario where we are and others are sourcing a lot more ammonia from Europe is probably not, you know, there may not be capacity for that in in in in the market. I mean, right now, it's clearly tied to urea than ammonia, but but probably over time, some kind of leveling out that that that could involve both the the ammonia price and the gas price. And especially as we get into spring, probably most of us are expecting gas prices to to come down.
Okay. Thank you. Second question was on NPK. I mean, when you consider how discretionary the P and K is relative to the N, do you have to rethink a bit on how you supply the LatAm market in particular or not?
Well, there was in many of these markets, we we are also held on the NPK side by a very tight market conditions both for PMK. I don't know if you observed in the publications also that other NPK producers are actually talking about very strong sales through Latin America from MPKs as an example, just because it's difficult for the Latin American to to source k directly. So there are many elements of it. There was also a question earlier about the about the about the NPK. And, of course, if you it depends also a little bit on whether you take a a relative pricing perspective or an absolute pricing perspective because, of course, when you get to this nice price level to have in Europe now, which may not be that applicable outside Europe, just adding a relative premium compared to historic norms it's probably not that easy.
Right? So there is a the yeah. And,
of course,
these are things that we are working on continuously. This is kind of, yeah, a separate unit, but it's handling all these these issues.
I have to keep in mind that for for Latin America, the types of crops that that the case come come into our high value crops as well, and there there has been a response also in pricing. So so so so so this is not happening. It's only a nutrient increase in isolation. We are seeing increased food prices. And and as we indicated in our report and in our press release as well, we've we've we've rising food prices.
There are some concerns on on on how this will impact vulnerable, communities, as well.
Okay. Thanks. And then last question was on China. What's your information, on China's export strategy now? I mean, obviously, we've we've all read that supposedly there's no exports till next June, but is that is that your working assumption?
Well, it certainly is that assumption in the market, and I guess that's that's most of it. I mean, just just to say, I'm just you have a domestic price level in China now over, let's say, just below 500 or so, and and you have a global market value of more like 700 maybe in Asia or around the area or above 700. So there is already a huge disconnect between the domestic market price in China and the global market. So so so players now act as if there was more or less an export ban. But, of course, there hasn't been an amount export ban.
The it's just that the the NBRCs, the the government agencies, have kind of have asked players not to export. They introduced some some measures in the ports, the approval systems. They have asked ports through the provinces also not to receive urea or fertilizer into the ports. So rather than just putting on an export tax or banning export, there are a number of other measures that that in effect are now stopping the exports. And and that's, of course, what the market expects now that we could look at the at the relative pricing.
Of course, the players say, if they can get out anything, they will probably try for it because there's so much money to be made. Right? So they they have already told for the current India tender, and, there are talks of some cargoes maybe being stopped, but most of it seems to be, be be being allowed through customs before this Indian section rules came into force on October 15. So and as you say, the the kind of the general expect expectation is
through June.
I think that that hasn't been said. So to be to be monitored, I would I would say. Okay. Particularly interested on particularly interested on the PV side where they have certain large exportable surplus because of micro. Then they they don't really have an exportable surplus nowadays because they have a lower production.
They have high gas cost. They got high coal prices. They have allocation issues on power. They have a they have an in energy crisis also in China. So that this is so it makes sense.
Right? But on the PE side, it's more it's also interesting that they are restricting exports there. So this is a yeah. We we are trying to follow this, of course, but there's few questions that the the market is now acting as if there is an export ban practically.
Okay. Thank you very much for taking the questions.
Thank you. The next question comes from the line from Mubashar Chaudhry from Citi. Your line is open.
Hi. Just one question, please. Could you provide some comments around the premium on on in NPK, the compound premium? It seems to be narrowing again in the third quarter. Just some thoughts around if and when we we should expect that to stop becoming back to a period and and what the contract structures are around there to allow that pricing to be pushed through.
Just some color around that would be helpful, please.
Well, I think hi, Mubasher. This is, Tawiya. I I'll reference a bit what what Doug Tawada mentioned earlier that it's I I think we need to be aware that the the price levels we are at now, you know, for particularly nitrogen but also p and k. I mean, the the higher you go, I guess, we like an equivalent food price increase, which I I I think is the the the case now. Food prices have increased, but not as much as fertilizer prices.
Then you, you know, the the relative premium it's you know, you all other things equal will, will will tend to compress. In addition to the fact that, you know, our our NPK prices tend to be, more sticky, do not react as fast as the spot prices, particularly for nitrogen. So this is, but it's important to underline. I mean, these are these these products have, have, pretty decent margins. It's just that on these on the premium measures compared to the strong price increases we're seeing now, the the
the premium becomes smaller,
particularly in in percentage terms. But, but as always, I mean, we we in a way, our our main role for the region commercially here, particularly for the MPKs, is to constantly be trying to improve our our market and crop mix. In other words, to to move more and more towards the sectors that, that have have the best ability for, for demand driven, pricing rather than, rather than cost plus.
Sure. That's helpful. Thank you.
Thank you. And for the last question for the moment comes from Brian Kuzma from Thomas Capital. Your line is open.
Hey, guys. Thanks for taking my call.
Can you guys hear me?
Yeah. Yeah. Sure. Please go ahead.
Okay. Okay. Great. Yeah.
I guess I just wanted to understand what if if you look out at the the nitrogen market,
like, what
what percentage is I mean, crop prices are where they are. They're really strong. Everyone's gonna keep using nitrogen at these levels. What what portion of the ammonia market goes to more price elastic markets where you actually can see demand destruction?
Hello. This is my friend. This Morgan. You may may look at the trees, the tree nutrients. I mean, nitrogen, I read it a bit in in the presentation as well, you know, the the impact of not utilizing nitrogen fertilizer is immediate and large.
So if you take grain, if you don't apply natural fertilizer for a season, then, you know, it first harvest by nearly 50%. So so that demand you know, will be there. But then I'll hand over to. Yeah.
I think a lot of other sectors also probably have fairly low price sensitivity when we do the big type of the the blue market in Europe and not emission reductions and other industrial sectors are probably also doing quite good. Yeah.
So if if if you
take out the as an example, you needed to run the the trucks, and it's it's a minor cost in totality. But if you don't have it, the trucks don't run. So so clearly, the things are there is a demand made in that segment as well and and and and the same for for some of the other sectors as well, including c o two as we've seen because of the shutdown. So ammonia production is one of the the most efficient way to to get food grade c o two as well, and that also has implications. So a number of sectors that are completely dependent on on having the surprise.
Okay. I mean I mean, that makes a lot of sense. I guess I
what I'm struggling with is, like, I've noticed, like, there's a negative a little bit of a negative tone to the call and the questioning, but it looks to me like there's gonna be, like, a multiyear shortage of nitrogen and nitrogen products as a result of all of these bottlenecks along the supply chain and the inability to to pass price along. So it it seems to me like it's like a multiyear boom for the to be in the nitrogen business. And I I I'm I'm trying to see why that doesn't play out. How do how do you guys not crush it for the next year and a half based off of inventories being low? And as long as crop prices and end use prices are strong, like, you guys are gonna be able to prep pass all the stuff through, and there's gonna be a shortage as a result of of all these curtailments, aren't there?
I I I think, you know, that that's certainly what we're seeing, for now. Having said that, you know, we are, we are cautious Northern Europeans. So, you know, we tend to not guide them and and guarantee things too far out in the future. And and, you know, there are parts of this which are quite an unprecedented situation. So I I think we're it's it's definitely perfectly understandable, in this situation that, that there are a few questions also around potential negative effects.
But but as we said, I mean, the the situation that you described is what we're seeing for now.
Great. That's helpful. Thanks. Thank
you. We have a few more questions now. The next question comes from the line from Morten Norman from Carnegie. Your line is open.
Yeah. Hi again. You sell a lot of third party products, more than 12,000,000 tons in a year maybe. Are you able to crank up a higher margin now? So my question is, are you selling this product at a at a pure dollar per ton or partly a percentage of the price?
Yeah. Most we we we tend to to secure. That's quite a lot more than we did. We we have in the past experienced, should we say, the negative sides of having larger compositions on on third party products. So I I that's our our our business model these days is is more based on on the own produced core.
So, I mean, it's not to say that there can be some some position effects here, but but most of the time, we are we have quite a tight risk risk management on the third party business.
Yeah. But at these elevated prices, are you able to sort of take the higher margin on average on the sales?
Well, when I say stock risk management, it means, for example, that we do a lot of back to back sales. So then you're you know, it it it doesn't doesn't necessarily create a margin opportunity in this scenario.
Okay. Understood. Bye.
Thank you. The next question comes from the line from Chetan Udeshi from JPMorgan. Your line is open.
Yeah. Hi. Thanks for taking the question. My first question was on slide 27 of the bank, which actually shows the the energy cost dynamics. And I'm just curious here.
Historically, Suriyara's global cost has aligned pretty well already at least closely with the the TTF price, but it seems at the moment the gap between what you guys talk about for q four versus the TTF price and what's the same in q three as well is the the gap probably seems at least higher than in the past, and I'm assuming this is not yet taking into account the production cuts. So maybe it will just be useful to understand why that is the case because I think at least my motto has higher gas cost in q four versus what you guys are guiding to. And it seems, you know, this this chart explains it that the let's say, the the transmission of the current spot price on DTS is not as much as we've seen in the past. So I was just curious to understand why is that case. And the second question was, there was some communication from European Union just a few days back noticing or noting rather that the pollution of, you know, water bodies because of over application of nitrates, etcetera, is still a problem in European Union.
And since they're gonna take some some further action on it, what what implication does it have on Yara and just the overall demand for nitrates in Europe?
Yeah. I think, maybe starting on the gas. I mean, we we are, what we've put on the curve there is, I think, October 7 forward prices.
Very close to today.
Yeah. Which yeah. As Dakota just said, very close to today. So it's there there isn't, at least we haven't intended to put anything else than that there. But, if you if you're seeing any differences, you know, to everyone.
But we
don't know, Jeff, maybe maybe a detail, but you you maybe we've seen already. But in the graph on page 27, just keep in mind that the the market prices there for Henry Hub and TTF are not lagged while we have a lag in the
Yeah. So the so the Yara line is is trying to show our cost of sales, which is normally lagged by roughly a month versus spot gas.
Okay. That explains it. Thank you.
Thank you. Yeah.
I mean, in in terms of in terms of EU, I mean, as as you're you're aware, I mean, the Europe is is the reason with the the highest focus on on environmental footprint for, for across all industries, not just fertilizer. We, we we see this as as just as much an opportunity as a challenge. We we are our our products and solutions are geared towards higher efficiency, and it's it's not about sort of maximizing consumption as as such. But, yeah, I don't know. We we we, this this is core to our strategy, really.
Thank
you. Last question is a follow-up question, sorry, from Andrew Stott from UBS. Your line is open. Andrew Stott, your line is open.
Sorry. Yeah. Thanks for the follow-up. It was a question as well similar to Chetan's on gas prices. IT was culpable of being much higher than your guidance.
So can I just confirm it is based upon normal production?
So in other words, the
curtailments the curtailments are not part of the $8.50.
Correct.
Yep. Perfect. Thank you.
Thank you. And with that, we have no further questions at the moment.
Okay. So thank you all for participating in the call today, and have a nice day. Thank you. That
does conclude the conference for today. Thank you all for participating. You may now disconnect.