Good
morning and welcome to Yara's Third Quarter Results Presentation. Our presentation today will be by our CEO, Svein Tur Holsetter and our CFO, Torger Kwiddal. I'd then like to introduce sorry, after the presentation, we will have a Q and A, where we'll also be joined by our Head of Market Intelligence, Dag Turrimo. And then I would like to have the pleasure of introducing Dara's CEO, Svein Thoremoole Hulseete.
Thank you, Thor, and good morning to all of you. As usual, I want to begin with safety as this is Jaira's number one priority and an area where we have to improve further. Our recordable injury rate has dropped to half of what it was at the beginning of last year. However, on in the October, we have suffered two tragic fatalities in our operations. On Wednesday, October 11, Adrian Gutierrez Tilchoa fell from height of nine meters while working at our installation in Veracruz in Mexico.
And on Friday, October 13, Ailton Oliveira de Aracio, he was run over by a truck at our Salitre facility in Brazil. Our thoughts and prayers are with Adrian and Ailton's families, friends and colleagues who have suffered these tragic losses. We are investigating the two fatalities with the highest priority. And I visited the Veracruz site last Friday, and I will travel to Salitre tomorrow morning tomorrow evening. We cannot and will not accept fatalities or serious injuries at Yara.
And these tragic accidents make us even more determined to drive and enforce our safety first culture through our safe by choice way of working. And as you can see on our slide, our TRI rate has dropped both in 2016 and in 2017. But when you experience a fatal or serious accident, this improvement is completely overshadowed. Moving then to the summary of the third quarter. Both ammonia and finished fertilizer production increased.
Ammonia production was up by 7% compared to a year ago, while finished fertilizer production increased by 8%. The Yara improvement program is ahead of schedule and has already delivered $210,000,000 of the targeted $500,000,000 of annual earnings improvement within 2020. We're making good progress in all main parts of the program, and I will come back to this later in the presentation. Yara delivered weaker third quarter results, mainly reflecting lower commodity fertilizer margins. Earnings this quarter were, in particular, impacted by higher energy cost and a weaker U.
S. Dollar. Yara's underlying earnings per share were 5% lower than last year. And as already mentioned, the decline mainly reflects lower commodity fertilizer margins. Our reported earnings include NOK 139,000,000 foreign exchange gain and a NOK $343,000,000 of negative special items, mainly the provision for closure of the Pardis site in France.
Last year's reported earnings included NOK114 million of foreign exchange loss and NOK37 million of positive special items. As already mentioned, we had a strong production performance, both for ammonia and finished products. The 7% higher ammonia production is despite the Posh Grun plant not producing most of the quarter following the fire in April. Finished fertilizer production increased 8% compared to last year, mainly reflecting reliability improvements for urea and nitrates and also the expansion project in the Usika Punki NPK plant in Finland. We have posted several new monthly production records during the quarter, both at plant level, calcium nitrate production in Poshkund, Norway and urea production in Belle Plain in Canada and at the Yara level for calcium nitrate and NPK.
We have also we also have record finished fertilizer production company wide for the last twelve months. The Yara improvement program has so far delivered USD $210,000,000 of cumulative annual benefits, well ahead of our 2017 target of January The $210,000,000 are measured at 2015 margins. And the equivalent number using year to date 2017 margins is $150,000,000 We're ahead of schedule, thanks to strong delivery from all projects in the program, in particular, strong reliability improvements within production and our procurement excellence project really starting to gain traction. I must emphasize two important points about our improvement program. First, we are investing in long term sustainable improvement of our operations, including increased production volume, improved energy efficiency, improved variable cost and lower fixed cost.
Second, we're still early in our improvement journey and must continue to work hard for a long time to reach our ultimate goal of $500,000,000 by 2020. So while we are proud of the good results that we have achieved so far, we must be prepared for setbacks along the way, for example, within production reliability. And we will, therefore, not adjust our targets based on a few quarters of very strong performance. At the full year result presentation, we will provide more detailed breakdown of the program results. And in the meantime, I'd like to give you a brief update on the rollout of the Yara improvement program at three of our locations.
In our first quarter results presentation, I told you how sites at the sites at Ussigaponki and have improved their performance. And they continue to deliver strong results, both in terms of savings and increased volumes. For instance, in Osikapunk, we have achieved more than 60 daily production records in the last few months, and that's well above even our stretch targets for the plant. Since then, I have also visited the Belle Plaine plant in Canada, where I saw a strong commitment to changing the way of working. And the results of the commitments can be seen in improved productivity, both at the plant in total and also within individual teams.
These teams have shown dramatic improvements. A systematic approach to eliminate idle time and improving planning maintenance in the maintenance department has allowed us to do more work with less working hours and reducing our need for contractors and also increasing our reliability at the plant. And in addition to that, we had a fixed cost reduction at that plant of $1,000,000 in the quarter. One concrete example of eliminating waste is the maintenance planning at Bell Plain, where they suggested that they would add a separate section on their performance board where field technicians can now provide feedback on the quality of the plants after each task. And this has led to fewer return trips for missing parts, better task instructions, quality improvements and time improvements.
And when the idea comes directly from those involved in the operation and the production, it's much quicker to implement. In a short period of time, the team in Belle Plaine has transformed their site operations. And in my whole career, I have never seen such a positive change in engagement at any plant or site in such a short time. And if Belle Plaine is anything to go by, I'm confident that I will be telling you about similar improvements at other plants in the quarters to come and as our rollout continues and the numbers expand. We are inviting investors to our Sloiskill plant on December 12 to see the Jara productivity system in practice.
So please do get in touch with Investor Relations if you'd like to join us at this event. Before I hand over to Tori Gara, I would like to show a video of the ongoing rollout of the Yara productivity system, highlighting the very positive employee involvement and results that we are achieving. Rather than short term cost cutting, we are driving lasting change and improvement and at the same time, delivering on our mission to responsibly feed the world and protect the planet. Before I start the video, our program is really gaining traction now, not only within production but within multiple projects across the whole organization. And I would like to take this opportunity to thank all our employees for their efforts to get so far in such a short space of time.
This is only the start of the journey, but it has been a really good start.
Yara improvement program is all about improving the performance of our operations, making sure that we are competitive in long term.
To me, the most important part of this program and one that I really stand behind is to get the workforce totally engaged into this process.
We decided not to go for cost cutting, but to take a sustainable approach towards our improvement by working on the efficiency on our internal work processes.
Our employees, they know their business. They know the work they do on a daily basis. And for them, it is important that they will get the opportunity to say, make your job better and more efficient.
Everyone is involved, not only about improving the way we work, but to see that there are better ways to do the work.
I have been collecting over 115 improvement ideas from our personnel. All employees feel that they have a sense of ownership, and their ideas are taken seriously.
Continuous improvement means never be satisfied with the state. Continuous improvement means also the first shot on something doesn't have to be perfect. If it is directing in the right direction, good. Improve, and then you can take another cycle and improve it even further.
In the past, we used to have training, but it was not structured enough. Nowadays, we put more focus on developing what we would call a training package and a structured way of training.
One of the tools of the program is working for us as a production is the SOP process. Creating the standard operating procedures gains a lot of educational material for our new operators.
Root cause analysis is a systematic way of working. Very, very often, we see a problem, and we want to fix it right away. That's ingrained in a production environment. But if you really do a proper root cause analysis and you find the real issue, It's not only satisfying, but that's also where you benefit dramatically.
One of our NPK operators gave me one very simple idea how to shorten the weekly maintenance stops. And then we immediately take that in use, and it has already been a success.
I think our mission and vision, feed the world in a responsible way. We here in NPK production play a big role not only by producing more efficient fertilizers, but also at the same time making that environmental friendly.
Operating at a higher efficiency by definition means that you are producing more for the same input. So in this way, you are basically using less resources for the same output, and that will directly impact on the emissions of the environment.
One of
the big improvements in air emissions was this installing of catalyst to nitric acid production, reducing N2O emissions about 90%.
You can see the seeding in the spring. You can see the crop growing. And you know that you're part of that. And at the end of the day, you see the big harvest and you know really, yes, you're part of this big value chain. That's great.
Good morning to all of you from E2. It's my pleasure then to provide you with some more details on Jaira's financial performance in the third quarter. And let me start with the development in our EBITDA. We report an EBITDA in the third quarter of NOK 2,386,000,000.000, and that is 21% down from same quarter last year. If you then go into details explaining that development in EBITA from last year, you will see that the single biggest element there is the so called special items that Svendtore already commented upon.
We had a negative special item in total in this quarter of $343,000,000, of which the largest element is the provision for the closure of the Partiz site in France. We also have some increased provisions for environmental liabilities at an older site in France. While in the third quarter last year, we had a small positive special item related to contract derivative effect in the gas contract. So if you take away those special items, we had a decline in the EBITDA, excluding special items, of 8%. And let me try to explain that to you.
You see here then that the biggest explanation and fully explaining the decline in the EBITDA is increased energy cost in the quarter. European energy costs were up 15% from last year, and we also had an increase in our ammonia plant in Pilbara due to the contractual step up in the gas pricing there happening in the fourth quarter of last year. Second negative element compared to last year is the currency development. The U. S.
Dollar have weakened towards most currencies globally, and we sell most of our products in U. S. Dollar or the underlying value of the product are in U. S. Dollar, while most of our fixed costs are in non U.
S. Dollar. So a weakening U. S. Dollar, about 4% weaker compared with the Norwegian kroner compared to last year, had a negative effect of NOK214 million in our EBITDA.
The third reduction element in our EBITDA called Odderhaar is mainly linked to fixed costs. We are growing, and we are also implementing the improvement program. So we have about million in higher cost due to the improvement program this year than last year. If you look at our total fixed cost, it's up, but it's still up, including the improvement program, lower than inflation. So we are beating inflation.
But as planned, the improvement program has a later traction on fixed cost as we later able to take out fixed cost as we improve operations of our plants. Then if I turn to the positive changes from last year, we have a significant increase in sales volumes. Our fertilizer sales volumes are up 6% from last year, and the biggest explanation there are increased sales of urea in North America. That's partly a phasing effect from the second into the third quarter, but underlying, it's also an effect of a strong production performance in our Beltwayne plant, as Venturi commented upon. And in total, it's an effect of strong production performance in Jaira.
Our Finnish fertilizer production is up 8% from last year. The second biggest element in growth in fertilizer is related to Brazil. We sold 4% more fertilizer in Brazil this year than last year. That's also a positive product mix, which also gave a positive effect on this volume, where we sold 15% more premium product, while our volumes of both blends were down 13%. And last, on our positive volume effects, I would mention our Industrial segment, which continued to grow very nicely.
Industrial deliveries were up 6% from last year. The biggest explanation there is AdBlue, the solution for NOx abatement from trucks that continue to grow and were up 15% from last year. But industrial are also able to continue to realize growth in most of their product segments. Then the last positive element is related to price and margin development. And some of you may feel that, that isn't big in this quarter because prices have continued to move up in general for fertilizer.
Or nitrate prices realized in the quarter was 10% higher. NPK prices were 3% higher and urea prices were 2% higher. If you only took that effect on nitrates and NPK, that could explain a positive margin effect of roughly three fifty million. But then we have some also negative elements here. One is on ammonia sales, where we have a negative margin effect of roughly NOK 100,000,000, and that is related to positive time lags last year.
As urea prices declined from the second into the third quarter last year, we benefited from that in the margins last year. Another element on margins is related to Brazil and particularly bulk blends there as volumes dropped there and also as you had a very strong market last year. This year, our volumes in total in Brazil increased 4%, but last year, they increased 11%. So the market on commodities in Brazil was weaker this year. Our beltline margin was down roughly about NOK 10, which gives a decline of roughly about NOK 150,000,000 related to that.
And last, we had a negative margin effect by writing down of damaged goods. We had a couple of incidents with damaged goods, but which we will expect to get coverage from insurance in a later quarter. That had an effect in the quarter, about NOK 100,000,000. So that explains why we don't report a higher positive margin effect this quarter. If we then move on to see how does this reflect the earnings in the different segments.
You can see, if you look at production, it is down due to special items. Those are mentioned in with parties and the environmental liabilities. But if you take away that, the underlying earnings in production is on its way up again. And that's for the first time for many quarters where we have seen declining commodity prices. This time then, commodity prices helps the production segment with higher nitrate prices but also higher urea and NPK prices.
And then clearly, the improved production supports the earnings in the production segment with, as I said, 8% up on finished fertilizer but also importantly, 7% up on ammonia. What is then partly taking down the earnings in the production system is clearly higher energy cost, a 15% increase in gas prices. Industrial continued to deliver very strong earnings, slightly up from last year. And they report in isolation this quarter kroge, a cash return on gross investment, above 30%. Krop Nutrition also continued to deliver strong results.
They have a grog in the quarter of about 13%, but they are down from last year, and that is fully explained by Brazil, by the somewhat weaker margins in Brazil and also negative currency effect in Brazil as the Brazilian reals is increasing towards the U. S. Dollar and revenues are mainly in dollars, while cost in Brazil is mainly in Brazilian reals. The Brazilian effect then is partly offset by better earnings in crop nutrition in Europe, mainly due to higher prices there, where we, as I said, realized nitrate prices up 10%. If we then move on to some of the other elements in the deviation analysis and start with the energy prices.
As I said, Yara's energy prices were up 15%. That was both in Europe, where you saw an increase of the average gas price for Yaira, up from $4.9 per million Btu up to $5.6 per million Btu. But outside Europe, you also have the same percentage increase in energy costs, but that was fully explained by Pilbara and the contractual step up last year. So of the increase of $357,000,000 in gas costs, you can see that NOK $212,000,000 was related to Europe. It's included here also North America, but the gas price development in Bell Plain was flat from last year to this year.
And then you have an increase in Bell Plain sorry, in Pilbara of NOK161 million. If you then look forward and look at how could we expect our gas prices to develop the next quarter. And if you use the forward price in Europe currently, we expect that our gas price on average in Europe will increase up to $6.5 next quarter. And that will give an effect of roughly NOK $310,000,000 in increased gas cost, partly then compensated by slightly lower or lower gas cost foreseen next quarter in Belpelin. And then for next quarter, we expect an increase in the Pilbara according to the contract compared to last year of 100,000,000.
If we then move on to the price and margin development for Yara's most important fertilizer products, I will start with some comments on the price and margin development for nitrates. As said, we were able to realize high 10% higher nitrate prices in Europe this year compared to last year. And that was at a starting point. If you compare with the urea prices this year and last year at the beginning of the quarter, they were pretty similar. So we felt that we went out with quite ambitious nitrate prices, but we got traction on those.
And we were able to realize a nitrate premium in the third quarter on the top of increasing urea prices of $43 per tonne. And that is slightly up from the second quarter and significantly higher than last year. Then urea prices have increased steeply late third quarter, and we have also increased substantially our nitrate prices in Europe. So if you look at the current nitrate prices in Europe, what we are selling today or taking orders on today and compare that with the current urea price, we have roughly a nitrate premium in Europe on those prices of about $50 Then we have also said that we have quite a long order book. We have roughly now a three months time difference between when spot prices and when products will be delivered.
And the reason for that is also, as I said, that we were quite satisfied with the prices we were able to get traction for during the third quarter and choose to sell quite some forward. And it was not only us, the total industry in Europe did that as is our interpretation. So that means that when you compare with today's urea prices, which has gone up substantially the last quarter, that will indicate nitrate premium if you compare with current urea prices and our order book of roughly about $15 per tonne of nitrates, but at a much higher urea prices and, as such, higher nitrate prices than what we realized in the third quarter. If we then move on to our other most important fertilizer product, NPKs, on top of commodity nitrogen values. NPKs create value for Yaira in two steps.
First, you could say, as phosphate fertilizer, where we dissolve phosphate rock and produce phosphate fertilizer, and that is illustrated on the left side on this slide. And what you can see there is that NPK prices have increased slightly from last year, while input factors like phosphate rock has gone down. So that upgrading margin quarter over quarter have improved roughly 20%. On the right hand side, you see the premium that NPK is able to get on top of pure commodity prices, the added value that the farmers are willing to pay for NPKs compared to our bulk blend. And that margin, including also nitrate premium, has been quite stable from last year to this year.
So we're able to defend and support and develop a substantial margin there. If you look at this table, you will see that the NPK price you are able to assume roughly is 60% higher than our comparable bulk blend on commodities. The last slide I would like to share with you then shows the debt development and, as such, the cash flow in Jaira during this quarter. We started the quarter with a net interest bearing debt of 16,800,000,000.0, which gives a debt to equity ratio of 0.22. Then we had a cash earnings in the quarter of NOK 2,100,000,000.0.
We had a net operating capital release of slightly more than NOK 200,000,000, and that is related to lower inventories at end of third quarter compared to second quarter. Then we invested billion in the third quarter. NOK1.1 billion is related to maintenance costs and NOK1.8 billion is related to the ongoing growth projects we have in greenfield and brownfield expansions. And we have also previously guided on the estimated CapEx total for Yaira in 2017. Last time, we guided on our total CapEx this year of 17,800,000,000.0.
You will see in the handout and attached slides to the handout that our current and new estimate now is a CapEx in 2017 of NOK 16,500,000,000.0. That reduction is partly due to currency changes, a stronger Norwegian kroner compared to euros and U. S. Dollar that we actually invest in, but it's also related to some slight delays for some of our projects. The biggest delay, but which is still early in the development, so we plan to catch it up, is Rio Grande expansion in Brazil.
Then the debt is slightly taken down by the currency effects that Sven Toure mentioned over the P and L, but we also have significant currency effects on other debt elements where we have hedge accounting. So the positive and negative positive other element on taking down net debt there is partly related to currency effects that doesn't go over the P and L, and it's related to noncash elements in the earnings like the provisions for closing in Hardist that is not yet cashed out. So we end this quarter with a net debt of 16,500,000,000.0, slightly down from the beginning of the quarter, still at a debt to equity ratio of 0.22. So we continue to have a strong balance sheet for further operation, further growth and cash return to the owners. So with those words, I give the I hand over again to Sven Ture for him to comment on Johan Sverdrup's prospects.
Thank you, Torgay. In terms of the prospects, I want to provide a further update on the strong urea oversupply in The U. S. And elsewhere with capacity additions looking set to peak this year according to the latest update from CRU. And as you can see, planned capacity expansions are in excess of trend consumption growth, both for 2017 and for 2018.
In addition to the capacity forecast that you can see in bars up here, we have plotted in CRUs forecast on year over year production change, and you can see that in the black line on the screen here. This is intended to also capture changes to utilization of existing capacity in the market. There are no major changes to the CRU assessment compared to the previous estimate. However, CRU has increased their production forecast both for 2016 and for 2017. Looking at other resources, such as the International Fertilizer Association, supply growth outside China was most likely stronger in 2016 than the CRU numbers indicate, due not only to new plants but also higher utilization in existing plants.
As for 2017, the supply increase looks likely to be significantly lower, amongst other things, to the closure of the largest Algeria plant due to the conflict between the owner and the major contractor at the plant and also to delays on new capacity. This means that there is potential for significant supply increase in 2018, and we therefore do not see or expect a fundamental improvement in the global supply demand balance outside China until after 2018. Chinese urea prices continue to be a key reference point for global nitrogen pricing, and higher production cost in China has resulted in significant curtailments and in reduced exports. The domestic urea price China has been relatively stable through 2017, close to the cost of production for the high cost producers, but increasing over the last month as anthracite coal prices have increased further. And you can find this data under additional information in today's presentation.
Through most of 2017, Chinese producers have discounted export prices compared to the domestic market. You can see this in the blue line and compare that to the black one for the domestic prices. But recently, with low availability in Chinese ports and improved demand for Chinese exports, prices have increased above the domestic price, as you can also see here at the end of the graph where the blue line then crosses the black one. Even more importantly, during the second and most of the third quarter, global prices disconnected from Chinese export prices due to low global demand. This changed into September when stronger global demand brought global pricing in line with Chinese export prices.
The short term volatility that we have seen in 2017 can be expected also going forward due to less predictable situation given lower overall demand and supply of Chinese urea exports. The outages in Algeria and good demand from Europe have boosted the North African prices even more than the other references. A further important factor in the global nitrogen balance is import demand from India. So far this season, April through August, sales is up by 3%, while production is down by 2%. And in addition, April through August imports were down by 500,000 tonnes compared to the same period last year.
So stocks have been declining, and India has been active in the market from September, importing more than last year, supporting the market. As can be seen on the from the graph on the left, annual sales vary from year to year, partly due to timing of imports. India imported record volumes in 2015 but ended with high stocks, which negatively affected imports and sales in 2016. I then want to round up with a summary of the growth investments and the improvement program effects. On the left hand side, we have added together investments we are making both in the Yara improvement program and for our committed expansion and growth projects.
On the right hand side, you can see the combined projected earnings improvement resulting from these investments on a 2015 baseline, totaling $1,100,000,000 of EBITDA within 2020, equivalent to NOK 16 net income per share at today's currency rates. For a full overview of our planned investments, including maintenance CapEx, refer to the first three slides under additional information in today's presentation. So with this closing summary, I'd like to hand back to Thor, who will coordinate today's Q and A session.
Okay. We are then just about ready for the Q and A session. So if you have a question, please raise your hand and my new colleague in IR, Neen Aclave, will endeavor to get you a microphone. Who would like the first question? So we start with ABG.
Bingtur Nasten from ABG Sundal Collier. I have three questions, I think. If I compare the variance table in your quarterly report with respect to the ongoing improvement program, how should we read the variance table compared to the $250,000,000 improvements realized so far in the program compared to last year? That's the first question. The second question is on the acquisition in India.
I think that was supposed to be closed in August, September this year. And now we obviously are in October. So any development there? I think I'll leave it those two questions.
Yes. Maybe I'll start with the improvement program then. You could say that $210,000,000 in total accumulated improvements is based on twenty fifteen prices. And you could say, if you take that total split, about half of the improvement is related to production volumes, About a quarter is related to energy prices. And about the last quarter is related to procurement or lower unit cost.
And the last one is not influenced by, you could say, pricing as such then. That's a relative element, while the two other one is influenced by prices. But if you then look at and we don't have a split quarter by quarter on this. We plan to give you more granularity on this by the fourth quarter, and we have an extended presentation on that. But to reason a little bit on it.
And if you look at year to date prices or if you look at third quarter prices, you will reduce the total improvement with or it will be about 70% to 80% of all the improvements you have with 2015 prices. You'll take down the production part somewhat, and you'll take down a little bit the energy element. And then, of course, you have to realize that this is annual effect. So for a quarter, you have to divide on four then. So what you'll see is in the volume part, in the deviation analysis, you have a significant positive element, which is related, of course, to sales volumes.
But underlying there, you have quite a lot of the production improvement then, which year over year will be in, say, dollars 50,000,000 on an annual basis Okay.
And I'll give some comments on India. And as you correctly point out, our expectation was that we would close this transaction in third quarter. And it is taking some more time, partly due to a new regulatory process in India, which has recently come into effect. And both parties are ensuring that we transfer the assets in a satisfactory way, and we're working full speed on our side. And Tata Chemical is working full speed at their side in order to get this done in the correct way.
We are aiming for closing this before the end of the year, but there is some risk that it will take some more time than that to get everything formally in place.
Okay. I think we go to Handelsbanken next, followed by Danske.
It's Anna Joen. I have a question related to the fact that you told that you and the rest of the industry in Europe have sold quite a lot of fourth quarter volumes rather early. But how is it like today? Do you sell quite a lot as early as now when it comes to first quarter volume? If that is difficult to comment on, what is kind of the normal by the October, how much is then sold out of first quarter volumes?
Yes. If I should start, then it's not that much sold out of first quarter, no. You could say both we a long order book, so we are not in a hurry to sell as such. And also, the distributors are quite well covered for their first delivery then. But what I have what I can say is that we have started to take order or got orders on the new price level, but neither we nor the customers are in a hurry to take new orders at the current time of the season.
Don't add to it if you would say
Yes, think more or that's quite normal that not only for us, but for them. For the whole industry that you're kind of more keen to try to secure the period until application really starts. So I mean, when you sell more or less for direct onto the fields, then there are normally less forward selling when you get to that period. But let's say, to bridge the fourth quarter, which can sometimes be challenging depending on the kind of sentiment in the market. There has been quite a lot of forward selling this season, as mentioned.
Okay. I think if you just pass the microphone right to the back row where we have Danske Bank waiting to ask a question. Eric Miller, Danske Bank.
I have three questions. One, if you could just explain the reasons and maybe sensitivity on the adjustment on the expansion projects from $650,000,000 to 600,000,000 and the kind of sensitivity on if this could be adjusted going forward? And also some on the urea supply side. The cruise slide indicates a higher production change for 'seventeen, as you talked about. But does this kind of skew the picture so that more has come and less to be come going forward?
And another thing on the supply side, in addition to the coal increase coal price increase in China, do you see any direct closures from environmental reasons? Or are they mainly happening on the back of margin squeezes?
So I could start with the latter part, whether we see significant impact from environmental point of view as of yet. I would say that, that's very limited so far. So most of the closures are due to financial reasons. So I see I mean, with the ongoing efforts in China at the moment to reduce emissions that could provide further shutdowns in the future. But as of now, it's mainly driven by financial reasons.
And I think you continue, Dartur, on supply additions, and then you take the capacity. Yes.
There's as you say,
there is a slight increase in the supply increases for 2016 and 'seventeen outside China in this very new slide. And I think in 2016, as Zlaint already mentioned, that is called for because
the EAFE annual complete data that
has just been released show an 8,000,000 tonnes supply increase outside China for 2016, which is even a bit higher than what that year you estimate is. And part of the reason is it could that's the new project, but it's also a good performance elsewhere, like Egypt, for instance, added more than 3,000,000 tons in 2016 compared to 2015, where a quarter of the growth is from Egypt alone due to better gas supply because the plants are already improved before 2016. That also means that demand growth seems to be a bit better than many predicted because we don't think that stocks in a way have been kind of fundamentally increased. There's not that much of kind of strategic stocks on fertilizer like on grains and oil and etcetera. So quite good year also from a demand perspective in 2016.
When it comes to 2017, we believe that the opposite will happen when we get the final numbers. That's where you are overstating the supply increase outside China. Based on the EFA survey for first half, there is quite limited growth. And Algeria is one example of that. They have cut their exports quite significantly due to the outage of the largest plants and also elsewhere.
They have talked about more curtailments and more technical issues and more turnarounds and more different type of things in 2017 than in 2015. So and then of course, it remains to be seen how that plays out for next year. But as Santorin mentioned, there is actually potential for quite a lot of supply increase, but not necessarily I mean, not so much the way it looks today because there are still delays to new projects and so on. So it's better than that, of
course, hard to say. Yes. And then on your question on the P and L effect of the expansions, and you're referring to, you said, the last slide of St. Urias presentation, where it shows that you expect that the expansion project will have an EBITDA effect of $600,000,000 by 2020 or NOK6 per share. And you are totally right that previously, we have guided on NOK650 million and NOK7 per share.
And the reason for that is if you look at the timing of the project, I said that we had some delays on the Rio Grande project, but we expect to catch up that. But we also see somewhat later finalization of the Solitra project. We expect, as we did a quarter ago, that the mining part of that project will be ready in first quarter next year. But we previously guided that we saw that the chemical part of it, where we take the rock and upgrade it to phosphate fertilizer, would be ended by 2018. Now we see mid-twenty nineteen.
So then there will be a later step up of production in that project, which influenced the earnings expected expected in 2020. And so that's the major element of that.
So if you include the 2021, we would probably be at the same number?
Yes, that's right. That's right. So it's a slight delay in step up.
Have the next question from DNB. If we bring the mic forward again or via the side to optimize logistics here.
Eivind Adeng, DNB. Two questions on the markets. One on the nitrate stocks. You mentioned a couple of times that the producers are comfortable. How what would that indicate for your sales in Q4?
And also on India, the import demand, where are the current Indian stocks? And what does that indicate for imports for the rest of this season and also going later into 2018?
Do you like to start with India?
Yes. It's hard to, as everywhere else, to judge the exact inventory positions because, I mean, their whole market is on farmer, distributor, producer level. But if you just look at the development since the start of the new year in India, which starts April 1, there is roughly a 1,000,000 tonne stock reduction implied by the if you just take sales minus production and adjust for imports, roughly 1,000,000 tonnes. But then, of course, we don't know exactly what consumption have been and so on. So but what we see is that they drew two tenders in September.
They bought basically 1,000,000 tonnes already, supported the market. Now there's a tender ongoing now, and they don't seem to be able to buy more than three hundred four hundred thousand tonnes in that tender, at least so far. That's the indication just because there isn't much availability at that price. Traders are they find some Iranian urea, they find some Chinese, but nobody else seem to be keen to sell at $2.90 CFR India. So that's I guess, there's already speculation in the press that another tender is just around the corner or not far away.
And so it India is certainly a very supportive factor in the market right now. And I think reducing the risk of, let's say, temporary setbacks. So of course, what happens in 2018 is largely then depending on what the consumption developments in India, which are, of course, more uncertain also with now they are going to try to reduce the bag size from 50 kilos to 45 kilos. They are also also the direct transfer, money transfer through farmers so that farmers trigger the subsidy payments rather than the sales from the producers. These effects are a bit unclear, but at least they are not doing anything with the retail price, it seems like.
So urea will still be kind of very cheap, below $100 for farmers. So there are no signs of doing anything with that. So I mean, But I would say that the consumption developments is then the key to what happens further on after this, let's say, fourth and first quarter, where it certainly looks stronger than a year ago.
Yes. And on nitrate deliveries then, as you alluded to, of course, when we have a long order book, we have much more certainty on deliveries, but they are still facing uncertainties there when we choose to deliver or when the customer choose to take order and the flexibility of that. So that can vary a little bit if those end before or after the quarter. So but we are in a very comfortable situation, of course, when it comes to the order book. There are also, of course, uncertainties on deliveries outside Europe, where we have a growing market, particularly in Brazil and where not all is booked for the fourth quarter.
And the fourth quarter is also, in a way, the end of the season in Brazil. So there are some uncertainties there. Another element is also maybe just pointing to the inventory situation in Europe, which is quite normal. We have one slide in the attachment there, Slide 35 or sorry, 36, where you'll see that the estimate of the current inventory situation in the European industry is on average of what it has been over the last five years, but actually lower than it was the previous couple of years.
Are there more questions? There is another opportunity for those who are interested at two p. M. Oslo time. We have a conference call.
But until then, thank you for your attention and attendance. And there are more prints outside for those of you who didn't get one on the way in.
Hi.