Okay. Good morning and welcome to the presentation of Yara's Second Quarter Results. Today's presentation will be by our CEO and CFO on the results side and in addition we will have an update on digital farming from our Head of Crop Nutrition, Thierry Knudsen. After this, we will have a Q and A session. So then, it's my pleasure to introduce CEO, Svein Toeder Morsefi.
Thank you, Toi, and good morning to all of you. As usual, I want to begin with a look at our safety performance as this is at the top of our agenda. We suffered tragic fatal accident at the construction site of our Salitre mining facility in Brazil on June 6. Vasco Pereira de Morales, a construction worker, fell from height and died later the same day at the hospital. Our thoughts and prayers are with Vasco's family who have suffered a tragic loss.
We cannot and will not accept fatalities or serious injuries at Yara. But this accident does not make us doubt whether we have the right safety measures and procedures in place. Rather, it makes us even more determined to drive and enforce adherence to these measures on all sides. Yara must be a safe workplace for all our employees and contractors. In terms of numbers, we've seen an increase in our TRI rate compared to first quarter.
Even if the twelve month rolling figures have improved as we had fewer accidents in second quarter this year compared to the same period last year. And our rolling TRI is now at 2.1. But when you experience fatal or serious accidents, this is of limited significance. We believe that we have the right approach and systems in place and we will continue to relentlessly work to achieve our ambition of zero injuries. Yara delivered second quarter results, which mainly reflect lower commodity fertilizer margins.
The quarter were impacted by lower selling prices and higher energy costs. Finished fertilizer production increased, while our ammonia production was lower in the quarter. Ammonia production was up or ammonia production was 7% lower than a year ago, mainly reflecting a major turnaround at the Le Havre plant and a fire at the Poshkun plant in April, which left the plant down for the remainder of the quarter. We expect to restart the Posh Grunnamone plant at the end of third quarter. Our Industrial segment delivered another strong result with a cash return on gross investment or kroger, excluding special items of 27% for the quarter and 31% for the last twelve months.
Adjusted for the sale of the CO2 business in 2016, industrial deliveries were 8% higher. The Yara improvement program is on track and has already delivered 120,000,000 of the targeted $500,000,000 of annual earnings improvement within year 2020. The rollout to our production site is going well, and I will come back to this later on in the presentation. Yara's underlying earnings per share were 53% lower than last year and the decline mainly reflects lower market prices and higher energy prices. Our reported earnings included a million foreign exchange loss and a NOK119 million of positive special items, mainly an energy tax refund.
Last year's reported earnings included a NOK122 million foreign exchange gain and a NOK1.5 billion of positive special items, mainly related to the gain on the sale of our CO2 business. As I already mentioned,
we had
contrasting situations in ammonia and finished fertilizer production. The Poshkun ammonia downtime had a negative EBITDA impact of around million in the second quarter. The plant is expected to start up again at the end of third quarter with a negative EBITDA impact in third quarter of around million. The insurance is expected to cover around million, but the supplement will most likely not come until 2018. Finished fertilizer production increased 1% compared to last year despite more turnarounds.
Adjusted for the turnarounds, finished fertilizer production was actually 5% higher than last year. It's important to note that we're in the early part of improving a portfolio of 30 production plants. While we're very pleased with the results of the rollout so far, we must still expect reliability issues also in the foreseeable future, sustainable operational improvement across the entire plant portfolio will not be achieved overnight. In Brazil, first half deliveries were flat, while Yara deliveries were up 6% with premium products up 23%. For the quarter, Yara Brazil's fertilizer deliveries were 10% higher than a year earlier, while total market deliveries were 4% lower compared to last year.
More than half of the growth in the quarter relates to growth of premium products. Brazil is a highly attractive market for Yara, given its growing agricultural sector, high fertilizer import and also high value crop mix. We have built up our position in Brazil over a number of years. And today, we have 28 sites in 11 states. We have more than 5,000 employees.
We have more than 200 agronomists and 600 sales representatives working out in the field every day and working directly with more than 20,000 farmers in Brazil using Yara's solutions. More than half of our sales in Brazil are direct to farmer. We will continue to focus on premium product growth in Brazil going forward, where the value creation per ton is significantly higher than in the broader Brazilian commodity fertilizer market. I will now hand over to our CFO, Torgay Kwidan, who will take us through the financial results of the quarter.
Thank you, Svendorje. Let me then give you some more details on the Eira's financial performance in the second quarter and starting with the EBITDA development. We reported an EBITDA in the second quarter of NOK 2,992,000,000.000, which is 45% down from second quarter last year. If you look more into detail on the bridge from last year to this year's EBITDA, you will see that the biggest single effect is special items, as Venturi already has mentioned. In this quarter, we did have a positive special item of million, of which we refund of energy taxes was the major part.
Although last year, we had a positive special item of more than billion by the gain of selling our CO2 and industrial gas business to Praxor. But taking away those special item effects, we are still down 27% in EBITDA from second quarter last year to this year. And you see there are two major explanations for that decline. It is higher energy costs or energy cost in Europe increased 22% from last year, and it's also increased outside Europe. So called overseas energy cost increased with 31%.
Then we realized lower fertilizer prices this quarter compared with a year ago. Nitrate prices were almost in line with last year, only 1% lower on average realized for Eira, but NPK prices were 5% down from last year, and our realized urea prices were down 7%. And those 7% are a larger decline than what you can observe from typical export points. But the main explanation of that is significantly lower urea prices in U. S, which is depressed by all new capacity starting up there.
We have partly mitigated that by selling less urea in commodity fertilizer in U. S. And direct that to other markets. In addition to lower fertilizer prices, we also realized about SEK 100,000,000 in lower ammonia prices in the quarter, which was more of a phasing effect where we had higher sales in June where ammonia prices were lower than the average for the quarter. Then you can see we also have a negative effect on volumes, and that is lower fertilizer volumes.
We sold 3% less fertilizer this quarter than a year ago. And all that is explained by phasing in the European market. We sold 10% less fertilizer in Europe in the second quarter. But over the season, we sold 1% more than the previous season. And the reason is that the European market was ahead after the March in Europe with roughly 3%.
So, we ended one percent ahead of the season, but 10% down in the quarter. And we also sold less commodity in North America, as I said, 16% lower sales there. Although, I will mention that our results in North America and crop position were slightly up from last year. And that's also showing the strength in Jaira's product portfolio. While we reduced sales of lower priced commodities, we kept up the price.
We kept up the sales of more premium products to the East And West Coast Of North America. Then in addition, we had a positive volume effect, I will mention, for Industrial, which continued to grow. Industrial sales volumes were up 8%, particularly increased for ADLU, the NOx abatement solution for trucks and cars, which increased with 14% year over year. Now you can see that we have one positive effect in the EBITDA bridge this quarter, and that's related to currency. Compared to last year, the U.
S. Dollar has strengthened, and that's positive for Yaira's results as we have most of our sales revenues in U. S. Dollars, while quite a lot of our fixed costs are in other currencies. The last effect on the EBITDA bridge is the so called other element of million.
And the biggest part there is increased fixed cost. The cost increase due to that is growing but also due to our improvement program where we put in more resources to run through our projects. But still, with those improvement program and Jaira growing, our fixed costs are increasing lower than global inflation when you look at inflations in the countries where we are present. If you then look at the segments, how this EBITDA development are spread across the segment, you will see that production is the segment with the biggest decline. The lower commodity prices, like on urea, is hitting mainly production and also higher energy cost is influencing production as well as the production problems that we had on ammonia this quarter.
Also, Crop Nutrition has a lower results this quarter than a year ago, and that is explained by Europe and the lower deliveries in Europe due to the phasing, as I mentioned. While Industrial has an increased EBITDA this quarter. So not only was it increasing volumes but also continued to increase profitability. And if we adjust for the sale of the CO2 business, which gave an EBITDA in the operating results of roughly NOK30 million last year, Industrial increased their EBITDA in the quarter with 12%. And Industrial then, Chawakrogi for the quarter of 28%, while Krotz position Chawakrogi in the quarter of roughly 12%.
If you then look at the cash flow generated by the quarter, you can see that we started with a net interest bearing debt of close to 14,500,000,000.0. And that's a net debt to equity ratio of 0.18. Then we have cash generation from our earnings of NOK 2,200,000,000.0 in the quarter, and we released NOK1.2 billion in net operating capital. And that is lower receivables due to lower prices, partly offset by a 6% increase in the Aera's finished fertilizer. And that increase is fully explained by Brazil, who is increasing inventory in front of their peak season in the third and into the fourth quarter.
Then we continue to invest in our activities. We are building a phosphate mine, as you know, in Brazil. We are building an ammonia plant in Freeport. We are debottlenecking our NPK plant in Europe. And we are building a new urea plant with sulfur in Schleskill.
And those growth investments, in addition to continuous maintenance to improve regularity in our plants, constituted an investment of billion in the quarter. Then we paid out our annual dividend in the quarter, NOK10 per share or equivalent to 43 percent of net income of last year, which constitute NOK 2,700,000,000.0, bringing our net debt up to NOK 16,800,000,000.0. That is a
sorry, go back. And that
is a net debt to equity ratio of 0.22. So, still a strong balance sheet, which can facilitate further growth as well as good cash return to owners. If we then look a little bit closer to some of the elements in our results development, let me comment a little bit more on energy. Our energy costs increased NOK466 million in the quarter. And the main part of that is related to Europe, NOK320 million increase in Europe.
And that is why our average cash price in Europe increasing from $4.6 up to $5.6 We also guide on the next two quarters on gas prices in Europe based on the foreign market and our gas contracts. And you can see that we guide a quite flat development into the third fourth quarter. And we would say that we continue to be very comfortable on the gas supply situation in Europe, where we see more LNG starting up globally and being available for Europe. Then we had about 60,000,000 increase in the gas cost in North America being Bellflame, and that was an increase from a gas cost below $1.3 per million BTU a year ago, up to a still very comfortable $2.5 per million BTU this quarter this year. And then as we told you half a year ago, we have a step up now in 2017 in the gas contract in our plant in Australia, which roughly gives a quarter over quarter increase of million from 2016 to 2017.
If I then should comment a little bit upon our margin and price development, I will look share with you some thoughts on nitrates and NPKs, which are two most important fertilizer for Europe for Eira. And on top of the global commodity prices that Svendturri have commented upon, we are generating an important premium on top of that due to the fact that nitrates and NPKs are more effective fertilizer for the euro or for the farmer. And if you look at the development in the nitrate premium, you can see that in the two previous quarters, in the fourth quarter of last year and the first quarter this year, the nitrate premium was at quite a historical low level. And we explained that last quarter that, that was mainly due to time lag effects, where quite a lot of the nitrate sold in the first quarter was booked late in the fourth quarter at a time before urea prices really started to increase late fourth quarter. So, we had a timing effect, pulling down the premiums on top of increasing urea prices in the fourth and first quarter.
This has changed now with the more stable urea prices. In the second quarter, we have been able to realize higher nitrate premiums. And you can see that we now have nitrate premiums for the second quarter this year, in line with second quarter last year and closer to the historical average of nitrate premiums. And if you look at current nitrate prices compared to current urea prices, the nitrate premium is roughly now about $45 so quite normal, I would say, related to where we are in the season. And we also see support now for these premiums on higher efficient fertilizer by the fact that we start to see some food prices increasing.
The last slide I will show you then is the premium development on NPK. And you generate added value from NPKs in two ways. First, we do it by dissolving phosphate rock in our NPK plants, and that value creation is illustrated on the left side of this slide. And you can
see there that,
that upgrading premium has slightly increased from second quarter last year. Then we get a higher price on NPKs than, you could say, our bulk commodity blend of the same nutrients since NPK give a more precise fertilization and more efficient, convenient fertilization for the farmer. And that's the premium we get on top of those bulk prices, which is the difference between the black line on the right side of this slide and you can say the commodity prices indicated below. And that premium is slightly down from our second quarter last year, but it is now higher than it was in the three previous quarters. So, you also see a positive trend there, both supported by improved food prices but also by the continuous work our sales force do, where they look for new markets, which will appreciate with a higher value the more high quality fertilizer as NPKs are.
So, to illustrate a little bit more the work we do on providing better services to farmers with high quality fertilizer, I'm now going to start a video for you, which shows a visit to a customer in Norway, which use Jairas end sensor, which makes fertilization more precise. And thereafter, our Head of Growth Nutrition, Thad Jirk Knitsen, will talk to you about how we continue to develop more digital tool and services to our customers.
Good morning. I will then take you through some of the exciting developments that we have within digital farming. But before doing that, let me try to put that into a strategic context. Those of you that follow us regularly will remember that I presented an updated crop nutrition strategy and aspiration at our Capital Markets Day in March 2016. The core of our crop nutrition strategy is really to go deeper in the market with what we call a crop specific, farmer centric strategy.
And to achieve that, we presented four strategic responses. We want to develop pharma centric solutions that integrate knowledge, digital tools and services to our product portfolio. Secondly, we want to develop aligned market channels that enable us to bring that knowledge on and share it with the farmer. Thirdly, we are developing local and global partnerships along the value chain, particularly with food chain companies. And fourth, we want to really be in the forefront of innovation and R and D.
So, today, I would like to take the opportunity to present our progress and ambition related to our digital tools and services. And in fact, that development is very important for all four of these strategic responses. We are actually quite inspired by our early successes and with the increasing importance of digital. And we aim to broaden our offer and also our global reach towards becoming the global digital leader in crop nutrition. And this is a very natural evolution of our successful customer centric crop nutrition strategy.
We build on our leading knowledge of agronomy and our global reach, and we add to that our digital offering for farmers. And we will deliver a wide range of digital products, tools and services with really the aim to drive productivity, yield and quality for the farmer. Let's take a look at the cornerstones of our strategy. First, the offer. Some companies, they tend to build the digital services outside of their core.
For Yara, we stand for really world leading crop nutrition knowledge. And this will also be the core in our digital offering. So we will build our digital offering within our core. We will offer best in class digital nutrition solutions that really focus on making a real difference for the farmer. And to do that, we need to tailor this to the market and to the segment that we serve.
That means considering the crop, the climate and soil conditions. When it comes to the first sorry, we will target farmers that want to really step up their efficiency and yield. We want to go beyond our existing customers of fertilizers. We think that we have a market there of farmers that really need crop nutrition knowledge and solutions. So we will want to approach all farmers.
We don't think we can do this alone. We think we need to do this together with our distribution and retail partners. And in order to get scale and speed, we also aim at collaborating with our partners in the value chain. What is our plan? Well, as you saw in the video, we already have a successful portfolio of digital tools, But we see that this is developing fast, and we need to step up our capabilities to deliver within the area
And to do that, we have decided to establish a unit we call digital farming. This unit will be headed by Stefan Funchen, who we have recruited from McKinsey. He has an experience to be a partner and holding the role as leader for the digital agriculture for Europe, Middle East and Africa. And Stephane will start coming Monday. So, are quite excited with that.
We also see that the speed in this development and the technological advances is increasing on global basis. And to deal with that, we need to succeed with getting speed and agility in our development. We, therefore, aim at developing solutions, piloting fast and making sure that we involve the end user in the development and the rollout of our solutions. We will do that in many of our EARA markets within the next twelve to twenty four months. We will focus on two quite distinct segments.
We have the professional farmers that we typically serve in Europe, North America and Brazil. But also very important for Yara are the many markets we operate where we have smallholder farmers. And these two segments, they will need quite different and distinct services. For the more traditional professional segment, we will aim at improving the farmer experience in using our digital platform, which we call Myora through a more convenient access to information, more modern communication and not at least to ensure that we have connectivity between all the different tools and services so that everything is under one roof. We will also broaden our offer within precision nutrition solutions.
As you have seen on the video, we have a quite successful start with our N sensor. What we see is that we will complement that with drone and satellite technologies, and we will also extend with planning tools for more efficient use of crop nutrition. Within the smallholder segment, this is more about becoming more efficient in reaching the target farmer. We operate in many markets with hundreds and thousands of farmers, which obviously is demanding resources from us. And we see this digital opportunity to basically target those farmers more efficiently and also create stronger incentives for the many retailers serving our products in these markets.
We have a very concrete road map of stepping up our activities, which can be captured in four main elements. We will broaden our sensing tools by adding drones, by adding satellite technology and by adding more nutrient sensory. Secondly, we will respond to the very fact I will wait a bit with that. We will respond to the very fast development of analytics. For instance, we will use our leaf and soil analytics and combine that with really advanced analytics and machine learning to guide our solutions.
Thirdly, we will focus on more convenient use through much better connectivity and optimized interaction for the farmer. And finally, we need to scale it up. We need to move faster. So, if we look at what this means for a Brazilian farmer, then we can see that we would like to provide him with the highest quality crop nutrition services, which will give him higher productivity and higher yield. We will do that through advanced planning tools, through digitalized soil tissue analytics and to enable him to improve his input to his field.
We will also do it through serving him in a more easy way that he can have access to our agronomic services easily digitally and that we can facilitate his ordering and his services. What does that bring Yara? Well, obviously, this will give us learning about the farmers we serve, and it will make us able to serve those farmers with a much more tailored offering. And it will give us a possibility to create a new revenue pool where we expect that our digital services will generate an interesting revenue that also will pull our premium products. So I'm very excited about the development.
I really think that with our knowledge base and with our global reach, we have the opportunity to both be the leader in digital farming and also to get the scale in this activity. So with that, I will hand it back to our CEO, Svein Torojobserfes.
Thank you, Thadde. In terms of prospects, I want to provide a further update on the strong urea oversupply in The U. S. And elsewhere. Capacity additions look set to peak during 2017 and 'eighteen according to the latest update from CRU.
This situation looks set to weigh on global urea prices. As you can see, planned capacity expansions are in excess of trend consumption growth, both in 2017 and 2018. In addition to the capacity forecast that you can see on the bars here, we have also plotted in CRU's forecasted year over year production change. This shows that although the peak of the new project is this year, the actual production increase is almost as strong in 2018 as in 2017. Chinese urea prices continue to be a key reference point for global nitrogen pricing.
But higher production cost in China has resulted in significant curtailments and in reduced exports. At the same time, strong urea capacity increases outside China are weighing on global urea prices as non Chinese FOB prices are reduced in order to displace Chinese exports. Yara expects this situation to persist also in 2018 given the significant number of new plants entering the market over the next year. Guyana expected commodity nitrogen oversupply and has focused its growth pipeline on premium and industrial products. And as you can see on the screen, most of our growth projects have low or medium exposure to commodity nitrogen prices.
Premium product supply is limited globally due to high greenfield investment cost and also due to the market presence needed in order to achieve full premiums. Yara and other existing producers have initiated expansions of existing facilities, but no greenfield projects have been initiated. Our main commodity nitrogen investment, the Freeport plant benefits from a lower investment cost due to brownfield synergies being inside the BASF site and also through using hydrogen as a feedstock. But it is fully exposed to lower ammonia prices. The Tabriola plant today has very limited exposure to international nitrogen pricing under the current Indian subsidy regime.
In terms of industrial product expansions, the explosive sector is recovering after several challenging years. The Pilbara plant will be in commercial ramp up in 2017 and 'eighteen. And the Xoping expansion will meet a growing demand in the Northern European mining sector. There is a strong business case for low cost phosphate expansion in Brazil, given growing agricultural sector, high fertilizer import dependency and higher value product mix. As for the improvement program, we're still at a very early stage of the program, and our focus has been on laying a solid base for long term sustained improvements.
The Yara productivity system continues to be rolled out, five additional plants since the first quarter update, confirming and exceeding our initially identified improvement potential. Our procurement excellence project is about to launch its second wave of categories and are working to capture more variable cost savings. On the financial benefits side, the accumulated annual EBITDA improvements totals $120,000,000 so far compared with our 2015 baseline. This includes improvements made through 2016 and in the February 2017. So, in other words, in 2015, our EBITDA would have been $120,000,000 higher if all our improvements activities so far have had full effect in that year.
In addition to the sustained EBITDA improvement, we have realized and accumulated $80,000,000 of one off cash effects since 2015, mostly from working capital release. One off OpEx costs so far are somewhat higher than planned as are the benefits, reflecting an increased pace of rollout of the program. I want to conclude with a summary of the growth investments and improvement programs. On the left hand side, we have added together the 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 project earnings improvement resulting from these investments on a 2015 baseline, totaling $1,150,000,000 of EBITDA within 2020, equivalent to 17 of net income per share at today's currency rate.
For a full overview of our planned investments, including maintenance CapEx, please refer to the second slide that we have included under additional information. We have also included key price sensitivities here and that's both for the improvement and growth earnings. This concludes the presentation for today. But for those of you that are here in Oslo, I invite you to pick up a cup of or a bag of summer coffee from Costa Rica. It's made by coffee farmer, Odilio Rivera.
And he produces coffee under the trademark Pastora, the leading trademark in Costa Rica and the largest coffee cooperative in Costa Rica. And it's recognized as one of the best coffees in the world. By using Yara's crop nutrition program, Odilio is able to get 61% higher rate of top quality beans compared to the neighboring farms. So I would then like to hand back to Thor, who will coordinate the Q and A session. Thank you.
Okay. We will then get ready for the Q and A session where we will have our presenters and also Yara's Head of Market Intelligence, Doug Toulemaud. So if you have a question, please raise your hand and my colleague, Chertel, will hand you a microphone as soon as possible. So we start with Bengt.
Bengt van Ostens from ABG Sundal Collier. Can you talk a little bit about more about the realized nitrate prices during the whole season? Is there increased competition from urea or other nitrogen products that is affecting your ability to realize prices according to, let's say, industry news enterprises? And one question for Dagtora about ammonia market. Try to explain what is happening there.
Also for Torger, on CapEx year to date, dollars 5,100,000,000.0, how much is maintenance and how much is growth related to growth? And then finally, the book value of the Montuwar asset as of Q2.
I could start with the easiest one then. The book value of Montuair asset, if you look at fixed assets, it's zero. We wrote it down last year. Then we have made some investments, operational investments for maintenance and so on. And as prices have declined somewhat again, we have written those investments off.
So it's no fixed asset book value there. Then on the investment, on the 5,400,000,000.0 investment year to date and your question between growth investments and maintenance. And that's roughly fifty-fifty then. So, it's if you look at the full year estimate that's what I referred to at 17.9%, it's quite a lot of catch up in growth investments as well as the Indian acquisition, which we expect happening in the third quarter.
Maybe I can say a few words about the nitrate pricing. I think it's important to go a bit back. If we look at the entry into season 'sixteen, 'seventeen, there was a quite high stock among most producers. So, the whole season started off with a quite tense competition within producers of nitrates. Actually, the import of urea has not been so disturbing during the season.
When we now look into the coming season, then we have had a bit of an opposite situation where the stock profile has been much better for Yara, but also for the European industry, which means that we have been able to launch the campaign at a more healthy premium for this season, also with a healthy order book as we speak.
On your
question about the ammonia market, I guess, you asked because it shows so much price volatility compared to most of the other products. It's quite normal that the ammonia market has more volatilities and much thinner markets. The market for surplus ammonia beyond nitrogen in general is relatively small with the industrial and phosphate customers making up twothree of the demand side basically. It's a market that hasn't growing has not been growing, let's say, ten years because most of the phosphate expansions have been in China where they have utilized their own ammonia for that phosphate production. So, it's fairly flat on the demand side.
It used to be very high upgrading margins from ammonia to urea some years back because of earlier actions by many producers to try to plug the ammonia streams, which created a very tight ammonia market three to five years ago two to five years ago, where ammonia prices were basically priced towards the ceiling set by the urea price. That triggered an investment, again, cyclical as everything else, in stand alone ammonia capacity. So we have a noir period where there's been a period where there are Russian plants coming on stream. There has been also more excess ammonia from the new U. S.
Plants that basically reduced ammonia input nearby The U. S. By at least 1,000,000 tonnes. And also some elsewhere, there is a new ammonia plant that has gone on stream in Saudi Arabia meant to feed the phosphate operations that is coming on stream, but that's not yet happened, coming gradually as going forward. So we have now a situation where we basically have an oversupply in the ammonia market if everybody runs at full capacity.
So that created a very depressed situation last year and into the fall. And then again, because the market is relatively thin, what happened was that there was a dispute on pipeline tariffs between the largest Russian producer, Pogliati and the Ukrainians, which, by the more or less, stopped exports from the largest producers, almost 2,000,000 tonnes a year on full capacity, that really shot ammonia prices up again in the first quarter. Now that gradually, flow has been kind of restored and ammonia is coming is increasing again from the Black Sea via from the Toghiati plant. And there is again then a surplus in the ammonia market so that prices recently have dropped sharply. So and with the low given a surplus and with low global gas prices, basically, China is not playing the swing producer role on ammonia as it is on urea.
Fairly depressed prices are to be expected in ammonia market. That's what we also expect if production runs well across the board basically.
Next question from Danske.
Erik Mele, Danske Markets. Two questions. One on NPK prices compared with the nitro prices, we saw an encouraging increase of NPKs. Can you comment a bit on where is that price increase is coming from? Is it Europe or is it overseas?
A bit on that. And the second question, the Chinese operating rates are low on the higher coal prices and combined with the global low pricing. But do you see any chance of their supply reform, which has affected a lot of other commodities in China, also affecting the nitrogen market in China?
I can start with China and then I'll hand over to Thaddeo on the NPKs. If you look at exports out of China season to date, say, July through May, we're at 6,000,000 tonnes compared to 11,300,000 for the same period last year. So clearly, there are there is a significant export reduction and capacity utilization is much lower. From what we can see, this is driven by economics and not reform. So, certainly note that this is happening in a number of other industries reform is impacting the operating rates, but that's not what we see at this point.
What we see is a purely economical decision to shut down capacity. And on NPKs?
Yes. First, on volume growth. We have actually had a quarter quarter where we have seen a quite steady growth, I would say, in all markets, driven partly as we saw by Brazilian numbers. But also in China, we have been able to take back, so to say, quite a bit of our NPK market where there has been a distressed situation, particular in horticultural crops, vegetables in particular. Price wise, that also is reflecting the picture.
We in Europe, NPK is to some extent related to iron nitrate pricing, therefore, more challenging to distinguish between the nitrate price and the NPK, while in overseas markets, our NPK is priced much more on the performance of the crop rather than maybe alternative products. And there, have seen positive development where we have been able to position our NPK into crop segments that are profitable for the farmers and therefore, profitable for us.
Are there more questions? Yes. We can go to Carnegie.
One follow-up question on the ammonia. At current prices, do you see closure of ammonia capacity and lower urea production? Or do you see a switch to urea and more urea production?
I believe that urea production probably maxed out so that there are a few that can actually choose to produce less ammonia and upgrade more because they would have done it already. I mean, are some plants that have closed both, like in Ukraine. But I don't think anybody is producing more surplus ammonia than they can basically. And there are closures. There is no ammonia production basically left in Ukraine, for instance.
They started up also earlier this year when the price improved, but they are now closed again. The Sulphur plant in Algeria has constantly delayed the startup of their second line, which is basically a surplus ammonia line. Recently said that they at least not before August indication. And there are some others as well. Togliati, I don't know, they have seven ammonia plants.
We mentioned them earlier. They have a huge distance to ports with high logistical inland costs. They first stated that they are down to four of those seven plants and are considering to close another two. Let's see. I am not sure that has been implemented yet.
But yes, there are I'm sure there are many producers that are looking at how to optimize ammonia production at the current low prices around $200 or lower.
Other questions? You can go back to ABG. I think you encouraged him, Dagtouido, by providing a five year answer to a quarter question.
Peng Joonasen, ABG again. Just to follow-up on that question again. Are you then talking about only surplus ammonia? Or are you talking about ammonia affecting urea production as well?
No, I meant surplus ammonia. But I mean, there are also some curtailments of ammonia that is used for other purposes. And Ukraine is the kind of a star example in addition to China on that. Most of the ammonia combined with upgraded product that is curtailed is in China.
Other questions?
If you do think of any more, there's another chance at two p. M. Today when we have our conference call. But otherwise, we'd like to you for attending our presentation. Thank you.