Good morning, and welcome to Yara's First Quarter Results Presentation. Today's presentation will be by our CEO, Svein Torre and CFO, Torger Kriedal. And after this presentation, we will hold a Q and A session. So I would then like to introduce Yara's CEO, Svein Thore, Hulseptir.
Thank you, Thore, and a very good morning to all of you. As usual, we will start with a look at our safety performance. And as this is always at the top of our agenda in Jaram. Jaram must be a safe workplace for all our employees and contractors. A safe workplace is also a more productive workplace, providing further motivation to keep us moving towards our ultimate goal of zero incidents.
We've seen an improvement in our TRI rate also during the first quarter, moving from a twelve month rolling average of 2.5 at end of last year to 2.3 at the end of first quarter. And this is our lowest level so far. But one thing is to look at the ratios. It's also very important to keep in mind that behind these figures are real people getting injured at work. We had twenty eight recordable accidents in the first quarter, which is still way too much.
However, we have improved significantly from 2015. And if we compare 'fifteen to our performance now in first quarter, we have reduced the number of accidents by half on a comparable basis. But although our safety performance has improved, we do suffer from serious accidents, and this is certainly not acceptable. And as most of you are probably aware, we suffered a serious process safety incident on Monday morning when a fire broke out at our ammonia unit at our plant in Porskjoen in Norway. Thankfully, there were no personal injuries as a result of this.
We are investigating the cause and material damage, but the damage is limited to the ammonia plant. And the fertilizer plant at the site has the capability to produce based on imported ammonia and has already resumed operation. It is too early to estimate the length of the ammonia plant stop, but we have insurance for property damage and business interruption subject to a deductible of $13,000,000 and forty five days of lost contribution. Jarrah delivered weaker underlying results in the first quarter, reflecting lower realized prices and margins. We had increased productions and sales volumes, both for fertilizer and for industrial products.
But our ammonia production was lower, underlining the need for ongoing efforts to improve operations. Our Industrial segment delivered another strong result with a cash return on gross investment, excluding special items, of 29% for the quarter and 30% for the last twelve months. The Yara improvement program is on track and has already delivered 90,000,000 of the 500,000,000 targeted million dollars of annual earnings improvement within 2020. Yara's underlying earnings per share were 45% lower than last year, and the decline mainly reflects lower realized prices and higher energy prices, which were only partly offset by stronger deliveries. Our reported earnings included a NOK $54,000,000 foreign exchange gain and NOK million derivative loss.
The foreign exchange gain is due to Yara holding most of its debt in U. S. Dollars, which have depreciated Last year's reported earnings included a million foreign exchange gain and a small contract derivative gain. As you can see, we had contrasting situations in ammonia and finished fertilizer production, which were respectively down 6% and up 4% for the quarter.
Of the 120,000 ton reduction in ammonia production, 4,000 tons of this is due to reliability problems in the quarter. Of this, 5,000 tonnes were related to two plants, Pilbara in Australia and Le Havre in France. The rollout of Yara's improvement program has not yet reached these plants, but the reliability problems we have experienced this quarter and also over the last two years demonstrate the need to strengthen our operations. In contrast, the plants which have implemented our improvement program have had a clear positive development, and I will come back to this a little later on in my presentation. It is important to note that we are in the early stages of improving our portfolio of 30 production plants.
While we are very pleased with the results of the rollout so far, we should expect reliability issues also in the foreseeable future as we work through our portfolio of plants. Sustainable operational improvement across all plants will not be achieved overnight. In Brazil, first quarter industry deliveries were up 4%, while Yara's deliveries were flat overall. However, Yara's premium fertilizer deliveries were up percent, continuing our long term growth trend and reaching now almost onethree of total Yara deliveries in Brazil. We will continue to focus on premium product growth in Brazil going forward, where the value creation per tonne is significantly higher than in the broader Brazilian commodity fertilizer market.
Adjusted for the sale of the CO2 business in 2016, industrial deliveries were 17% higher than a year ago, with all product groups contributing. And deliveries of AdBlue were 19% higher. And as you can see here on the right hand side, these sales have grown steadily over a long period of time now. Since 02/2004, we have been at the forefront of the development of the AdBlue for the automotive sector, from heavy duty trucks and buses to passenger cars and non road mobile machinery. As the world's largest producer of AdBlue, our competitive advantage is based on product quality, guaranteed sourcing and reliable distribution through our large number of production plants and terminals.
And before I hand over to our CFO, Torgard Quidel, I would like to show a short video from Colombia about this business.
Good morning to all of you from E2. Our CEO has presented the highlights of the first quarter. It's I will then now provide you with some more detail of the financial performance of Jaira in the first quarter. Let me start with the development in our EBITDA. And you may see here that our EBITDA this quarter was billion, down from NOK5.55 $55,000,000,000 last year.
So a decline of SEK 1,800,000,000.0 or 36%. And the in isolation in the quarter, if you analyze it, is 7.8%. So below our long term target of at least 10%, If you then go into more detailed explanations of why did our EBITDA decline with 36% from first quarter last year. You can see that, that is mainly explained by two effects. It is lower prices, giving a reduction in the EBITDA of $784,000,000, and that is lower urea prices.
Our realized urea prices were down 5% compared with last year. Our realized nitrate prices were down 15% and our NPK prices were down 10%. If you look at listed spot prices, both for urea and for nitrate, you will see that our realized prices are down more than the listed price development. And that is due to time lags between when we take an order and we are able to deliver the product. We typically, through the year, have at least a one month time lag between taking order and delivering, and that is more a logistical effect.
But from time to time into the peak season, we also take orders more forward. And typically, by the end of the fourth quarter, we will like to build up our order book where we're able to pass the holiday season during Christmas. So in Europe, on nitrates, we had roughly two months order book when we went into first quarter. For urea, particularly in North America, we had an even longer order book due to very strong order intake in December. We had an order book when we entered the year of roughly three months on urea.
Then the other big negative effect in the quarter comparing with last year is energy prices. Energy prices are up both in Europe with 28% and outside Europe with 28%. I'll come back with more information on those two. Then we have a positive effect, as you see, on volumes. We are increasing our sales volumes from last year.
On fertilizer on own produced fertilizer, our sales volumes are up 3%. That is a 5% increase in Europe, both by higher nitrate sales and NPK sales. And we are also increasing NPK sales outside Europe in most markets. The most significant growth there is in China and Thailand. In addition to that, as the CEO has already mentioned, we had a significant continued growth industrial products.
Industrial products are up 17% from last year. The biggest growth is in Adlu on 19% increase, but we also are growing all other major product groups. The technical ammonium nitrate going into explosives are increasing again with a pickup in the mining industry. So that's up 12%. But we also are increasing sales of urea and ammonia to the base chemical industry.
The effect of 95,000,000 is a net, which has partly been offset by lower ammonia sales due to the production problems that we had in the first quarter. We have a negative volume effect on sales of ammonia, about 140,000,000. So you see that industrial and fertilizer sales in combination would have been $230,000,000 roughly if it hadn't been for the production problems on ammonia. Then other effects in the quarter compared to last year, we have so called special items, which are derivative effects on our gas contracts. And then we have an other element of minus $279,000,000.
One part of that is the effect of the sale of our CO2 business last year. In the first quarter last year, the CO2 business had an EBITDA of NOK55 million, which we clearly don't have this year. So that's one explanation. The other biggest explanation of the other element is increased fixed costs, but increase are lower than inflation. So it's reflecting a continuous improvement, but also that we're taking on some extra cost to drive our improvement program.
If you look at how this development in EBITDA then is influencing our three reporting segments. You can see that typically, a drop in fertilizer prices will mostly hit our production segments, while industrial and crop nutrition earn money on premiums above commodity prices. And you see here that a major a big part of the drop is in production, both due to lower commodity prices, but also production takes the hit on energy prices, and they take the hit on weaker ammonia production volumes in this quarter. But in this quarter, you also see that a major part of the decline in our results are in crop nutrition, and that is related to the nitrate premium. Crop nutrition by products from production based on our transfer price with a fixed nitrate premium setup.
And due to the time lags, as I will come back to also, the nitrate premiums are significantly down. So you can see all the decline in the crop nutrition earning this quarter is related to Europe and is related to the nitrate premium, while other business units outside Europe continued to improve. Most notably, we had continued improvement in earnings in Brazil and a good pickup in earnings in Asia linked also to the good NPK deliveries. Then you see in this picture that Industrial is reporting, if you adjust for the CO2 sales, flat or slightly improving EBITDA this quarter compared to last year. And that's a combination of a significant positive volume effect, as I mentioned, but partly then offset by lower premiums.
And those lower premiums are fully related to time lags. Industrial buy products from production, you can say, on a spot pricing basis. But a large part of the contracts with mining industry or with truckers or with oil companies and AdBlue and so on are with some longer pricing fixation, typically quarterly pricing. So this is a short term, you could say, volume squeeze in the quarter for industrial due to pickup in commodity prices during the quarter. If we then go on and look at the development in energy prices.
I said that our energy prices year over year for the quarter increased with $738,000,000. And a major part of that is related to Europe. And you can see here on the left side of the slide that our average energy price in Europe increased from $5 first quarter last year to $6.5 this year. That gives a gas cost increase of roughly 500,000,000. Then we also had an increase in gas pricing in U.
S. So in total, Europe and U. S. Increased to about NOK $540,000,000 or not approximately, but exactly NOK $543,000,000. That is lower than we guided a quarter ago based on forward prices.
So even when those forward prices were guided upon, we knew that Europe had a cold spell this winter. The realized prices came out slightly below forward prices at this as very as it very often happen as forward prices typically also include a small risk premium. So compared to the guiding of NOK600 million, we came out at NOK543 million. But in addition to that, we also had gas price increases outside Europe, and that is linked to our ammonia plant in Pilbara, where we have a long term gas contract and where there has where there is a step up in gas pricing by the 2016, which we also informed about earlier. So 2017 is the first full quarter with this new gas price, and that increased the gas price in Pilbara with about NOK 180,000,000.
And Pilbara gas cost is now roughly in line with the cheapest gas sourcing we get in Europe. If we go forward then and use the forward prices for the next quarter, we get a gas price in Europe forecasted for the second and third quarter of $5.5 per million BTU. That is lower than what the forward price showed a quarter ago. Then the forward price also for the second quarter was at $6.5 So a quarter ago, I said that forward prices gave a cost increase for the second quarter of roughly NOK 700,000,000. Now we estimate only half of that increase in Europe, SEK $350,000,000.
But we remind also in the guiding that with the step up in the Pilbara gas price For this year, quarterly gas prices in Pilbara will be roughly about NOK 180,000,000 higher than last year. If we then move on to fertilizer prices and how they have developed over this quarter, let us look at the premiums of nitrates and the premiums of NPKs. And with the time lags, I talked about the premiums in on nitrates in Europe did not increase from what we saw in the fourth quarter, and they are substantially down, as you will see from the first quarter last year. And that is mainly explained by time lags. As I said, when we went into the first quarter this year, we typically have a time lag of roughly two months.
And then we increased rapidly nitrate prices by the end of last year as urea prices increased, but it means that a large part of NPKs delivered this quarter was delivered based on pricing before really urea prices started to pick up. So that is lowering nitrate premiums compared to what you will have in a more steady state. If you compare that with last year, then you will see that the nitrate premium of first quarter last year was on the higher side of historical average. And there, we had an opposite effect of the time lag because while urea prices increased into the first quarter last year, they started to decrease into the first quarter and decreased through the first quarter of last year. So there, we had a positive time lag effect last year.
This year, a negative time lag effect. In addition, you could also say that last year, the nitrate market in Europe was tighter also due to supply constraints. Several of the plants in Europe on nitrates, both ore plants but also some competitor plants, had production problems last year. This year, the plants nitrate plants have been running better. If we then move on to NPK pricing and how NPKs create value for Jaira, there are two value creations there I would like to highlight.
One is the value that we create by upgrading phosphate rock to phosphate fertilizer in our NPK plants, and that's what's illustrated on the left side of this slide. And there, you can say that NPK fertilizer prices have moved seasonal up in the first quarter, while at the same time, phosphate rock has continued to decline from last year. So we have year over year, even if phosphate prices are still slightly lower than a year ago, we have a higher upgrading margin on the phosphate part of NPK production now due to lower phosphate rock. On the right side of this slide, you can see we are illustrating the premium that NPKs get on top of commodity fertilizer. And you see that, that premium is more stable than the commodity prices.
But that's also slightly down in the first quarter compared to a year ago. And that's also more time lags as you see that commodity prices, mainly urea listed prices, but also nitrate list prices start to increase, while NPKs are flat from the fourth quarter into the first quarter. So it's a more stable priced product but with a higher premium, but with time lags slightly down from last year. Let me then end my part of the presentation by looking at how these results are creating cash for Jaira. We had a cash earning in the quarter of 2,100,000,000.0.
And then you can see that we continue to invest significantly in our business to grow our business in a profitable way. In the quarter, we invested more than 2,500,000,000.0. And you can see also in the handout in the attachment that we now guide that our total CapEx for 2017 based on announced projects will be roughly 18,800,000,000.0. In addition, we also increased our working capital during the quarter. That is a seasonal increase in receivables due to peak season in Europe.
And that is and in addition, it's an effect that from fourth quarter into first quarter, we also reduced prepayments from customers in Brazil, which was in a peak season in fourth quarter, but it's partly then offset by lower inventory values. We have roughly the same inventories in tonnage as a quarter ago, but prices on those inventories purchase costs are lower. So that gives a cash flow effect of close to NOK 1,200,000,000.0. So we are increasing our debt through the quarter from a debt to equity ratio of 0.17 at the start of the quarter up to 0.18 at the end of the quarter. And that is still a very strong balance sheet, well positioned for future growth.
And with that comment, I hand the word over to our CEO again, who will present to you prospects and also the status on the Aeiras improvement program.
Thank you, Hentor Gai. In terms of prospects, I want to provide an update on the ongoing urea capacity increases in The U. S. And elsewhere. And this looks set to peak during 2017 according to this latest update from CRU.
And this incremental capacity could weigh on global urea prices for most of 2017. As you can see, planned capacity expansions are in excess of trend consumption growth, both in 2017 and in 2018. Although these CRU projections have been revised downwards since their last addition, it is worth noting that project delays are fairly normal and that the actual development of these projects tend to be slower than the estimates assume. Specifically for 2017, we consider approximately 2,000,000 tons of CRUs projected capacity increase to be uncertain in terms of timing and execution. Lower urea prices internationally have reduced export attractiveness for Chinese producers.
And on the right hand side, you can see the impact of that. Urea exports at 1,200,000 tons for the period January through March compares with 3,000,000 tons for the same period last year. Season to date, China exported 5,100,000 tons, which is down from 10,000,000 tons in the previous season. Chinese urea production and export to cost continue to be the main reference point for global nitrogen pricing, and these have increased over the past year, putting substantial pressure on producer margins and resulting in curtailments. As you can see on the left hand side here, for the season to date, Chinese urea production is reported at 41,800,000 tonnes, down from 51,700,000 tonnes a year earlier.
So based on the decline in the production so far in the season, which is almost twice as large as the export decline measured in tonnes, domestic supply is down by 4,500,000 tons or 13%. Chinese domestic urea demand has been soft, so far in 2017, and this is likely due to low grain prices, which are resulting in lower acreage and also in lower fertilizer application. I'd like then to turn to an update on the Yara improvement Program, which we launched in connection with our last quarter's presentation. The Yara Improvement Program is about continuous improvement to position Yara for further growth and making the company fit for the future. The effort is company wide, and it does involve all our employees and will deliver at least $500,000,000 of EBITDA improvement through annual cost and operational efficiency improvements by year 2020.
Last week, I was in Finland to visit our Ussigaponki plant, which has recently implemented the Yara productivity system. And I was impressed by how the entire Usekapunki team is already fully involved in the change activities, transforming how they work on a daily basis. The Yara improvement program is all about sustained improvement, which only can happen through employee owned change. And I'll come back to the results of our work in Osikaponkie after I go through the overall program status. We track the improvement programs progress against milestones related to and the related financial benefits of this.
We are still at an early stage of the program, but I am pleased to report that we are on track to meet our targets. And here you see two examples from the largest contributing initiatives within the program. The productivity system is successfully rolled out in Sloiskill and and Bell Plane is ongoing at this moment. The rollout so far has confirmed and actually exceeded the initial improvement targets as well as delivering real improvement to our bottom line. Our procurement excellence project is in the early stages of implementation, but we already now see that we're gaining savings within this area.
On the financial benefits side, the accumulated sustained annual EBITDA improvement totals $90,000,000 so far compared with our 2015 baseline. This includes improvements made through 2016 and in the 2017. So we're off to a good start and still aim to reach $150,000,000 in 2017 and $500,000,000 within 2020. As already mentioned, I want to stress that the improvement program is about making sustained improvements to our core operations, which takes time. And since the program is largely about volume increases and not just cost reduction, we also expect benefit realization to vary from quarter to quarter, but with a longer term steady trend towards our $500,000,000 target by year 2020.
In addition to the EBITDA improvement, we have realized accumulated $65,000,000 of one off cash effect since 2015, mostly from working capital release, and this is also contributing to the cash return of the project. This and while the one off costs related to program are on plan so far. Going forward, we will continue to give you quarterly updates along the lines of today's presentation. But in addition, we will provide more comprehensive updates at least once annually, including more detailed analysis of realized improvements. As mentioned, I was recently in Osikaponky to witness some of the changes that are being made by our colleagues as they roll out the Yara production system.
The rollout in Osikaponky has already led to increased production through structured plant performance reviews and strengthened productivity focus. Osikaponky delivered record production in the 2017 while successfully ramping up its expansion project with sequential monthly production increases through the quarter. Although part of the production increase is driven by an expansion, we are still looking at one of the best quarters in terms of reliability for Osikapunki ever. In Soiskill, the other plant where the productivity system is rolled out, we also achieved record production. And in addition, I would like to mention that Sloiskill just recently passed twelve months without any recordable accidents, confirming the strong link between safety and productivity performance.
Through the rollout of the production system in Osikaponki and Sloyskil as well as Belle Plaine that is ongoing now, we have been able to confirm the original improvement potentials and, in fact, increased the base case numbers for these plants, as you can see here on the right hand side. So I want to then round up with a reminder of the significant growth investments we are making to generate further earnings growth, which come in addition to our improvement efforts. On the left hand side, we have added together the investments we are making both in the Yara improvement program and our committed expansion and growth projects. On the right hand side, you
can see
the combined projected earnings improvement resulting from these investments totaling $1,100,000,000 of EBITDA within 2020, equivalent to 16 of net income per share as calculated based on today's currency rates. For a full review of our planned investments, including maintenance CapEx, please refer to our second slide that we have included under additional information. So with this closing summary, I'd now like to hand back to Thor, who will conduct our and coordinate our Q and A session. Thank you.
Okay. We are then getting ready for the Q and A session, where our presenters are joined by Dautourimu, Yara's Head of Market Intelligence. So if you have a question, please raise your hand and my colleague, Chetel Stouros will get the microphone to you. Should we start with DNB?
You. Good morning. Ewende D and B Markets. Two questions. Can you walk me through the actual P and L effect of the improvement program in Q1 and how this was year on year?
And also on the crop nutrition dynamics, if the nitrogen premium stays flat, how will this perform going forward? I wasn't sure if I understood the dynamics of the improvement no, sorry, of the premium, sorry.
Should I take the, I can say, P and L effect of the improvement program then? As Venturi showed, we have an annualized effect of $90,000,000 That's annualized. So if you say affecting the quarter, it's a quarter of that. It's so let's say, in Norwegian kroner and to get it into Jaira's P and A, it's roughly about NOK 180,000,000 comparing 2017 towards 2015 then. Where that hits the P and L is, of course, related to how that is split between the different effects.
And as Svendt Uriere say, we're not going to provide all details every quarter because a quarter is also a short period to give that. So we'll have quite some fluctuations. But having said that, I will not give you all details. I will give you some details then. And roughly, you could say there are three elements with an effect so far, which is roughly the same magnitude.
You can split the NOK 180,000,000 into three. So you have roughly about NOK 60,000,000 on production volumes, so improved production volumes. You have roughly about NOK 60,000,000 on lower energy costs or better energy efficiency. And you have roughly about NOK 60,000,000 on procurement and lower cost on procurement. Procurement.
And that will hit the P and L on different elements there. One complicating fact then is, of course, that we are basing this and measuring it running on 2015 prices. But for procurement, that doesn't change anything because there, you have to compare with realized prices all the time. On energy, we used 2015 energy cost. So as energy prices, fortunately, are somewhat lower now, you get a slightly lower effect than that.
And production also get a lower effect due to lower margins in this quarter compared to 2015 and the program so far.
Next question then from Handelsbanken.
We've got one more question.
Question, sorry. On Crop Nutrition, you said that a big part of the year on year decline was due to the nitrate premium, with some due to some time lags. I wasn't sure if I understood the dynamics and how if the nitrate premium stays flat, just so I understand how that will perform going forward.
Okay. If you're it's easier to talk about the first quarter than start to talk about the second quarter than first quarter is realized and facts as such. And there, clearly, you have a time lag effect, as I said, that you have sold roughly two months forward. That means that the January and February prices was, to a large extent, concluded before urea prices went up. If you look into second quarter then, then you can always say that the second I think, Doug told you that if not always, so most of the time, you can say that the second quarter is the most difficult quarter to estimate in a normal year because you it's an end of the season, and there, we said that you are expecting volume wise a normal ending of the season, but that is the residual of the full year.
So you have volume uncertainty clearly in the second quarter. And then part of the second quarter is also starting of the new season. So it will depend on when we start that season, when we set a new starting price for the season in Europe and at what level that starting price is set there. And that, we will tell our customers. I guess, I will not tell that to you before we communicate it to the customers to them.
Typically, that pricing is set sometimes during May. I don't think I upset crop nutrition by saying that typically, it is May. But if it's early May or late May, it will totally depend on, you could say, market sentiment. And then nitrate premium will, of course, also depend on how the urea price is developing. And the dip in the urea price over the last quarter, you could say, have improved nitrate premium, but that is the kind of improvement that we don't need or want then.
Not, Dagdhoy, if you have more to say on that. Not much more to say.
Okay. Then we move on to Handelsbanken. You, Ann Leje. Could you comment a bit more about the operational issues related to the ammonia plants? Where is it?
Or is it several plants? Or is this something that we should also be aware of lasting into this quarter, for example? And in relation to the incident that happened in Poshkloon, if it's
a
prolonged downturn? Could you say something about the gas costs in Poshkron? Is that higher gas prices still compared to your European average?
So I can start when it comes to the ammonia production. As you rightly point out, we had a number of issues in the first quarter. We lost 94,000 tonnes of ammonia production due to reliability issues, and 85,000 tonnes of those were related to two plants. It's Lahar where we anyway, we're supposed to have a turnaround, and the issues that we had were supposed to be addressed in the turnaround. Unfortunately, we had reliability issues that started one point five months before the actual turnaround.
So the plant is now down, and this will be addressed. The other part was in Pilbara. And this is a plant where we've had quite a few reliability issues over the last couple of years. And we haven't started the implementation of productivity system there. So we are addressing it.
We are strengthening the organization, but we will continue to see some variability in the production at that plant. When it comes to Poshkrund and the stoppage of the ammonia plant due to the fire, it is still too early to tell. We had the fire on Monday. And before we can make an assessment of how long it will take to repair the plant, we need to be able to go in and inspect the, amongst others, the compressors, see how much recabling work is needed and so on. And at present, we're not allowed to go and open up the equipment to see how long time it will take.
But definitely, it will be past the forty five days, which where we will have business interruption insurance kicking in. In terms of production, that means around, I would say, around 40,000 tonnes of lost ammonia production for that period for the forty five days. When it comes to gas cost for Porsklun, that is at market prices. So there it would have the same impact as it was any other plant in Europe.
We'll move to Danske then.
Erik Mele, Danske Bank. Two questions. One is regarding deliveries. Can see that both nitrates and PK compounds are growing quarter on quarter. But also, if you look at Q4 and Q1 combined, there's a significant growth.
I was hoping that you may comment a bit on how you see Q2 developing on back of this quite significant growth then? And the second question is looking at what was the revised crew report looking at long term urea capacity additions, net capacity additions, does this change how you look at beyond 2017? You said that the vast capacity additions seeing this year will probably weigh on prices. But do you see any changes to the long term outlook? And how do you see the general outlook?
Maybe if I start on deliveries, then as I try to explain the deliveries in Europe. You're right that first quarter is high deliveries. It's also peak season in Europe, very much influencing nitrate, but also partly NPK then. And then as I indicated, trying to guide on the second quarter is even more challenging than other quarters because it is the end of the season in Europe. So you have this residual uncertainty.
And it's a question about to what extent, how fast do you trigger pre deliveries to the new season then. So it is, as always, an exciting period also for us the next month, what is the end deliveries and how fast at what prices are we able to pick up free deliveries. That's a European comment. Then you have another comment, which is not only European but also global. Of course, it's that deliveries will also relate to, you could say, price trends and you could say sentiment in the global fertilizer commodities.
And there, we have had the weakening over the last months as touched upon in urea. That may typically make some customers sitting and hoping for further drop. But that's a question when they think it has dropped enough, they will, as such, expect it to step in. That gives an uncertainty. On the phosphate, we have had a little bit opposite situation where phosphate prices have straightened a little bit, but it gives it indicates that to guide on the second quarter is rather challenging.
So we'd rather explain our deliveries in the second quarter than how to spend too much energy in the going forward to explain why our guidance didn't fit on that. But don't know if would say more on that or if
Maybe more on the urea capacity. I mean, we haven't changed our opinion. We don't normally do that based on whether there are revisions for CRU or not. But so let's say, this revision that CRU now did in March brings their numbers closer to ours, that I can say. But as Sveinthorius said, I mean, we are still based on what we see in the around the world in these places, but also based on pure empirical evidence, we are very skeptical to whether actual numbers, actual supply increases will be this high.
I think only you can just look at the first quarter where you can many of these countries see that you're very far from of course, there are plants that are due on stream during the year, but it's very hard to see supply growth from these plants reaching 8,000,000 tons for 2017. So but anyway, we haven't tied it either for a long time actually that we expect twenty sixteen to twenty eighteen period to be a period with supply growth exceeding demand growth, so that there is plenty of urea and that is Chinese supply cost basically set prices and that a reduction in Chinese exports is needed. Like we saw last year, it went from 13 something to eight point something from 15 to 16 and also first quarter this year is basically cut in more than half from 3,000,000 to 1,200,000 tons. So there's I mean, there's clearly an oversupply situation at the moment, but it's also interesting to
see
that these market conditions we have at the moment also limit new capacity investments. I mean, there is not that much happening around when it comes to initiating or starting new builds at the moment, which also you can see reflected a little bit in this year graph as well.
We have a question from ABG. At least one question,
I should say.
Morning. Weihn Jonathan from ABG. I think I have four questions actually. Could you say something about how much restructuring charges did you accrue in the quarter? And how much fixed cost did you actually add in the quarter to achieve your cost improvement program?
On the acquisition in India, can you say something about the progress there? And can you also say something about what you think after the statements from the government on increased domestic production, at least targeting a significant increase in domestic production? And the final question is for Doctor. Ode. It seems like Chinese demand down 10% or something like that.
Can you say something about that if that is an inventory cycle? Or is this actual demand? And what are the drivers behind that?
If I start on fixed cost. And as I said, in this bridge from the last year to this year, we said that fixed cost was a major part of this other element, and it's a fixed cost increase of roughly 150,000,000. And as I said, that is lower than inflation or salary inflation as such. But it includes then, you can say, cost related to the improvement program, which we estimate in the magnitude of $5,000,000 to $6,000,000 in the quarter.
And I can make a couple of remarks when it comes to our India acquisition. That is progressing and is going through the regulatory approvals, and we should expect a closing of that transaction towards the end of the summer, so say, August, September time frame. When it comes to the statements from the Indian government, we can take note of that. We haven't that's not built into our base case. We had a certain outlook.
We were doing this also in order to expand our premium offering and our reach in the Indian market. If this comes through, obviously, it would be a positive to domestic production, which, again, would support our investment.
On the China issue, yes, I think that's the developments within China has been one of the developments that have caught quite a few analysts or observers or those interested in this market, the most surprised that this is in a way as see when you read publications or analysis on this that many expected these curtailments production curtailments to be sufficient to keep the Chinese market relatively tight, as shown in the graph I mentioned by Svantorre, of the 10,000,000 tonnes that is produced less, if you believe the public official numbers from the National Bureau of Statistics, Roughly half of that is less exports, but half of it around 5,000,000 tons, close to 5,000,000 tons through February. It's a reduced supply into the domestic market. That's, of course, substantial 13% compared down compared to last year. The way we've been, of course, also digging a little bit into this, we think that part of it can be pipeline effects, that there have been some inventories that can be that has been drawn down. That's also what the nitrogen association's opinion, that some of it is due to that, but it's also probably due to it's early days yet, but the consumption drop.
Grain stocks have been very high in China, and the Chinese government has taken initiatives to try to reduce the grain surpluses partly by lowering the prices. So for instance, compared to one point five years ago, the corn prices cut by onethree. So there's talk about this quite substantial drop in corn acreage could possibly consume as much as 1,000,000 to one one point five million tonnes of urea, only that loss of that corn acreage. In addition, the lower prices and also urea prices, after all, are up from last summer, up $405,100, which is also squeezing a little bit of farmers. So that could be also lower application rates on what area is actually planted.
And we also more kind of ad hoc here that also fruit, vegetables, there's many more local markets, but that there is a generally quite poor sentiment when it comes to fertilizer consumption in China this season due to price pressure on the crop side. So I think it's not given that these are kind of very long lasting effects. Of course, initiatives to try to improve fertilizer efficiency and those kind of things, but that's more kind of slower developments, I think, than what can cause this