Good morning, welcome to Yara's first quarter results presentation. Today's presentation will be by our CEO, Svein Tore Holsether, and CFO, Torgeir Kvidal. After this presentation, we will hold a Q&A session. I would then like to introduce Yara's CEO, Svein Tore Holsether.
Thank you, Tor, a very good morning to all of you. As usual, we will start with a look at our safety performance, as this is always at the top of our agenda in Yara. Yara 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 12-month rolling average of 2.5 at the end of last year to 2.3 at the end of first quarter. This is our lowest level so far. 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 28 recordable accidents in the first quarter, which is still way too much. However, we have improved significantly from 2015, if we compare 2015 to our performance now in the first quarter, we have reduced the number of accidents by half on a comparable basis. Although our safety performance has improved, we do suffer from serious accidents, this is certainly not acceptable. 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 Porsgrunn 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, 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, we have insurance for property damage and business interruption, subject to a deductible of $13 million and 45 days of lost contribution. Yara 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. Our ammonia production was lower, underlining the need for our 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 12 months. The Yara Improvement Program is on track and has already delivered 90 of the $500 targeted million of annual earnings improvement within 2020.
Yara's underlying earnings per share were 45% lower than last year. 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 584 million foreign exchange gain and NOK 119 million derivative loss. The foreign exchange gain is due to Yara holding most of its debt in U.S. dollars, which have depreciated during the quarter. Last year's reported earnings included a NOK 349 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 tons reduction in ammonia production, 94,000 tons of this is due to reliability problems in the quarter.
Of this, 85,000 tons were related to two plants, Pilbara in Australia and Le Havre in France. The rollout of Yara 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. I will come back to this a little later on in my presentation. It is important to note that we're in the early stages of improving a 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 8%, continuing our long-term growth trend and reaching now almost one-third of total Yara deliveries in Brazil. 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. Adjusted for the sale of the CO2 business in 2016, industrial deliveries were 17% higher than a year ago, with all product groups contributing. Deliveries of AdBlue were 19% higher. As you can see here on the right-hand side, these sales have grown steadily over a long period of time now.
Since 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. Before I hand over to our CFO, Torgeir Kvidal, I would like to show a short video from Colombia about this business.
Good morning to all of you from me, too. Our CEO has presented the highlights of the first quarter. I will now provide you with some more detail of the financial performance of Yara in the first quarter. Let me start with the development in our EBITDA. You may see here that our EBITDA this quarter was NOK 3,216 million, down from NOK 5,055 million last year. A decline of NOK 1.8 billion or 36%. The CROGI in isolation in the quarter, if you analyze it, is 7.8%. Below our long-term target of at least 10% CROGI. If we 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 NOK 784 million. That is lower urea prices or realized urea prices were down 5% compared with last year, or 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. 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.
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 order book. We are able to pass the holiday season during Christmas. In Europe, on Nitrates, we had roughly two months order book when we went into the 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. 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 come back with more information on those two. 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. 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 already mentioned, we had a significant continued growth in industrial products. Industrial products are up 17% from last year. The biggest growth is in AdBlue 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%. We also are increasing sales of urea and ammonia to the base chemical industry.
The effect of NOK 95 million 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 NOK 140 million. You see that industrial and fertilizer sales in combination would have been NOK 230 million roughly if it hadn't been for the production problems on ammonia. Of other effects in the quarter compared to last year. We have so-called special items, which are derivative effects on our gas contract, and then we have an other element of minus NOK 279 million. 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 NOK 55 million, which we clearly don't have this year. That's one explanation.
The other biggest explanation of the other element is increased fixed cost. 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 Yara Improvement Program. If you look at how this development in EBITDA 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. You see here that 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.
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 buy product from production based on a transfer price with a fixed nitrate premium set up. Due to the time lags, as I will come back to also, the nitrate premiums are significantly down. You can say 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 the improvement in earnings in Brazil and a good pickup in earnings in Asia, linked also to the good NPK deliveries.
You see in this picture that industrial is reporting, if you adjust for the CO2 business, are flat or slightly improving EBITDA this quarter compared to last year. That's a combination of a significant positive volume effect as I mentioned, but partly offset by lower premiums. Those lower premiums are fully related to time lags. Industrial buy product from production, you could say, on a spot pricing basis, but a large part of the contracts with mining industry or with truckers or with oil companies on AdBlue and so on, are with some longer pricing fixation, typically quarterly pricing. This is a short term, you could say, volume squeeze in the quarter for industrial due to pickup in commodity prices during the quarter.
We go on and look at the development in energy prices. I said that our energy prices year-over-year, for the quarter increased with NOK 738 million. A major part of that is related to Europe. 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 $6.50 this year. That gives a gas cost increase of roughly NOK 500 million. We also had an increase in gas pricing in the U.S. In total, Europe and the U.S. increased with about 540, or not approximately, but exactly NOK 543 million. That is lower than we guided a quarter ago based on forward prices. 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, as it very often happen, as forward prices typically also include a small risk premium. Compared to the guiding of NOK 600, we came out at NOK 543. 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 is a step-up in gas pricing by the end of 2016, which we are also informed about earlier. First quarter of 2017 is the first full quarter with this new gas price, and that increased the gas price in Pilbara with about NOK 180 million. Pilbara gas cost is now roughly in line with the cheapest gas sourcing we get in Europe.
We use the forward prices for the next quarter. We get a gas price in Europe forecasted for the second and third quarter of $5.50 per million BTU. That is lower than what the forward price showed a quarter ago. The forward price also for the second quarter was at $6.50. A quarter ago, I said that forward prices give a cost increase for the second quarter of roughly NOK 700 million. Now we estimate only half of that increase in Europe, NOK 350 million. 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 million higher than last year.
We 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. With the time lags I talked about, the premiums 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. 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. Then we increased rapidly nitrate prices by the end of last year as urea prices increased. It means that a large part of NPKs delivered this quarter was delivered based on pricing before really urea prices started to pick up.
That is lowering Nitrates premiums compared to what you will have in a more steady state. If you compare that with last year, you will see that the Nitrates premium of first quarter last year was on the higher side of historical average. 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. 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 Nitrates market in Europe was tighter also due to supply constraints. Several of the plants in Europe on Nitrates, both our plants but also some competitor plants, had production problems last year.
This year, the Nitrates plants have been running better. If we then move on to NPK pricing and how NPKs create value for Yara, 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. That's what's illustrated on the left side of this slide. 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. 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 say we are illustrating the premium that NPKs get on top of commodity fertilizer. That's also slightly down in the first quarter compared to a year ago. That's also more time lags as you see that commodity prices, mainly urea listed prices, but also Nitrates list prices, start to increase while NPKs are flat from the fourth quarter into the first quarter. 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 Yara. We had a cash earning in the quarter of NOK 2.1 billion.
You can see that we continued to invest significantly in our business to grow our business in a profitable way. In the quarter, we invested more than NOK 2.5 billion. 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 NOK 18.8 billion. In addition, we also increased our working capital during the quarter. That is a seasonal increase in receivables due to peak season in Europe. In addition, it's an effect that from fourth quarter into first quarter, we also reduce 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.
That gives a cash flow effect of close to NOK 1.2 billion. 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. That is still a very strong balance sheet, well positioned for future growth. With that comment, I hand the word over to our CEO again, who will present to you prospects and also the status on Yara Improvement Program.
Thank you, Torgeir. In terms of prospects, I want to provide an update on the ongoing urea capacity increases in the U.S. and elsewhere. This looks set to peak during 2017, according to this latest update from CRU. 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 edition, 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 million tons of CRU's projected capacity increase to be uncertain in terms of timing and execution. Lower urea prices internationally have reduced export attractiveness for Chinese producers.
On the right-hand side, you can see the impact of that. Urea exports at 1.2 million tons for the period January through March, compares with the 3 million tons for the same period last year. Season to date, China exported 5.1 million tons, which is down from 10 million tons in the previous season. Chinese urea production and export costs 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 41.8 million tons, down from 51.7 million tons a year earlier.
Based on the decline in the production so far in the season, which is almost twice as large as the export decline measured in tons, domestic supply is down by 4.5 million 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 million of EBITDA improvement through annual cost and operational efficiency improvements by year 2020.
Last week I was in Finland to visit our Uusikaupunki plant, which has recently implemented the Yara Productivity System. I was impressed by how the entire Uusikaupunki 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. I will come back to the results of our work in Uusikaupunki after I go through the overall program status. We track the improvement progress against milestones 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. Here you see two examples from the largest contributing initiatives within the program.
The Yara Productivity System is successfully rolled out in Sluiskil and Uusikaupunki, Belle Plaine 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, we already now see that we are gaining savings within this area. On the financial benefit side, the accumulated sustained annual EBITDA improvement totals $90 million so far, compared with our 2015 baseline. This includes improvements made through 2016 and in the first quarter of 2017. We are off to a good start and still aim to reach $150 million in 2017 and $500 million within 2020. As already mentioned, I want to stress that the Yara Improvement Program is about making sustained improvements to our core operations, which takes time.
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 million target by year 2020. In addition to the EBITDA improvement, we have realized accumulated NOK 65 million of one-off cash effects since 2015, mostly from working capital release. This is also contributing to the cash return of the project. While the one-off costs related to the program are on plan so far. Going forward, we will continue to give you quarterly updates along the lines of today's presentation. 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 Uusikaupunki to witness some of the changes that are being made by our colleagues as they roll out the Yara Productivity System. The rollout in Uusikaupunki has already led to increased production through structured plant performance reviews and strengthened productivity focus. Uusikaupunki delivered record production in the first quarter of 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 Uusikaupunki ever. In Sluiskil, the other plant where the Yara Productivity System is rolled out, we also achieved record production. In addition, I would like to mention that Sluiskil just recently passed 12 months without any recordable accidents, confirming the strong link between safety and productivity performance.
Through the rollout of the production system in Uusikaupunki and Sluiskil, 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. 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 $1.1 billion of EBITDA within 2020, equivalent to NOK 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. With this closing summary, I'd now like to hand back to Tor, who will conduct and coordinate our Q&A session. Thank you.
We are then getting ready for the Q&A session where our presenters are joined by Dag Tore Mo, Yara's Head of Market Intelligence. If you have a question, please raise your hand and my colleague, Kjetil Røtvedt, will get the microphone to you. Please state your name and company when you ask your question. Should we start with DNB?
Thank you. Good morning, Eivind Mathiesen, DNB Markets. Two questions. Can you walk me through the actual P&L effect of the improvement program in Q1 and how this was year-on-year? Also on the Crop Nutrition dynamics, if the Nitrate premium stays flat, how will this perform going forward? I wasn't sure if I understood the dynamics of the premium, sorry.
Should I take the, can say, P&L effect of the improvement program?
Yes.
Svein Tore showed we have an annualized effect of $90 million. That's annualized, so if you say effect in a quarter, it's a quarter of that. Let's say in NOK to get it into Yara's P&L, it's roughly about NOK 180 million comparing 2017 towards 2015. Where that hits the P&L is of course related to how that is split between the different effects. As Svein Tore 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. Having said that, I will not give you all details. I will give you some details. Roughly you could say there are three elements with an effect so far, which is roughly the same magnitude. You can split the 180 into three.
You have roughly about NOK 60 million on production volume, so improved production volumes. You have roughly about NOK 60 million on lower energy cost or better energy efficiency, and you have roughly about NOK 60 million on procurement, lower cost on procurement. That will hit the P&L on different elements there. One complicating factor is, of course, that we are basing this and measuring it running on 2015 prices. For procurement, that doesn't change anything because there you have to compare with realized prices all the time. On energy, we use 2015 energy cost. As energy prices, fortunately, are somewhat lower now, you get a slightly lower effect than that. On production also you get a lower effect due to lower margins in this quarter compared to 2015 and the program so far.
Next question from Handelsbanken.
The question on-
Oh, sorry. We have one more here.
Yeah.
On Crop Nutrition, you said that-
Yeah.
Poorly phrased question, sorry. On Crop Nutrition, you said that a big part of the year-on-year decline was due to the nitrate premium due to some time lags.
Yeah.
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. It's easier to talk about the first quarter than start to talk about the second quarter. First quarter is realized and facts as such. 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. You look into the second quarter then, you can always say that the second, I think, talk to me 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. It's an end of the season, and there we said that we are expecting volume-wise a normal ending of the season, but that is the residual of the full year.
You have volume uncertainty clearly in the second quarter. Then part of the second quarter is also starting of the new season. It will depend on when we start that season, when we set the new starting price for the season in Europe, and at what level that starting price is set. That we will tell our customers, because I will not tell that to you before we communicate it to the customers. 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 will totally depend on, you could say, market sentiment. The nitrate premium will, of course, also depend on how the urea price is developing.
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. Now, Dag Tore, if you have more to say on that. Not much more to say.
Okay, we move on to Anne Skagseth.
Thank you. Tore Mo . Could you comment a bit more about the operational issues related to the ammonia plants? Where is it? Is it several plants, or is this something that we should also be aware of lasting into this quarter, for example? In relation to the incident that happened in Porsgrunn, if it's a prolonged downturn, could you say something about the gas costs in Porsgrunn? Is that higher gas prices still, compared to your European average?
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 tons of ammonia production due to reliability issues, and 85,000 tons of those were related to two plants. It's Le Havre, where we anyway were 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 and a half month before the actual turnaround, so the plant is now down, and this will be addressed. The other part was in Pilbara. This is a plant where we've had quite a few reliability issues over the last couple of years. We haven't started the implementation of the Productivity System there. We are addressing it. We are strengthening the organization.
We will continue to see some variability in the production at that plant. When it comes to Porsgrunn and the stoppage of the ammonia plant due to the fire, it is still too early to tell. We had the fire on Monday. 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 amongst others, the compressors, see how much recabling work is needed, and so on. 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 45 days, where we will have business interruption insurance kicking in. In terms of production, that means I would say, around 40,000 tons of lost ammonia production for that period, for the 45 days. When it comes to gas cost for Porsgrunn, that is at market prices. It would have the same impact as if it was any other plant in Europe.
We'll move to Danske then.
Good morning. Eirik Melle, Danske Bank. Two questions. One is regarding deliveries. Can see that both nitrates, NPK compounds are growing quarter-on-quarter, but also if you look at the 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. The second question is looking at what was the revised CRU 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 addition seeing this year will probably weigh on prices, do you see any changes to the long-term outlook and how do you see the general outlook? Thanks.
Maybe if I start on deliveries then, as I tried to explain with the deliveries in Europe. You are right that first quarter is high deliveries. It's also peak season in Europe, very much influencing nitrate, but also partly NPK 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, 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. 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 pre-deliveries? That's a European comment.
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. There we have had the weakening over the last month as we touch upon in urea. That may typically make some customers sitting and hoping for further drop, but that's the question. When they think it has dropped enough, they would as such expected 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 indicates that to guide on the second quarter is rather challenging.
We'd rather explain our deliveries in the second quarter than have to spend too much energy in the going forward to explain why our guidings didn't fit on that. Svein Tore, if you would say more on that or if
Maybe more on the urea capacity.
Yeah.
We haven't changed our opinion. We don't normally do that based on whether there are revisions for CRU or not. Let's say this revision that CRU now did in March brings their numbers closer to ours. That I can say. As Svein Tore said, we are still based on what we see around the world, in these places, but also based on pure empirical evidence. We are very skeptical to whether the actual numbers, actual supply increases will be this high. I think you can just look at the first quarter where you can on 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 million tons for 2017.
Anyway, we haven't hid it either for a long time actually, that we expect 2016-2018 period to be a period with supply growth exceeding demand growth. That there is plenty of urea and that this Chinese supply cost basically set prices and that a reduction in Chinese exports if needed. Like we saw last year, went from 13 point something to eight point something from 2015 to 2016, and also first quarter this year is basically cut in more than half from 3 million tons to 1.2 million tons. There's clearly an oversupply situation at the moment. It's also interesting to see that these market conditions we have at the moment also limit new capacity investments.
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 CRU graph as well.
We have a question from ABG.
At least one question, I should say.
Yes, good morning. Bengt Jonassen from ABG. I think I have four questions, actually. Could you say something about how much restructuring charges did you accrue in the quarter? 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? 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? The final question is for Dag Tore. It seems like Chinese demand is 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, as I said, in this, the breach from the last year to this year, we said that fixed cost was a major part of this other element, it's a fixed cost increase of roughly NOK 150 million. As I said, that is lower than inflation or salary inflation as such. It includes then, you could say, cost related to the improvement program, which we estimate in the magnitude of NOK 5 million-NOK 6 million in the quarter.
I can make a couple of remarks when it comes to our India acquisition. That is progressing, and it's going through the regulatory approvals, and we should expect a closing of that transaction towards the end of the summer. Say August, September timeframe. When it comes to the statements from the Indian government, we can take note of that. That's not built into our base case. At 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 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 you 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 and mentioned by Svein Tore, of the 10 million tons 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 million tons, close to 5 million tons through February, is reduced supply into the domestic market. That's of course substantial, 13% 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 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 a 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. For instance, compared to one and a half years ago, the corn price is cut by a third. There's talk about this quite substantial drop in corn acreage could possibly consume as much as 1 to 1.5 million tons 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, are up CNY 400 or CNY 500, which is also squeezing a little bit the farmers, so that could be also lower application rates on what area is actually planted. We also more kind of ad hoc hear that also fruit, vegetables, there is 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. I think it's not given that these are kind of very long-lasting effects. Of course, there are also ongoing 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