Good day and thank you for standing by. Welcome to the Yara Third Quarter Results 2020. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Silje Niigard. Please go ahead.
Thank you, and welcome to the telephone conference for our Q3 results. My name is Silje Niigor. I am the acting Head of Investor Relations. And I am here today together with our CEO, Florent Our CFO, Tore Yaver, Head of Marketing Intelligence, Dag Toremo. So we just recently had the presentation.
We have no further introductory comments. So then we open up for
And your first question comes from the line from Joel Jackson. Your line is now open.
Hi, this is Bria Murphy on for Joel Jackson. Thanks for taking my questions. You mentioned limited impact on your finished fertilizer production from curtailments given your ability to source some ammonia from elsewhere. What percentage of this shortfall is being made up
Yes. Hi, Bria. This is Thore. This is I mean, as you've seen, we have about 40% It's curtailment on ammonia in Europe at the moment that we have plants outside Europe that You know, our pure ammonia producers like Freeport and Trinidad, also Fildwell in Australia that normally sell Ammonia is direct into the market. Our ammonia plants in Europe are all set To supply our plants.
So I think you can assume that The equivalent sourcing need is required in Europe. I mean, in Europe, we are net short. So we so at any given time, we do Source some ammonia from externally. So on that basis, that means that we are it will be somewhat below 40% That we are let me think about this. So we are we have a higher So yes, the number will be slightly less than 40% additional for the from the sourcing side.
Okay. Thank you. And then just, I guess as a follow on, is there any other Yara production at risk of closure of gas prices stay at these high levels. And can you please elaborate on what's most at risk?
Yes, of course. I mean, as we say, we have to monitor this situation quite closely. It's Probably unnecessary to say it's quite unprecedented to see both gas prices at this level in Europe and also the volatility where you can sort of Swinging between $30 $40 just in the space of a week or less. And then in addition, you have the price side, What the products that the plants are producing. So we at this time, we're not going If you like, speculate in the development, we're aiming To produce and supply finished products, we've been able to do that so far.
But as we said in the presentation as well, we need to do that in a financially viable manner as well. So it's certainly possible that we will need to Make further adjustments going forward. But that can be both ways. I mean, as you've seen, we've had A strong development for most nitrogen prices as well, and that's why even though the ammonia margins in some cases In most cases, these days are negative. The fully integrated margin so far overall has been Good enough for us to continue with the finished product.
Okay. Thank you.
Thank you. And your next question comes from the line from Lisa Denise from Morgan Stanley. Your line is now open.
Hi, good afternoon. Thank you for taking my questions. I have 2. 1st and foremost, how should we think about the fixed costs associated with European ammonia curtailments? And also, how should I think about the associated costs from sourcing ammonia elsewhere.
And I'm not talking about the fact that you buy you pay more for a ton of ammonia because price I bring up, but there's any sort of freight costs that we have to take into account or anything else? That's my first question. And then coming back to the previous question on ammonia. I'm aware and maybe I'm wrong, but you normally sell about 500,000 tons of lemonade straight into the market every single year. How much of that is contracted?
Or is this just all spot?
Yes. Hi, Alistair. This is Toor again. I mean On the first question on the fixed costs, we are I mean, these are temporary settlements We're making here. So we and in those situations, typically, we will take the opportunity to do some maintenance, Maybe training and as a rule, we're not doing layoffs, for example.
So This doesn't tend to impact fixed costs very much. And as you know, I mean, fixed cost is a Especially today is quite a small share of the total cost for these units. In terms of the I'm not quite correct me if I sort of misunderstood the sourcing cost Question, but I heard you were maybe asking about freight rates and so on. Of course, it's when you need to Do more sourcing, especially internationally these days, that can incur some extra costs. But Probably, I mean, they're not quite the same proportion of fixed costs.
But I mean, overall, these will probably be not to be the largest elements in the equation compared to the size of cost of sales and selling prices and upgrading margins these days. Does that cover your question?
No, that's very helpful. Thank you very much.
Thank you. And the next question comes from the line from Sam Pari from Credit Suisse. Your line is open.
Hi. Thanks for taking my question. And given the current high prices, do you are you seeing any down trading in finished product? And then I guess related to that, at what level do prices become sort of unaffordable for farmers?
Yes, I can maybe start on this, but you can add as needed. I mean, clearly, I mean, price With price increases of this magnitude, it's reasonable to Expect that there is some demand destruction going on, whether that's short term or longer term will depend on how the situation evolves Yes. But and at the same time, of course, there are curtailments. So there are as always, the market is using prices to find a As we touched on in the reports, we think there's probably quite a Big difference between the regions there. And for example, in Europe, it's and probably similar in the U.
S, these are Farms are will normally be operating sort of close to optimal in terms of fertilizer rates And may make adjustments here in a way that whereas there may be other parts of the world where The cost developments now could mean the difference between whether you're applying fertilizer or not, and that can be Also more of a concern with way beyond Yara, as Svenn would also touched on today. Yes. You guys want to add something? Okay. I think that's it seems like my comments covered it.
Great. Thank you.
Thank you. The next question comes from the line from Alexander Jones from Bank of America. Your line is open.
Thank you. Good afternoon. Two questions, if I may. The first one, I think in your prior quarterly report, you mentioned that gas prices have gone up, Nitrogen prices have gone up sufficiently that your margins were offsetting the gas price. Are you able to give us Sort of similar color on how that trade off is playing out for Q4 so far, admittedly, given pretty high volatility you mentioned on both gas And then the second question around some of your premium products.
You've talked in the past about a sort of value based pricing approach here, More said on base, the yield the farmer is getting rather than necessarily the input cost. How is it going with those products in terms of passing through high gas prices to farmers? Thank you.
Yes. I can hi, Alex. It's Thor again. Outlook for Q4, I mean, let's We can't get into kind of what the Q4 overall will look like, as you can imagine, both Given our non guiding policy and also that it's there is a high volatility in the market now. But if we look at the situation now With gas prices around $30 and urea, If you take Egypt, now latest at 845, nice rates with a premium over that.
I mean, There are decent margins for these products now. So without going into sort of a lease sales comparison Last year, I think that's the overall statement. And ammonia, of course, is more problematic, but only in a way if you're a pure ammonia producer. And as mentioned, that's not really our situation in Europe.
Just to clarify, it's important that we don't see this only as Gasparis Europe in isolation. This is about utilizing the network We have our global position, our global plants that can supply ammonia. We're the world's biggest trader of ammonia. We have ammonia ships and a network that enables us to flex the operation. And that's one of the advantages Yes.
A significant part of our nitrate and NPK production is that we can switch to ammonia as we've done now In this quarter as well and then going forward, it will be the dynamic evaluation of How to optimize our system. And with regards to your point on value based pricing, that is ongoing work, And it's important that in the middle of an energy crisis, now that we don't Forget about the need to restructure the whole energy system, but also How fuel is produced to continue the road towards decarbonization. And here we are with the progress that we see. The farmers have a role to play. It's about Creating additional sources of income for the farmers to create incentives for more than producing kilos, but also How it is produced, how nutritious the food is, the quality of the food, how efficient was it produced In terms of land usage, but also water usage.
And all these are factors where we can combine with our products and agronomic advice To improve, which makes the farmers more resilient, both economically but also to deal with climate change, and it adds additional revenues in our model as well, and it supports the transition to a lower carbon System, of course, this will take some time, but definitely, the interest is there. And then I would also like to add that we do see when it comes to green hydrogen and green ammonia, there are many initiatives. I mean, firstly, in discussions with regards to clean ammonia going into the shipping industry, and we've seen some announcements in that as well in the recent weeks on progress on that.
Thank you.
Thank you. The next question comes from Trollsangene from SEB. Your line is open.
Yes, good afternoon. A couple of questions have partly been answered or explained, So more of a follow-up. First, on the situation with the curtail capacity in the ammonia in Europe. Are you able to if this kind of continues now throughout Q4, will you then be able to Replace that ammonia volume with sourcing from your plants or buying ammonia outside of Europe?
Yes. Hi, Therese. Thord again. I mean, that's what we're doing right now. And how this plays out for the full Q4, again, it's going to depend on that Dynamic boost between gas prices and nitrogen.
I should also add, there are regional differences here. And for example, on ammonia, you're seeing different levels between the European region and the Americas, for example. And that is something That we can sometimes have a hard charge on. We are better placed than others there because we are the largest and most global Producer and trader. So but yes, it's we can't guide on what this will be because of the volatility and the situation, but we are certainly able to source what we need for the time being.
And of course, this was a dynamic discussion with a number of our customers As well, we touched on the fiber part of the ag part of the business, but we also have a Significant industrial footprint in Europe. And we've been through a very rapid increase In the cost and the structure of some of our of the contract, we're sure it will take some time to phase it in. And then we've been optimizing for The short term now and then as we have dialogues and make products available, it's about pricing that At a level that is reasonable for us as well, and that takes a bit more time. But then in the meantime, we have been Pouring that with having the flexibility on bringing in ammonia. So there are many moving parts on that.
Understood. And then on kind of your with the current entertainment of the ammonia production in Europe, Is that having an immediate effect on your gas purchases in Europe? So now with 40% of the capacity being curtailed, also Your gas purchases in Europe is turned down 40% or how should we think about that?
Yes. So that's roughly the right way to incentivize it. We of course, we have different plants with different scale and efficiency. So it It won't be exactly like that, but in principle, yes, that's how it works.
Yes. Just, I mean, related to your kind of guidance or outlook on Gevsco, As that is based on kind of stable or normal purchase volume. So I guess, with the current situation then, Obviously, the negative effect from that will be lower.
And We already appreciate you guys trying to model the 4th quarter, maybe have a bit more of a challenge than normal.
Yes. Okay, thanks.
Thank you. The next question comes from the line from Reking Patel from Exane BNP. Your line is open.
Hi all. Thanks for taking my questions. Firstly, on free cash flows and the negative development you saw there during the quarter. I suppose you flagged the reversal in prepayments from Q2 before. But maybe if you could just explain why there was such Size of the outflow on inventories.
And then going into Q4, should we expect some normalization in those inventories? And then just on CapEx, what exactly are you spending on in Q4? Is it mainly turnarounds? Or are there any other sort of projects in there, Which is resulting in that quite high implied expenditure.
Yes. I'll start on the inventory. I think your the reason for the inventory increase, I mean, on the one hand, just for anyone, we do present 2 sets of numbers here. One is The KPI on the improvement program where our operating capital efficiency has continued to improve Quite a lot in the quarter. So the number of operating capital base is down again.
But on an absolute level and quarter over quarter, We have a significant increase, partly, as you say, related to prepayments, which was as expected and partly Linked to inventory value because with higher both gas prices and product prices, there's Typically, each tonne in inventory has a higher value. So when you look into the Q4, I guess, again, we can't guide on where we'll be at the end of the quarter. But at least right now, I think it's fair to say that prices have continued to increase. So all other things equal, if anything, probably our inventory values have now increased A bit further. But then of course, it depends on how we produce and deliver throughout the quarter.
And then, we can I didn't quite catch your second question?
It was related to CapEx in Q4. I guess you're having Quite a few turnarounds right now. So I'm just curious what you're likely spending on in Q4.
Yes. I mean, the turnarounds are actually the ones we've taken are scheduled. So as we say, The 40% curtailment is a mix of planned turnaround and market related curtailment. So the turnarounds are in the, if you like, within our CapEx guidance. There's also some planned growth Got it.
And then as you may have seen, we've reduced our full year guidance saying that there's about EUR 200,000 So we had SEK 1,300,000,000 for the full year. We've reduced that to SEK 1,100,000,000, but it's basically phasing into next Yes. Some of the projects, not the turnarounds, but some of the other projects that are where at least the spending is moving a bit in the early part of next
Okay, thanks.
Thank you. The next question comes from the line from Adrian Tumango from Berenberg. Your line is open.
Hello, good afternoon. Thank you for taking my questions. Is this current situation with natural gas pricing spiking Need to think again about your policy around hedging and forward opportunities of natural gas.
Yes. Thanks, Adrian. I mean, what was going to say? We've had a very consistent long term, I should say base policy, not just within gas, but also within most parts of currency and in general. But We are the largest and most international and diversified fertilizer company.
There is a strong correlation over time between foods, energy and fertilizer prices, and we have a high operational flexibility. And those factors underpin our sort of low to no hedge policy. And That of course is not to say that there are I mean, you'll always find times where isolated, you could have done something clever, but over time, we then therefore view hedging As a cost rather than a benefit. And I think In the situation so far, we feel that particularly the operational flexibility here well, and the correlations, The gas prices as gas prices increase with Europe clearly being the swing region now, that brings up nitrogen prices as well. And we have assets that generate higher returns in that situation.
And then combined with the flexibility that we can use in Europe, This is a situation that we are managing quite well in our view without going into hedging.
Okay. And in terms of your European capacity, the fact that you have to shut down, does this Should we do any impairment testing going forward?
I think this is in principle, we do impairment I think continually, and we have done that also for this quarter and have not any assets that We've flagged for this. You can see, I mean, we have in the past flagged in our annual report some units that are sensitive. But I think again, I mean, looking at the overall situation so far, a bit related to the previous question, Energy price higher energy prices have come with higher nitrogen prices. And when we can use our flexibility to basically keep operating and keep Achieving decent margins on upgraded products, then overall, that should mean we don't necessarily have impairment indicators. That's having said that.
I mean, there just to add, of course, that doesn't mean that from time to time, you can have Plants that we've had in the past or operations where you are challenged, but that is Also maybe more linked rather than the global development, it's linked to, for example, whether you have sufficient scale, whether you do Whether you are upgrading products or not, so as mentioned earlier, it's an advantage, especially these days, to be Upgrading rather than purely producing, for example, ammonia. And it's also linked to market access. And Our plants in our system generally has more options for market access than maybe some of the Smaller, more local players.
Yes, that's clear. Thank you.
Thank you. The next question comes from the line from Bengt Joonasen from ABG Sandokhoye. Your line is open.
Thank you very much. I have a couple of questions on following the steep price increases on the nitrates. Do you see NPK following those price increases? That's the first question. The second question is, do you see any Order book destruction, order book at this time compared to last year, is it quite normal or is it Lower.
And the final question would be on your natural gas cost guidance. Given that you have reduced purchases as of today, is there a one to one relationship between the reduction in percentage and your gas cost guidance. Thank you.
Thanks, Ben. I think probably the main observation on NPKs versus nitrates is that clearly on the cost side, It's within gas and nitrogen that you have the steepest cost increase as well. So I think there's a logic in that nitrates, along with other nitrogen products, have risen Far more than P and K. So from that but as you know, our own P and K prices have been rising as well. So it is an environment where virtually all product prices are rising and there is a difference between pure Fuel nitrogen, straight nitrogen and the others.
In terms of order book, I mean, as we touched on, yes, I mean, there Price increases at this level do lead to demand destruction. We, I think, like yourselves, we'll need To see when the season is over, how much this has been. Because as mentioned, we think in the more mature regions like Europe and the U. S, it's Probably going to be more on the margin. I should say more marginal than maybe other parts of the world.
But bear in mind that we started the season with quite low inventories and also not very high pre buying. So It's not like there's a big overhang in the market. And the last thing I would say is that right now, it's a bit of We could have had a much longer order book, but we given the volatility, we don't want So far forward. So it is a dynamic between the buyers and the sellers here, and this is mainly About Europe. In terms of the energy driving, I think, yes, in principle that you can sort of Reduce it per rata with our curtailment.
I think the only comment to that is that We tend to curtail a bit more in the smaller units with a bit lower energy. The direction here, I think it's the right way to think about. Thank you.
Thank you. The next question comes from the line from Morten Norman from Carnegie. Your line is open.
Yes. Hi, guys, and good afternoon. Lots of my
questions have been asked already. But You mentioned that you have a net short position in Europe to get ammonia. What's the size of that in, let's say, in a normal year? And you also said that you're able to source the ammonia that you need. And what do you think is the mix between sourcing from 3rd party And your captive production outside of Europe.
And if you have any can you have any flavor of how much volumes you have sourced for the Q4? Thank you.
Yes. Hi, Martin. I think some of this we can probably revert to you after the call. But you can in terms of our We are structurally normally long in the range of 500,000 to 1000000 tons globally. The European shortlist within that is probably a bit larger than that.
So let's say around 1,000,000 Thereabouts, maybe a bit more. But you can also you can kind of analytically get to this by looking at our Production capacities by product. Yes, and in terms of the mix Right now, between own plant and sourcing, I mean, that's commercially a mix that We don't want to go into granular detail on. Yes.
And just to add, it's Safou. This is part of The strength of our ammonia trade in shipping as well that we have both our own captive plants, but also A huge network of other suppliers as well, and then it's about optimizing that. So the physical movements are optimized From a logistical point of view, so this isn't one to 1. But clearly, we've tested our system With a rapid increase in prices now in Q3, and we have been able to maintain production in Europe at full capacity Almost so it's been a test, and I'm very pleased with how our organization has responded to this.
And just while we're on that topic, and Lisa, if you're still on the line, I know you I realized belatedly, you did ask about our contract Structure on ammonia sales, but I would place that in the same category, but it's commercially a sort of level of granularity that we don't want go into
extent.
Okay, thanks.
Thank you. The next Question comes from the line from Andrew Stott from UBS. Your line is up.
Good afternoon, everybody. Thank you for The opportunity. So I've got 3 things I wanted to tackle. One is, clearly, the topic de jure on The Q and A so far, which is the mitigation strategy. I had a reasonably straightforward question.
How durable is this? I mean, it's working at the moment. You're cutting enough production to boost pricing. You can source ammonia anywhere between $600,000 $8.50 according at least to my data. So it works.
Why wouldn't you do that for a sustainable period of time on the obviously, on the condition that European prices of gas remain so high? Are there any practical limits? Are there certain sites, I'm thinking Germany and Italy, for example, where you couldn't import ammonia? So I totally understand what you're saying on the flexibility, but just how durable is the question. Should I stop there?
Or do you want me to ask the other 2?
Yes, we can take that one first. Great. Thanks.
So yes, as you've seen, the increase in the gas price this Quarter came quickly, and we've been able to deal with that with a combination of Increased prices and using the flexibility that we have in our ammonia sourcing system. And Then for longer term, of course, we will continue to source ammonia from elsewhere. But in parallel with that, in order to Maintain production at the highest level possible and optimize profits. We are also then in constant dialogue with customers As well to ensure product availability, whether that is through surcharges in the short term To contract negotiations, that's and formula based pricing that will then go into the I think of the other products as well. So this will be a combination.
So what we're doing right now isn't exactly how we will deal with it going forward, but We have been able to be able to make this way now in the short term, and then we're working in the midterm mid to long term as well to maintain and utilize
Chris, too, that's sort of a longer term scenario where we are and others are Sourcing a lot more ammonia from Europe is probably not there may not be capacity for that in The market, I mean, right now, it's clearly tighter on urea than ammonia. But probably over time, some kind of leveling out That could involve both the ammonia price and the gas price. And especially as we get into spring, probably most of us are expecting gas prices
Okay. Thank you. Second question is on NPK. I mean, when you How discretionary the P and K is relative to the end, do you have to rethink a bit on how you supply the LatAm market in particular or not?
Well, in many of these markets, We are also helped on the NPK side by a very tight market conditions, both for PMK. I don't know if you observed in the publications also that other NPK producers are actually talking about very Strong sales through Latin America on MPKs as an example, just because it's difficult for the Latin American to source K directly. So there are many elements. So there was also a question earlier about About that, of course, if you just end up a little bit on whether you take a relative pricing perspective or an absolute pricing perspective because, of So you get to these nice trade price levels we have in Europe now, which may not be that applicable outside Europe, Yes. Adding a relative premium compared to historic norms, it's probably not that easy, right?
So there is but Yes. Of course, these are things that we are working on continuously. This is kind of, yes, a separate unit, but it's handling all these issues. I have
to keep in mind that for Latin America, the types of crops that indicate come into our high value crops as well, and there has been a response also in pricing. So this is not happening. Only a nutrient increase in isolation, We are seeing increased food prices. And as we indicated in our report and in Press release as well, with rising food prices, there are some concerns on how this will impact vulnerable communities as well.
Okay. And then last question was on China. What's your information On China's export strategy now, I mean, obviously, we've all read that supposedly there's no exports till next June, but is that your Working assumption?
Well, it's certainly a perception in the market, And I guess that's most of it. I mean, just to say, you have a domestic price level in China, let's say, just below 500 or 1000 Or so. And you have a global market value of more like $700,000,000 maybe in Asia or granular urea or above $700,000,000 So there is Yes, huge disconnect between the domestic market price in China and the global market. So players now act As if there was more or less an export ban, but of course, there hasn't been an amount export ban. It's just that the NDRC, The government agencies, Taipanel, have asked players not to export.
They introduced some measures in the ports The approval systems, they have ports through the provinces also not To receive Yara fertilizer into the port. So rather than just putting on an export tax or banning There are a number of other measures that, in effect, are now stopping the exports. And that's, of course, what the market expects Now then if you look at the relative pricing, of course, the players say, if they can get out anything, they will probably try for it because there's
So much money to be
made, right? So they have already told for the current India tender. And there are talks of some cargos maybe being stopped, but Most of it seems to be being allowed through customs before these new inspection rules came into force on October 15. So and as you say, the kind of the general expectation is
through June.
I think That hasn't been said. So to be monitored, I would say, Particularly interesting on the side where they have such an large exportable surplus. It was a nice event that they don't really have an Exportable surplus mileage because they have a lower production. They have high gas cost, high coal prices. They have allocation issues on power.
Yes. But they have an energy crisis also in China. So that so it makes sense, right? But on the upside, it's more it's also interesting that there is increasing So this is a yes, we are trying to follow this, of course, but there's a few questions. The market is now acting as if there is an export ban, correct again.
Okay. Thank you very much for taking the questions.
Thank you. The next question comes from the line from Mubasher Chaudhry from Citi. Your line is open.
Hi. Just one question, please. Could you provide some comments around the Premium on NPK, the compound premium, it seems to
be narrowing again in the Q3.
Just some thoughts around If and when we should expect that to start becoming back to a premium and what the
contract structures are around that
to allow that pricing to be pushed through?
A little color around that would be helpful, please.
I think hi, Eduardo, this is Tooule. I'll reference a bit what Doug Thuyler mentioned earlier, but it's I think we need to be aware that the price levels we are at now For particularly nitrogen but also P&K, I mean, the higher you go, I guess, we like an equivalent food price increase, which I think is the case now. Food prices have increased, but not as much as fertilizer prices. Then The relative premium, it's you All other things equal will tend to compress. In addition to the fact that our NPK prices tend to The more secure do not react as fast as the spot prices, particularly for nitrogen.
So this is But it's important to underline. I mean, these are these products have pretty decent margins. It's just that On the premium measures compared to the strong price increases we're seeing now, the premium becomes smaller particularly in percentage terms. But as always, I mean, we anyway, our main role For the region commercially here, particularly for the NPKs, is to constantly be trying to improve our market and crop mix. In other words, To move more and more towards the sectors that have the best ability for The demand driven pricing rather than cost plus.
Sure. That's helpful. Thank you.
Thank you. And the last question for the moment comes from Brian Kuzma from Thomas Capital. Your line is open.
Hey guys, thanks for taking my call. Can you guys hear me?
Yes, yes, sure. Please go ahead.
Okay. Okay, great. Yes. I guess I just wanted to understand what if you look out at the nitrogen market, like What percentage is I mean, the crop prices are where they are, they're really strong, everyone's going to keep using Nitrogen at these levels, what portion of the ammonia market goes to more price elastic markets
Hello, my friend, and good morning, sir. When you look at the 3 nutrients, I mean, nitrogen, I alluded a bit to it in the presentation as well. The impact of not utilizing nitrogen fertilizer is The immediate and large, so if we take grain, we don't have to buy natural fertilizer For the season then, 1st harvest by nearly 50%, so that demand Yes, we'll be there, but I'll now hand over to Kaltura.
Yes, I
think a lot of others. Yes, sir. So I probably have fairly low price Other industrial sectors are probably also doing quite good.
So if you take Yara as an example, You needed to run the trucks. And it's a minor cost in totality, but if you don't have it, So clearly, there is a demand made in that segment as well and same for several other Factors as well, including CO2, as we've seen in terms of the shutdowns, ammonia production is one of the The most efficient way to get food grade CO2 as well and that also has implications. There are a number of sectors
Okay. I mean that makes a lot of sense. I guess what I'm struggling with is like I've noticed like there's a negative a little bit of a negative tone to the call and the questioning, but it looks to me like there's going to be like a multiyear Shortage of nitrogen and nitrogen products as a result of all of these bottlenecks along the Supply chain and the inability to pass price along. So it seems to me like it's like a multiyear Boom for the to be in the nitrogen business. And I'm trying to see why that doesn't play out.
How do you guys not crush it for the next year and a half based off of inventories being low and As long as crop prices and end use prices are strong, like you guys are going to be able to pass all this stuff through and there's going to be a shortage as a result of all these Curtailments, Arthur?
I think that's certainly what we're seeing Having said that, we are cautious Northern Europeans. So we tend to not guide And guarantee things too far out in the future. And there are parts of this which are quite an unprecedented So I think we're it's perfectly understandable in this situation, but There are a few questions also around potential negative effects. But as we said, I mean, the situation you described is what we're seeing for now.
Great. That's helpful. Thanks.
Thank you. We have a few more questions now. The next question comes from the line from Morten Norman from Carnegie. Your line is open.
Yes, hi again. You sell
a lot of third party products, more than 12,000,000 tons in a year maybe. Are you able to crank up a
higher margin now? So my question is, Are you
selling this product at a pure dollar per ton or partly a percentage of the price?
Yes. Most
we tend to secure. There's quite a lot more We did we have in the past experienced, should we say, the negative side of having larger positions on third party product. So that's our business model these days is more based on the own produced core. So I mean, it's not to say that there can be some position effects here, but most of the time, we are we have quite a tight Risk management on the 3rd party business.
Yes. But at these elevated prices, are you
able to sort of take the higher margin on average on the sales?
Well, when I say sales risk management, it means, for example, that we do a lot of back to back sales. So then your it doesn't necessarily create a margin opportunity in this scenario.
Okay, understood. Bye.
Thank you. The next question comes from the line from Chetan Udeshi from JPMorgan. Your line is open.
Yes. Hi. Thanks for taking the question. My first question was on Slide 27 of the bank, which actually showed the synergy cost dynamics. And I'm just curious here, historically, So Yara's global cost has aligned pretty well already, at least closely with the TTS price.
But it seems at the moment, the gap between what you guys talked about for Q4 versus the TTF price? And what's the same in Q3 as well is The GAAP probably seems at least higher than in the past, and I'm assuming this is not yet taking into account the production costs. So maybe it will just be useful to understand why that is the case because I think at least My motto has higher gas cost in Q4 versus what you guys are guiding to. And it seems 1? This chart explains it that the let's say, the transmission of the current spot price on DTS is not as much as we've seen in the past.
So I was just curious to understand why is that case? And the second question was, There was some communication from European Union just a few days back noticing or noting rather that The pollution of water bodies because of over application of nitrates, etcetera, is still a problem in European Union. And seems they're going to take some further action on it. What implication does it have on Yara and just the overall demand for nitrates in
Europe? Yes. I think maybe starting on the gas. I mean, we are What we put on the curve there is, I think, 7th October forward prices.
And very close to today.
Yes, which yes, as Kurt has said, very close to today. So it's there isn't at least we haven't intended to put anything else on that there. But If you're seeing any differences,
Maybe a detail, but you maybe we've seen already. But in the graph on Page 27, just keep in mind that the market this is there for Henry. We have some TTFs are not lagged while we have a lag in the Yara average cost.
Yes. So the Yara line is trying to show our cost Sales, which is normally lagged by roughly a month versus spot gas.
Okay. That explains it. Thank you.
Thank you.
Yes. In terms of EU, I mean, as you're aware, I mean, Europe is the reason with the highest focus on environmental footprint for across all industries, not just fertilizer. We see this as just as much an opportunity as a challenge. We Our products and solutions are geared towards higher efficiency, and it's not about sort of maximizing consumption as such. But yes, I don't know.
We this is core to our strategy really.
Thank you. The last question is a follow-up question, sorry from Anders Dorot from UBS. Your line is open. Andrew Stott, your line is open.
Sorry. Yes, thanks for the follow-up. It was a question as well similar to Chetan's on gas prices. Aitou was Kolpopol has been much higher than your guidance. So can I just confirm it is based upon normal production?
So in other words, the curtailments are not part of the 8 50?
Correct.
Yes. Perfect. Thank you.
Thank you. And with that, we have no further questions at the moment.
Okay. So thank you all for participating in the call today, and have a nice day. Thank you.
That does conclude the conference for today. Thank you all for participating. You may now disconnect.