Yara International ASA, the largest publicly traded nitrogen-fertilizer maker, fell the most in almost two weeks as declining prices for its products are set to weigh on earnings.
Shares in the Oslo-based company fell as much as 1.9 percent, the most since Aug. 30, and were down 1.5 percent to 243.1 kroner at 11:32 a.m. in the Norwegian capital, making it the worst performer on the Bloomberg Europe Chemicals Index. About 46 percent of the three-month average daily volume of shares has traded so far today.
“Yara’s key product prices have fallen further and faster than we expected in recent months,” said Jeremy Redenius and Catherine Tubb, analysts at Sanford C. Bernstein & Co. “We see significant overcapacity when we couple our new analysis of demand growth with the wave of new supply and its low operating and capital costs.” The analysts downgraded their rating on the stock to underperform from outperform.
Yara, in which the Norwegian government owns a 36 percent stake, is facing lower prices for its nitrogen fertilizer because of pressure from rising Chinese exports of urea. Yara’s so-called upstream operations convert natural gas and nitrogen into ammonia, which forms the basis for all nitrogen fertilizer.
“Combining our view of sharply lower earnings in the near term and less optimistic normalized earnings, we lower our target price to 200 kroner,” the Bernstein analysts said.
Yara shelved a planned expansion of its Belle Plaine plant in Canada to stem rising costs and prevent a surplus of urea, it said on June 14. Urea prices have fallen about 27 percent since Feb. 4 to $310 a metric ton, according to Green Markets prices compiled by Bloomberg.
“Urea prices have turned out lower than we expected in the third quarter and we expect them to remain low for the rest of the year,” Truls Kolsrud Engene, an analyst at SEB AB, said in a note to clients. “We expect prices to remain under pressure in 2014 due to a continued supply surplus and the potential extension of the Chinese low tax export window,” said the analyst, who cut Yara’s rating to hold.
Yara is also facing increased competition from producers of potash after a partnership that helped support prices for the fertilizer ingredient between Belarus producer Belaruskali and OAO Uralkali, the world’s biggest potash company, fell apart at the end of July.
Industry volumes of the fertilizer NPK may also be weak if farmers defer purchases on the expectation that potash prices may decline, according to Bernstein.