Friday, July 3, 2009

Natural Gas and Fertilizer

July 2 (Bloomberg) -- Yara International ASA, the world’s largest fertilizer maker, is interested in buying companies or assets in countries with access to cheap natural gas, a major component in its products.

“We would very much like to take up assets in low-cost gas countries,” Chief Executive Officer Joergen Ole Haslestad said in an interview at the company’s Oslo headquarters yesterday. “Africa, Middle East, Saudi, Iraq, Iran, Uzbekistan, some of the eastern European places. Those are the areas where you will be able to find cheap gas.”

Since becoming CEO in October, Haslestad, 58, has tackled falling fertilizer demand by reducing inventories, suspending output and announcing factory closures in Lithuania and Hungary. World consumption fell 5.1 percent in the year to June, the International Fertilizer Industry Association said. The drive to cut costs is also spurring mergers, with Calgary-based Agrium Inc. bidding $3.9 billion for rival CF Industries Holdings Inc.

“It’s an industry that’s far too little consolidated,” Haslestad said. “We would like to participate. We’ll do that with financial discipline.”

Yara isn’t buying assets now and would consider entering joint ventures if acquisitions weren’t available, he said. The company set up its Lifeco Libyan venture in February, after acquiring Canadian nitrogen producer Saskferco Products ULC for C$1.6 billion ($1.4 billion) last year.

Qatar, Libya

“If you are to build new capacity it makes sense to build it in low-cost gas regions,” said Per Haagensen, an analyst at Fondsfinans ASA in Oslo who has a “buy” rating on the stock. “That’s what Yara has been doing. They are building up in Qatar and Libya and that’s through joint ventures. That’s the preferred way.”

Yara dropped 4.75 kroner, or 2.6 percent, to close at 178 kroner in Oslo trading. The stock has gained 20 percent this year after plunging 41 percent in 2008.

The company doesn’t need to raise debt for purchases after selling $500 million of 10-year notes last month in its first dollar-denominated issue since 2004, Haslestad said. “If we were to do something extremely big, we will probably use our shares but we do not have any plans for that,” he added.

After halting or suspending output of ammonia, urea, nitrogen, phosphorus and potassium, Yara, which was spun off from Norsk Hydro ASA in 2004, is ready for more cuts if needed.

High Costs

“We still have the highest energy costs in Europe,” Haslestad said. “We’ll take down production capacity where we have the highest energy costs,” he said, adding the company doesn’t plan to shut or exit “major” plants or markets.

While net income slumped 68 percent in the first quarter to 887 million kroner ($140 million) as sales fell 18 percent, the company said in April the “long-term” outlook for demand remains positive. Fertilizer consumption is expected to grow 11 percent by 2013-14, the IFA said on June 30.

Potash Corp. of Saskatchewan Inc. last month cut its second-quarter profit forecast, while Germany’s K+S AG slashed 2009 and 2010 estimates for sales because of weak demand.

To contact the reporter on this story: Meera Bhatia in Oslo at

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