Fertilizer International 520 May-Jun 2024
31 May 2024
Fertilizer financial scorecard – earnings decline as market normalises
COMPANY ANNUAL RESULTS
Fertilizer financial scorecard – earnings decline as market normalises
We compare and contrast the 2023 financial performance of selected major fertilizer producers following the publication of fourth quarter results.
2023 was a year in which the fertilizer market once again readjusted.
It is perhaps an irony that the same factor that helped create record industry earnings levels in 2022 – unprecedented fertilizer prices – cast a shadow over 2023 by leading to postponed purchases, creating supply overhangs that prompted price declines and lower market activity. Yet there were upsides too as 2023 progressed, including greater market stability, improving fertilizer affordability and demand recovery.
During the preceding two years, 2021 and 2022, the fertilizer industry’s financial performance reflected convulsions and volatility in the global market as the world economy cranked up after the Covid-19 pandemic and its associated lockdowns. Supply-side factors – notably the shockwaves in commodity and energy markets created by Russia’s invasion of Ukraine and the impact of sanctions on Belarusian potash supply – conspired to create a market defined by high and record fertilizer prices in 2022. While high prices create excellent margins for fertilizer producers, they were accompanied by deep concerns over both fertilizer availability and affordability (Fertilizer International 512, p13).
As a consequence, all of the six major listed fertilizer producers highlighted here – Nutrien, Yara, Mosaic, CF Industries, K+S and ICL – reported unprecedented results in 2022. These six companies experienced annual earnings growth in the range 71-186 percent that year. These double- or triple-digit earnings increases came on top of what was, for many, already a record-breaking set of results in 2021 (Fertilizer International 508, p13).
Nutrien, for example, saw its full-year earnings more than triple – from $3.7 billion in 2020 and $7.1 billion in 2021 to reach $12.2 billion in 2022. Almost inevitably, that earnings rollercoaster, having reached its zenith in 2022, fell back in 2023, albeit to a highly respectable $6.1 billion for the full year. for agriculture and crop input products rose in response to supply-side shocks,” said Ken Seitz, Nutrien’s president and CEO. “Crop input market fundamentals shifted in 2023 as supply chains adapted and higher cost inventory worked its way through the channel, resulting in lower fertilizer selling prices and retail gross margins compared to the record prior year.”
Potential upsides also emerged as 2023 progressed, noted Seitz, with market stability, improving fertilizer affordability and demand recovery being foremost.
“As the year progressed, we saw increased market stability and stronger fertilizer demand in North America, supported by improved grower affordability and lower channel inventories. Fertilizer demand in key offshore markets also increased in the second half of 2023, however the level of market stabilization varied by product and geography,” Seitz said.
Nutrien, due its scale, manufacturing might and retail reach, tends to act as fertilizer industry bellwether. It’s therefore unsurprising that its industry peers, the other listed major companies, also experienced substantial earnings falls in 2023. The silver lining being that 2023 earnings were generally healthy and – for many companies – matched or exceeded pre-pandemic levels.
Nutrien eyes improving market stability and demand
Nutrien’s market capitalisation, at more than $26 billion, is unrivalled in the fertilizer sector (Figure 1). The world’s largest crop nutrient company produces around 25 million tonnes of potash, nitrogen and phosphate products annually from operations and investments in 13 countries, distributing these to agricultural, industrial and feed customers across the globe. Its agriculture retail business serves more than 500,000 farmers worldwide through 2,000 plus retail outlets across the Americas and Australia.
Nutrien’s revenues declined by 23 percent year-on-year (y-o-y) in 2023 to $29.1 billion (Figure 2). Earnings (adjusted EBITDA) for the year also fell back by 50 percent to $6.1 billion (Figure 3). Free cash flow – a measure of profitability – ended 2023 at $5.1 billion (Figure 4), versus $8.1 billion for the preceding year. The company’s long-term debt stood at $8.9 billion at the end of 2023 (Figure 5).
Nutrien attributed its earnings decline in 2023 to two main factors: lower realised selling prices across all segments and lower earnings from its Nutrien Ag Solutions retail business – the latter being linked to lower gross margins for both crop nutrient and crop protection products.
Nutrien is the world’s largest potash producer. The company achieved potash sales of 13.2 million tonnes from its Canadian mines in 2023. Of this volume, 8.4 million tonnes were destined for overseas markets with the remaining 4.8 million tonnes being sold within North America.
Potash contributed 40 percent to Nutrien’s full-year earnings. Potash earnings at $2.4 billion (adjusted EBITDA) in 2023 were 58 percent down y-o-y, with lower realised selling prices overshadowing higher North American sales volumes and lower mining taxes and royalties. Overseas potash sales volumes were lower, versus the record levels of 2022, primarily due to logistical snags at Canpotex’s West Coast port and lower shipments to India and Southeast Asia. The costs of goods sold (COGS) for potash fell to $105/t last year, down by $7/t on 2022, mainly due to lower royalties.
Similarly, Nutrien’s nitrogen earnings fell by 53 percent in 2023 to $1.9 billion, again due to lower realised selling prices.
These more than offset a one percent y-o-y rise in nitrogen sales volumes to 10.4 million tonnes and lower natural gas costs. The average COGS for nitrogen products declined to$233/t in 2023, a 29 percent fall y-o-y, mainly because of cheaper natural gas.
Earnings at Nutrien’s retail business, Nutrien Ag Solutions, fell by 36 percent from their record levels of the previous year to $1.5 billion in 2023, these declines being mostly driven by lower gross margins. Crop nutrients sales were down 17 percent y-o-y at $8.4 billion – despite higher sales volumes in 2023 – due to lower prices across all regions.
Nutrien’s phosphate earnings also declined by 21 percent y-o-y to $470 million in 2023. Once again, this was mainly attributed to lower realised selling prices, this time for phosphate fertilizer products, albeit partially offset by lower ammonia and sulphur raw material costs. Nutrien’s phosphate sales volumes did, however, grow by seven percent y-o-y to 2.6 million tonnes. Lower sulphur and ammonia costs also helped to push down the average COGS for phosphate products by 11 percent to $583/t in 2023.
Nutrien is bullish about 2024 market prospects. “We saw a continuation of strong fertilizer market fundamentals in North America during the fourth quarter [of 2023] driven by improved affordability, an extended fall application season and low channel inventories. As we look ahead to 2024, we expect to deliver higher fertilizer sales volumes and retail earnings, supported by increased crop input market stability and demand,” commented Ken Seitz, Nutrien’s president and CEO.
Yara – creating value in turbulent times
With a market capitalisation of $7.8 billion (Figure 1), Norway’s Yara International is one of world’s largest crop nutrient providers based on total product deliveries.
The Oslo-headquartered company produced 18.4 million tonnes of finished fertilizers and 6.4 million tonnes of ammonia from its global assets in 2023. Finished fertilizer production included:
- 5.9 million tonnes of compound NPKs
- 5.5 million tonnes of nitrates
- 4.3 million tonnes of urea
- 1.6 million tonnes of calcium nitrate (CN)
- 0.9 million tonnes of urea ammonium nitrate (UAN)
- 0.3 million tonnes of single superphosphate (SSP).
Yara calculated that its premium product sales in 2023 generated $1.9 billion in added-value, compared to the commodity fertilizer alternatives.
Yara’s annual product deliveries fell by five percent y-o-y to 30.1 million last year. These were divided between:
- 22.3 million tonnes of fertilizers
- 6.4 million tonnes of industrial products
- 1.5 million tonnes of traded ammonia.
2023 was a year of high volatility and operational challenges, according to Svein Tore Holsether, Yara’s president and CEO:
“The results in 2023 were significantly down from the record results in 2022, as lower selling prices more than offset lower production costs leading to lower margins. Despite the challenging operating environment, we delivered a strong free cash flow of $1 billion [see Figure 4] showcasing the robustness of our business model.
“The resilience of our organization has been impressive – first during the pandemic, and then amid the repercussions of Russia’s invasion of Ukraine. Value chain disruptions have become the new normal, and in this situation we have demonstrated to the fullest how we can utilize our global presence and reach, within both production and deliveries, to create value also in times of turmoil.”
Yara’s annual revenues fell back on 2022’s record levels, down by 35 percent y-o-y, to $15.5 billion in 2023 (Figure 2). Earnings (EBITDA) also declined by almost two-thirds to $1.7 billion (Figure 3). This fall mainly reflected lower margins from lower selling prices, with these more than offsetting lower production costs.
Yara’s global product deliveries decreased by five percent y-o-y in 2023, although the regional pattern was mixed:
- European deliveries increased by three percent versus 2022.
- In the Americas, 2023 deliveries fell by eight percent compared to the previous year, mainly due to lower third-party product availability.
- Deliveries to Africa and Asia were five percent higher in 2023, partly driven by a rebound in farm economics.
Yara’s energy prices declined by more than 50 percent last year:
- Its global weighted average gas cost averaged $10.9/MMBtu in 2023 versus $21.8/MMBtu in 2022.
- Its European weighted average gas cost averaged $14.9/MMBtu in 2023 versus $31.8/MMBtu in 2022.
Yara also reported the following price developments) for two of its key premium products (fourth quarter 2023 basis):
- 54 percent y-o-y fall in the average realised price of calcium ammonium nitrate (CAN 27) to $334/t
- 27 percent y-o-y fall in the average realised global compound NPK price to $629/t (average grade).
Yara commented that higher fertilizer prices in 2022 saw farmers and distributors in some regions postpone purchases – a market environment that created supply overhangs and prompted price declines and low market activity as 2022 ended and 2023 began. These fertilizer price declines do have an upside, in Yara’s view, as they have improved affordability and therefore provided scope for a potential catch-up in fertilizer demand in most regions.
Yara has also seen increased buying activity and higher prices since the start of 2024, signalling a potential volume catch-up into the main application season in the Northern hemisphere, in its view.
“As we now embark on a new year, Yara is well positioned with a strong track record also in more volatile markets. I am confident in our strategic progress, with a focus on optimizing and decarbonising our asset footprint, and contributing to decarbonizing shipping fuel, the food value chain and other energy-intensive industries,” said Svein Tore Holsether.
Mosaic navigates a dynamic market
Florida-headquartered The Mosaic Company is the world’s leading combined phosphate and potash producer with a market capitalisation of $10.0 billion (Figure 1). The company sold around 25.6 million tonnes of products in 2023, with sales volumes split between three business segments:
- Potash segment: 8.9 million tonnes
- Phosphates segment: 7.0 million tonnes
- Mosaic Fertilizantes: 9.7 million tonnes.
Mosaic’s earnings fell back by 56 percent y-o-y to $2.8 billion (adjusted EBITDA) in 2023 (Figure 3). This was achieved from full year revenues of $13.7 billion (Figure 2).
Phosphate earnings (adjusted EBITDA) totalled $1.2 billion in 2023, down from $2.2 billion in 2022. This largely reflected lower selling prices such as the fall in the average diammonium phosphate (DAP) selling price from $913/t in 2022 to $646/t last year.
The company’s potash earnings (adjusted EBITDA) totalled $1.5 billion, down from $3.1 billion in 2022, this major fall, again, largely reflecting lower prices. Consequently, Mosaic’s average gross margin for potash declined to $137/t in 2023, down from its more lucrative $351/t average for the previous year.
In a further sign of lower realised prices, full year earnings (adjusted EBITDA) at Mosaic’s Brazilian subsidiary Mosaic Fertilizantes declined to $327 million in 2023, having topped $1.0 billion the previous year. The subsidiary’s average gross margin of $22/t last year, versus $111/t in 2022, was negatively affected by lower prices, inflationary cost pressures and higher priced inventory.
“Mosaic successfully navigated a highly dynamic market in 2023. We delivered strong free cash flow and returned significant capital to shareholders while reinvesting in the business,” said Bruce Bodine, Mosaic’s president and CEO. “Looking into 2024, Mosaic expects to continue to benefit from a strong phosphates market, and is well positioned to deliver solid results as we optimize our low cost potash operations. In addition, we are focused on improving our phosphates production level, expanding our portfolio of value-added products, growing our leading presence in Brazil, and enhancing the overall efficiency of our operations”.
CF Industries adds capacity and advances on clean energy
Leading North American and UK nitrogen producer CF industries was yet another major fertilizer producer reporting a decline in revenues and earnings in 2023 after filing record figures in 2022. Full-year revenues ($6.6 billion) and earnings ($2.8 billion adjusted EBITDA) fell y-o-y by 41 percent and 53 percent, respectively (Figures 2 and 3). Despite this fallback, CF’s 2023 earnings matched the company’s 2021 performance and were around 70 percent higher than annual levels pre-pandemic. Full year net cash from operating activities ($2.8 billion) and free cash flow ($1.8 billion, Figure 4) for 2023 also remain healthy.
CF highlighted the following in its 2023 results:
- Closing the acquisition of the Wagga-man ammonia production plant from Incitec Pivot in December 2023.
- The mechanical completion of the electrolyser installation at CF’s Donaldsonville, Louisiana, complex during last year and the start of commissioning activities for this green ammonia project.
- The expectation that the final investment decision (FID) on the proposed greenfield low-carbon ammonia plant in Louisiana would be announced by CF and its partner in the second half this year.
“CF Industries’ 2023 results demonstrate the strength of our business and our team,” said Tony Will, the company’s president and CEO. “We ran our plants well, added the Waggaman ammonia production facility to our network, and advanced our clean energy strategy.
The Illinois-headquartered company has a market capitalisation of $15.0 billion (Figure 1). Echoing its industry peers, it attributed the 2023 decline in earnings to lower average selling prices, commenting that “lower global energy costs reduced the global market clearing price required to meet global demand”.
Average selling prices, representing all of CF’s nitrogen product segments, fell by 88 percent y-o-y to $473/t in 2023. This price level compares to average selling prices for the company of $936/t in 2022, $498/t in 2021 and $271/t in 2020.
The company did, however, benefit from lower cost of sales in 2023, versus 2022, his being linked to much lower natural gas costs. The company’s average natural gas cost last year was $3.67/MMBtu, compared to $7.18/MMBtu for the preceding year.
CF’s production volumes last year were relatively stable, as follows:
- 9.5 million tonnes of ammonia
- 4.5 million tonnes of granular urea
- 6.8 million tonnes of UAN (32%)
- 1.5 million tonnes of AN.
Total products sold in 2023 were up at 19.1 million tonnes versus 18.3 million tonnes for 2022.
Looking ahead, CF Industries foresees positive fundamentals for the global nitrogen industry, with a favourable short-term global nitrogen supply-demand balance tightening in the medium-term. The company expects resilient near-term global nitrogen demand driven by strong agriculture applications and recovering industrial demand. Nitrogen supply, meanwhile, will be affected by challenging production economics in key producing regions due to the cost and availability of natural gas, in CF’s view.
“We believe that the global energy cost structure presents attractive margin opportunities for our North American-based production network in the near-term and that the global nitrogen supply-demand balance will tighten considerably in the medium-term,” said Tony Will. “As a result, we expect to continue to drive strong cash generation, underpinning our ability to create significant shareholder value from disciplined investments.”
‘Solid’ results for K+S
After a record 2022, revenues at K+S declined by 32 percent y-o-y to e3.9 billion (Figure 2), while earnings (EBITDA) for the year fell by 71 percent to e712 million (Figure 3). Despite these declines, financials from the German potash and salt producer were broadly comparable with pre-pandemic levels. The company generated free cash flow of e311 million in 2023 (Figure 4) and, unusually for the sector, has been without net debt since the end of 2022.
With a market capitalisation of $2.7 billion, K+S is western Europe’s largest potash producer, having a global market share of around nine percent. The company is also growing its portfolio of specialty fertilizers. These products are chloride-free and/or supplement potassium with other elements such as magnesium, sulphur, sodium and micronutrients.
“Despite the upheavals in the market and challenges on the cost side, we achieved solid results in 2023,” says Dr Burkhard Lohr, the chairman of K+S. “Our committed teams have once again proven their capabilities.”
Lower realised prices for potassium chloride (e359/t) and fertilizer specialities (e394/t) were a feature of 2023 market conditions. The company’s agricultural segment sold 7.3 million tonnes of fertilizer products in 2023 (up slightly from 7.1 million tonnes in 2022). This sales volume was divided between 4.6 million tonnes of potash and 2.7 million tonnes of specialty fertilizers. K+S fertilizer products sold at an average price of e372/t in 2023, versus e628/t in 2022 and e298/t in 2021.
K+S cited price volatility in its commentary on 2023 agricultural market developments: “In the first few months of the financial year, customers initially remained reluctant to buy. Following the conclusion of a contract by a competitor in China, which was significantly lower than expected at $307/t, price pressure intensified and spread into other sales regions. The subsequent price recovery later in the year could not offset this development.”
The company expects to see increasing normalisation and a return to more balanced market conditions in its outlook for 2024:
“Following the upheavals in the market over the past two years, K+S is optimistic that the balance between supply and demand on the potash market can return this year. The observable return of supply from Russia and Belarus outside Europe and North America should be accompanied by a further normalisation on the demand side worldwide. An oversupply on the potash market is, therefore, not to be expected for the year as a whole.”
ICL emphasises value and cash generation
Israel’s ICL Group is a leading producer of potash, phosphates and specialty fertilizers with a market capitalisation of around $6.1 billion (Figure 1). The company delivered annual sales of $7.5 billion, earnings (adjusted EBITDA) of $1.8 billion and free cash flow of $818 million in 2023 (Figures 2, 3 and 5).
While sales and earnings for last year fell back from the record levels seen in 2022 – by 25 percent and 56 percent, respectively – both were still higher than reported in 2021. ICL also emphasised the significant value delivered to shareholders in 2023, via more than $350 million in dividend payments, and the continuing strong cash generation by the business.
“ICL delivered adjusted EBITDA of $1.8 billion and operating cash flow of $1.6 billion, on the backdrop of a record 2022. During 2023, we expanded into additional new end-markets, with the groundbreaking of new advanced facilities and the launch of new innovative products, which will have a long-term impact on growth. We executed against our cost reduction plan and launched further efficiency measures in the fourth quarter, as we continued to respond to challenging market conditions and remained resilient in the face of war,” said Raviv Zoller, ICL’s president and CEO.
The Potash ($843 million) and Phosphate Solutions ($550 million) business segments contributed 48 percent and 31 percent, respectively, to overall company earnings in 2023. ICL’s specialty fertilizer business, Growing Solutions, also generated seven percent of earnings ($119 million), while the Industrial Products segment ($277 million) delivered the final 16 percent share of earnings.
ICL operates potash production assets in Israel (Dead Sea works) and Spain (Cabanasses mine). Total potash output in 2023 (4.4 million tonnes) was down 271,000 tonnes y-o-y, mainly due to weather conditions and war-related issues in the Dead Sea as well as on-going geological constraints in Spain.
Overall, ICL’s Potash business generated revenues of $2.2 billion in 2023, versus $3.3 billion in 2022. These were affected by a fall in the average realised potash price (CIF) to $393/t last year, down from an average of $682/t in 2022.
Polysulphate production at ICL’s Boulby mine in the UK, meanwhile, also continues to rise. Production of this polyhalite product reached one million tonnes in 2023, a new annual record.
Total revenues accrued by ICL’s Growing Solutions business segment were $2.1 billion in 2023. The segment markets and sells the company’s controlled-release fertilizers (CRF), water-soluble fertilizers (WSF), liquid fertilizers and straights (MKP/MAP/PeKacid), polyhalite products (FertilizerpluS), soil and foliar micronutrients, secondary nutrients, biostimulants, soil conditioners, seed treatment products and adjuvants. Sales of these specialties fell slightly y-o-y, with lower prices only partially offset by higher volumes, mainly in micronutrients, CRFs and straight fertilizers.
Looking ahead, ICL is expecting its specialty business segments (Industrial Products, Phosphate Solutions and Growing Solutions) to deliver earnings (adjusted EBITDA) of around $0.7-0.9 billion in 2024. Potash sales for 2024 of 4.6-4.9 million tonnes are also forecast.
