Fertilizer International 508 May-Jun 2022
31 May 2022
Fertilizer financial scorecard
COMPANY ANNUAL RESULTS
Fertilizer financial scorecard
We compare and contrast the 2021 financial performance of selected major fertilizer producers following the publication of fourth quarter results.
Record financial results for Nutrien
Saskatoon-headquartered Nutrien reported record financial results in 2021. Due to its unrivalled scale and global reach, the Canadian company’s performance tends to exemplify and set the tone for the whole fertilizer industry.
Nutrien’s market capitalisation, at more than $58 billion, is more than double that of its nearest rivals (Figure 1). The world’s largest crop nutrient company produces around 27 million tonnes of potash, nitrogen and phosphate products annually from operations and investments in 14 countries, distributing these to agricultural, industrial and feed customers across the globe. Its agriculture retail business also serves more than 500,000 farmers worldwide.
Across-the-board fertilizer price rises in 2021 were a key factor behind the company’s record results, with Nutrien reporting:
- Potash prices increased in response to record global demand of 70 million tonnes in 2021, supply tightness, new project delays and uncertainty around sanctions imposed on Belarus by the US and European countries.
- Nitrogen prices have been supported by strong demand, soaring energy prices in Europe, government restrictions, and geopolitical risks in key export markets.
- Phosphate prices have been supported by export restrictions reducing supply from China and elevated raw material costs. These factors were compounded by tight inventories in key import markets such as India.
Nutrien’s revenues grew by one-third yearon-year (y-o-y) in 2021 to $27.7 billion (Figure 2). Earnings growth (adjusted EBITDA) for the year was even more impressive; it rocketed by 94 percent to $7.1 billion (Figure 3). Free cash flow – a measure of profitability – ended 2021 at $4.3 billion (Figure 4), versus $1.8 billion for the preceding year. Nutrien used the large cash sums generated in 2021 to strengthen its balance sheet. This included reducing its long-term debt by $2.1 billion to $7.5 billion (Figure 5).
“The advantages of Nutrien’s integrated business were demonstrated in 2021 as we delivered record financial results. We utilized the scale and reliability of our world-class supply chain and the strong execution of our teams to ensure customers had the products and services they needed, when they needed them,” said Ken Seitz, Nutrien’s interim president and CEO.
Nutrien is the world’s largest potash producer with a 21 percent share of global production capacity. The company achieved record potash sales from its six Canadian mines of 13.6 million tonnes in 2021. 8.5 million tonnes of these sales volumes were destined for overseas markets with the remaining 5.1 million tonnes being sold within North America. One million tonnes of this production volume were achieved using remotely operated and autonomous mining methods, thanks to Nutrien’s roll-out of its Potash Next Generation initiative.
Potash contributed 38 percent to Nutrien’s full-year earnings. Potash earnings at $2.7 billion (adjusted EBITDA) in 2021 were 130 percent higher y-o-y due to higher realised selling prices and record sales volumes, with Nutrien’s full year production rising by nearly one million tonnes. The company’s potash manufacturing costs last year ($63 per tonne) were, however, up $4 per tonne on 2020.
Similarly, Nutrien’s nitrogen earnings also increased by 114 percent in 2021 to $2.3 billion for the year. This was despite a slight drop (two percent y-o-y) in sales volumes to 10.7 million tonnes. Higher realised selling prices for nitrogen products in 2021 more than offset higher natural gas costs.
Earnings at Nutrien’s retail business, Nutrien Ag Solutions, reached record levels in 2021’s fourth quarter and surpassed $1.9 billion for the full year. A record earnings margin on sales of 11 percent was also reported for 2021. Full year retail sales via the company’s digital platform also increased to $2.1 billion.
Looking ahead, Seitz said: “The outlook for global agriculture and crop input markets is very strong and we are well positioned to deliver significant growth in earnings and free cash flow in 2022.”
Yara – higher realised prices offset energy cost crunch
With a current market capitalisation of $14.2 billion (Figure 1), Norway’s Yara International is arguably the world’s largest crop nutrients provider based on total product deliveries.
The Oslo-headquartered company produced 20.9 million tonnes of finished fertilizers and 7.3 million tonnes of ammonia from its global assets in 2021. Annual product deliveries decreased slightly to 37.8 million last year. These were divided between:
- 28.4 million tonnes of fertilizers
- 7.4 million tonnes of industrial products
- 2.0 million tonnes of traded ammonia.
Yara’s revenues grew strongly in 2021, rising by more than 40 percent y-o-y to reach $16.6 billion (Figure 2). Yet earnings growth during the year was lower than many of its industry peers – increasing by 26 percent y-o-y to reach $2.8 billion (Figure 3). This partly reflected the extreme energy price volatility faced by European nitrogen producers during 2021.
“The financial results of 2021 show improved underlying performance,” said Yara’s president and CEO Svein Tore Holsether. “Higher prices more than offset increased energy costs, higher fixed costs and currency effects.”
Yara’s fixed costs increased in 2021 linked to high and volatile European natural gas prices. The Europe spot gas (TTF) in the fourth quarter, for example, increased by a staggering 489 percent y-o-y to reach $26.5/Mmbtu at one point. These record feedstock prices led to ammonia production curtailments in Europe in the latter part of the year.
Although market reference prices increased rapidly in 2021’s fourth quarter (e.g., the 190 percent y-o-y increase in the urea price (f.o.b. Egypt) to $755/t), Yara said time lags meant these were not fully reflected in its realised prices. The company nevertheless reported the following double- and triple-digit price rises for its premium product offerings in the year’s last quarter:
- +119 percent y-o-y increase in the realised price of calcium ammonium nitrate (CAN) to $441/t
- +52 percent y-o-y increase in the realised global compound NPK price to $642/t (average grade).
“The market [price] environment was supportive, as a result of strong demand and a tight global supply situation,” Svein Tore Holsether commented. “However, high and volatile natural gas prices continue to pose a challenge for the nitrogen industry in Europe.”
Record earnings for Mosaic
Florida-headquartered The Mosaic Company is the world’s leading combined phosphate and potash producer with a market capitalisation of $27.2 billion (Figure 1). The company sold around 26 million tonnes of products in 2021, with sales volumes split between three business segments:
- Potash segment: 8.2 million tonnes
- Phosphates segment: 7.7 million tonnes
- Mosaic Fertilizantes: 10.1 million tonnes.
Mosaic described 2021 as a year of record earnings. The company reported sector-leading earnings growth of 129 percent y-o-y to $3.6 billion (adjusted EBITDA) (Figure 3). This was achieved from full year revenues of $12.4 billion (Figure 2).
Phosphate earnings (adjusted EBITDA) totalled $1.7 billion in 2021, up 223 percent from 2020. This reflected a $258/t increase in the average realized selling price to $618/t for the year. Adjusted gross margin for phosphate production also increased dramatically to $173/t in 2021, up from $16 in 2020 – this, again, largely reflecting higher market prices. Sales volumes for Mosaic’s MicroEssentials product also reached a record 3.3 million tonnes in 2021. Gross margins achieved from this premium product last year were on average $32/t above those of diammonium phosphate (DAP).
The company’s potash earnings (adjusted EBITDA) totalled $1.3 billion in 2021, up 78 percent from 2020. Higher pricing more than offset lower volumes, which were down by 1.2 million tonnes on 2020. Mosaic expected to complete the ramp-up of its K3 potash mine in Saskatchewan by the end of March this year, enabling its total production output to reach five million tonnes in 2022. Mosaic’s Colonsay potash mine in the province also successfully reached its annual output target of around one million tonnes, at a cash production cost of $85/t per tonne during 2021’s last quarter.
Full year earnings (adjusted EBITDA) from Mosaic’s Brazilian subsidiary Mosaic Fertilizantes, meanwhile, reached $821 million in 2021, up 74 percent on the preceding year.
“Across-the-board fertilizer price rises were a key factor behind the record results reported in 2021.”
“Mosaic delivered record EBITDA in 2021, and we expect strong performance to continue in 2022,” said Joc O’Rourke, Mosaic’s president and CEO. “As a result of successful investments like our new Esterhazy K3 potash mine, Mosaic Fertilizantes in Brazil, and our cost-structure transformation, we are generating tremendous value in the current environment.”
Looking ahead, Mosaic confidently expects the upward pricing momentum to continue during 2022 – given that about 85 percent of first quarter sales are already committed and priced. Consequently, first quarter 2022 realised prices for phosphates (f.o.b.) and potash are expected to rise by $60/t and $125/t, respectively, relative to the fourth quarter of 2021. The company also anticipates first quarter phosphate and potash sales volumes of 1.6-1.8 million tonnes and 1.8-2.0 million tonnes, respectively.
CF Industries reports record free cash flow
Leading North American and UK nitrogen producer CF industries reported buoyant full-year revenues ($6.5 billion) and earnings ($2.7 billion) – these rising y-o-y by 59 percent and 103 percent, respectively, (Figures 2 and 3). Full year net cash from operating activities ($2.9 billion) and free cash flow ($2.2 billion, Figure 4) both set new company records
The Illinois-headquartered company has a market capitalisation of $22.4 billion (Figure 1). It linked its strong financial performance to an 84 percent hike in the average selling price in 2021, this rising to $498/t for the year versus $271/t in 2020. This in turn was linked to strong global demand as well as decreased global supply availability, with higher global energy costs driving global operating rates lower.
A fall in CF’s full year sales volumes – 5.0 million tonnes in 2021 versus 5.5 million tonnes in 2020 – was attributed to:
- Lower supply availability due to higher than average maintenance activity
- Two significant weather-related production outages
- Production curtailments at the company’s UK plants due to high natural gas costs.
“The CF Industries team delivered outstanding results in 2021 as strong global nitrogen demand, lower global operating rates and favorable energy spreads drove company-record free cash generation,” said Tony Will, CF Industries’ president and CEO. “We expect global nitrogen fundamentals to remain positive, underpinned by the need to replenish global grains stocks, increased economic activity and global energy dynamics.”
Looking ahead, CF Industries expects the tight global nitrogen supply situation to continue. It linked this to high energy prices in Europe and Asia, along with export restrictions on some nitrogen products from Russia, Egypt, Turkey and China.
“Global nitrogen inventory entering 2022 is believed to be low following a year of strong demand and lower production due to the impact of energy-related production curtailments and shutdowns in Europe, weather-related disruptions in North America and stagnant production levels in countries such as India,” the company said.
At the same time, CF also expects agricultural demand for nitrogen products globally to remain robust. “The need to replenish global grains stocks continues to support high… forward prices for nitrogen-consuming crops. These crop prices support high levels of planting and incentivize fertilizer application,” it said.
Very successful year for K+S
Revenues at German potash and salt producer K+S grew by 32 percent y-o-y to e3.2 billion (Figure 2), while earnings (EBITDA) for the year grew by a sector-leading 263 percent to e969 million (Figure 3). The launch of subsidiary waste management company REKS, a new joint venture with Remondis Group, contributed a one-off e219 million amount to these earnings.
With a market capitalisation of e6.8 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 speciality fertilizers. These products are chloride-free and/or supplement potassium with other elements such as magnesium, sulphur, sodium and micronutrients.
“2021 was a very successful year for K+S,” said its chairman, Dr Burkhard Lohr. “We have made the company more efficient, leaner, as well as more profitable, and strategically realigned K+S.”
K+S said its performance was supported by increased sales volumes and higher potash prices worldwide. Potash prices globally reached a 13-year high during 2021’s second half, it said. Fertilizer sales volumes also grew by around 300,000 tonnes in 2021 to 7.62 million tonnes, while average prices for the company’s product portfolio increased by 28 percent y-o-y to e298/t. Potash prices in Brazil, for example, more than tripled during the year to breach $800/t, while Europe also recorded significant price gains. This helped boost revenues at the company’s agricultural customer segment by 34 percent to e2.3 billion in 2021.
By drastically reduced its net debt during 2021, from e3.2 billion to 606 million, K+S has managed to cut its net debt/ EBITDA ratio from 7.2 in to 0.6 (Figure 5). Debt reduction benefitted from e2.6 billion in net proceeds from the sale of the company’s American salt business to Stone Canyon Industries Holdings. Encouragingly, free cash flow also moved out of the negative to reach e93 million (Figure 4).
“With the successful sale of the Americas operating unit, the significant reduction in debt, and the restructuring of our organization, we have accomplished essential tasks,” said Dr Lohr. “We are focusing on our core business with potash and magnesium products and are working intensively on further optimizing our existing business.”
Dr Lohr was optimistic about the year ahead. “We expect EBITDA from continuing operations to range between e1.6-1.9 billion in the 2022 financial year. This would represent the best result in the history of K+S. Adjusted free cash flow from continuing operations should also increase sharply to e600-800 million,” he said.
ICL breaks records
Israel’s ICL Group is a leading producer of potash, phosphates and speciality fertilizers with a market capitalisation of around $15.6 billion (Figure 1). The company’s annual revenues grew by 38 percent to $7.0 billion in 2021 (Figure 2). Full-year earnings (adjusted EBITDA) also rose by 66 percent y-o-y to $1.6 billion (Figure 3). Operating cash flow, at $1.1 billion in 2021, was also up by one-third on the previous year (Figure 4).
ICL’s potash ($1.9 billion) and phosphate ($2.4 billion) business segments contributed 27 percent and 35 percent, respectively, to overall company revenues in 2021. The company’s speciality fertilizer business, Innovative Ag Solutions, also generated 18 percent of revenues ($1.2 billion).
ICL’s total potash production (4.5 million tonnes) in 2021 was slightly lower y-o-y, down by just 20,000 tonnes. This was mainly due to lower output from ICL Dead Sea, albeit partly offset by increases in granular potash output elsewhere. Nevertheless, the company still benefitted greatly from a sharp hike in the average potash realised price to $487/t in 2021 – up 114 percent y-o-y – with recent price increases expected to continue to have a positive financial impact in the first half of 2022.
ICL’s Spanish potash production increased y-o-y due to the completion of the ramp to the Cabanasses mine in 2021’s first quarter. Polysulphate production at ICL’s Boulby mine in the UK, meanwhile, also continued to rise. Production of this polyhalite product – 214,000 tonnes in 2021 – was up 36 percent y-o-y, while sales volume increased 42 percent to around 230,000 tonnes.
“The fourth quarter was a remarkable end to 2021, with sales of more than $2 billion and all-time record adjusted fourth quarter EBITDA of $575 million. In fact, all three of our specialty businesses delivered all-time record fourth quarter and annual results. We continued to benefit from our strategic focus on growing our long-term specialty solutions businesses, as performance in the quarter was also supported by increased demand and higher prices in most markets. All four of our businesses contributed, with double-digit growth in sales and EBITDA and, as a result, we were able to deliver yet another quarter of margin expansion and bottom-line improvement,” said Raviv Zoller, ICL’s president and CEO.
Looking ahead, ICL is predicting full year 2022 earnings (adjusted EBITDA) will increase to $1.85-2.05 billion, with $0.88-0.93 billion of this generated by its speciality businesses. This forecast was, however, made in early February prior to Russia’s invasion of Ukraine.
Massive commodity market shock
Most fertilizer producers released their 2021 fourth quarter and full years results either shortly before or after Russia’s invasion of Ukraine at the end of February. This event has subsequently inflicted a massive shock on commodity markets globally. This shock and its full market impact is still playing out. Yet, as Argus noted in early March (Fertilizer International 507, p4), the prices of fertilizers and fertilizer raw materials are likely to face yet more upward pressures:
“As US and EU sanctions on Russia ratchet up, all fertilizer products will face upwards price pressure – should sanctions directly target fertilizer HS codes, fertilizer producers, or their owners.
“In addition to any trade disruption, ammonia and other nitrogen fertilizer prices will undergo a substantial cost-push as the risk premiums on gas increase the industry’s marginal cost of supply. Actual disruption to Russian gas flows has the potential to push gas prices and nitrogen costs higher still.
“Potash buyers in the west, having started to adapt to the sanctioning of Belarusian exports, now face the prospect of losing access to Russian supply as well, should the conflict continue and western sanctions begin targeting the Russian potash trade as well.”
Unaffordable price levels?
Due to the market impacts of the war in Ukraine, average fertilizer prices recently exceeded their previous 2008 peak. This is leading to concerns over demand destruction.
CRU’s fertilizer price index, for example, reached 390 on 25th March, up from 377 in the preceding week. This was well above the previous record of 360 set in 2008. The index, although it subsequently fell by 10 points to 380 in the first three weeks of April, remains above the 2008 record at the time of writing.
Record price levels are negatively affecting fertilizer affordability. CRU’s global fertilizer affordability index – which benchmarks fertilizer prices relative to crop prices – shows that fertilizers are less affordable now than at almost any time in the last two decades. Going back 20 years, the fertilizer affordability index at the end of March has only ever been exceeded once before in 2008.
Authors note
Please also note that, due to the war in Ukraine, we are not providing a market commentary on Russian fertilizer producers currently.
