Market and product

Agrium highlighted the threat posed by China to urea pricesas the fertilizer-to-farm retail group unveiled a 98% slump in earnings,reflecting lower fertilizer values.

The Canada-based fertilizer group blamed "larger than usual"Chinese supplies for snuffing out a recovery in world urea prices.

Urea prices, having bounced by more than one-quarter from alate 2013 low, in the Middle East, have lost roughly half their gains, ifretaining more of their gains in benchmark North American and Ukraine markets.

"China exported the same volume of urea in the first twomonths of 2014 as it did in the first half of 2013," Agrium said, adding thatthe country's shipments "will be a key driver" of the world market this year.

'Negative riskelement'

The comments echo those of Norway's Yara International, theworld's top nitrogen group which last week also highlighted the impact of Chinain undermining urea prices, estimating the country's shipments in the first threemonths of 2014 at 2.0.m tonnes, up from 800,000 tonnes a year before.

China's exports are, on an fob basis, "taking place below $300per tonne, indicating lower production costs than in 2013, and perhaps alsotemporary effects as port stocks are liquidated", Yara said.

"It is also possible that export taxes are not being fullyapplied," with China operating a seasonal tax regime, with a 15% surcharge upuntil July 1 on top of the usual $40 per tonne, in a bid to underpin domesticsupplies at key demand periods.

Lower prices of anthracite coal, a major raw material forChinese nitrogen groups, is a "negative risk element for global commoditynitrogen prices longer term", Yara added, if also noting that the country'srising labour costs were "arguably more on the upside" for prices.

'Logisticalchallenges'

Agrium said that its gross profits in nitrogen tumbled by 43%to $100m in the first three months of the year, undermined by higher gas costsand soft fertilizer sales prices, a reflection also of July's break-up of the BelarusianPotash Company cartel which hit markets of all major nutrients.

In potash itself - in which Agrium is a member of NorthAmerica's Canpotex, the remaining marketing consortium – gross profits dropped45% to $46m, while in phosphates, they slumped to $2m from 37m a year before.

The group also echoedrival Mosaic in flagging the role of North American rail hiccups, blamed on thecold winter, in undermining trade, highlighting a slide of 24%, to 136,000tonnes, in potash export volumes "primarily due to logistical challenges ingetting product to Vancouver ports".

"Agrium's first quarter is traditionally our seasonallylowest earnings quarter and this was exacerbated this year by the record coldwinter across North America," said Chuck Magro, Agrium's incoming chiefexecutive.

'Sentiment is positive'

Group earnings slid to $3m from $141m a year before, onrevenues down 2.4% at $3.08bn, with a rise in profits in farm retailoperations, helped by the purchase of Viterra assets, offsetting some of thefall in fertilizer sales.

The earnings equated to $0.08 per share, down from $0.98 pershare a year before, but a little bove market forecasts of a $0.05-per-shareresult.

However, Mr Magro highlighted an improvement to prospectsfrom the rebound in crop prices, thanks to Ukraine unrest, drought in the USSouth and a slow spring sowings season, saying that "farmer sentiment is positivethis spring and we are now seeing good demand for crop input products andservices".

Agrium forecast earnings recovering to $3.85-4.35 per sharefor the April-to-June, including a $0.35-per-share hit from an outage at its Carselandnitrogen plant.

Nonetheless, this figure was below Wall Street forecast forearnings of $4.98 per share for the quarter.

Agrium shares closed down 1.2% at $103.04 in Toronto.