Yara International ASA (OTCPK:YARIY) Q2 2022 Earnings Conference Call July 19, 2022 7:00 AM ET
Company Participants
Silje Nygaard – Head of Investor Relations
Svein Tore Holsether – Chief Executive Officer
Thor Giæver – Executive Vice President and Chief Financial Officer
Lars Rosaeg – Executive Vice President of Corporate Development and Deputy CEO
Dag Tore Mo – Head of Market Intelligence
Conference Call Participants
Lisa De Neve – Morgan Stanley
Joel Jackson – BMO Capital Markets
Rikin Patel – BNP Paribas
Adrien Tamagno – Berenberg
Chetan Udeshi – JP Morgan
Andrew Scott – UBS
Andrew Noel – Chemical ESG
Benjamin Benhamou – Boussard & Gavaudan
Operator
The line is open. The line is open, you may begin.
Silje Nygaard
Thank you and welcome to this telephone conference on Yara’s Second Quarter Results. I’m Silje Nygaard, Head of Investor Relations and I am here today together with the representatives from Yara’s management, Svein Tore Holsether our CEO; Thor Giæver our CFO; Lars Rosaeg our Deputy CEO; and Dag Tore Mo our Head of Market Intelligence as well as other representatives from Yara. So we presume that you have all seen the presentation and we are happy to go straight into questions.
So operator, if you can please open the line for the first question in the queue please?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] we will now take the first question from Lisa De Neve from Morgan Stanley. Please go ahead. Lisa please ensure the mute function on your telephone is switched off.
Lisa De Neve
Hi. Can you hear me now? Okay wonderful, thank you. Good afternoon and thank you for taking my questions. I have two. First question is, so you mentioned in the presentation that some of your European production plans are exposed to gas prices that are decoupled from hub prices. Could you be so kind to share which plans are typically exposed to non-hub prices in Europe? My guess is that it’s the Norwegian assets, but it would be great to get a full picture.
And then the second question is, you’ve stated that you may consider special returns associated with your third quarter results. Given your balance sheet is in good shape, if you look at your net-net EBITDA and equity ratio requirements, which should both look to be fulfilled, should we consider other variables, why you may or may not announce a form of special returns in the second, in the third quarter results? Thank you.
Thor Giæver
Yes. Hi Lisa, this is Thor. Your — on the first one, you’re right, the main plant in Europe that is not hub gas exposed for us is the Porsgrunn plant in Norway. I should — but I should also mention within that as you’re probably aware, I mean, the different hubs in Europe apart from — in addition to TTF, which is the one that we sort of based the guidance on, of course there are other hubs and there has been price variations between those as well, generally with TTF being the highest. So also the fact that we have other plants that are on [indiscernible] and other hubs has also contributed to that, if you like better than the TTF model, the gas price.
On the cash returns, yes, I mean we’ve, as we noted in the presentation, we’ve only just paid out the annual dividend and we have in recent years when we’ve had stronger returns, we’ve had one additional dividend during the second half and that’s what we’re saying that we’ll specifically consider in connection with the third quarter. And as you point out our metrics are strong. I think probably the only thing to add to that is that is it’s a volatile market, but certainly that our statement is a — represents a strong intent to have an extra dividend also this year.
Lisa De Neve
Okay, great. Thank you so much. I’ll jump back into the queue.
Operator
Our next question is from Joel Jackson from BMO Capital Markets. Your line is open, please go ahead.
Unidentified Analyst
Hi, this is Alex on for Joel Jackson. Thanks for taking my questions. My first question, maybe I would like to ask if you could perhaps provide some color as to why maybe Europe prices are trading well below the European cost curve and is it because that demand is currently just not pushing into the need for European supply and maybe why you might think this will change?
And for my second question, I just wanted a bit more clarity on the breakdown of the 1.3 million tons of ammonia production that was curtailed, how much of that was curtailed in Q2 and whether or not we will need to curtail more production going forward considering higher gas costs? Thank you.
Thor Giæver
Yes, I mean, I can start maybe on the urea question. Hi, this is Thor again and then we have Dag Tore here who can also perhaps add some comments. But I think my main observation on urea and it’s important to say urea is a fertilizer in the European context, because a large part of our urea is still running and also for the industry in Europe for the industrial business and as you probably know, I mean, there we have, I mean a fundamental difference there is that those products are needed 24/7 for a wide range of products every day, all year round. And so, for example, add fuel for transportation, and that’s a fundamental difference compared to fertilizer, which is applied at just a few specific points typically mainly in the spring.
So for the industrial part its production is generally running and we’ve implemented surcharges and I would imagine most if not, all of our competitors are doing the same. But then you have the fertilizer part, which is different and you’d say the combination then, as we’ve mentioned in the report of it being off season far away from physical application season now, and the high gas prices means that it’s a, as we said it’s a bit of a concerning situation if you like from the point of view of nitrogen production and ultimately food security. So, that’s why we warn a little bit about that at the same time as for Yara we’re as you can see, delivering strong results and also have high flexibility to adapt to these situations. Dag Tore do you want to…?
Dag Tore Mo
Alex, could you please repeat the second question?
Unidentified Analyst
Sure. The second question was in regards to the 1.3 million tons of ammonia production that was curtailed, if you can maybe break that down into how much of it was curtailed in Q2 and whether or not more curtailments are needed going forward because of the higher gas prices? Thank you.
Dag Tore Mo
And I’m looking at Silje, please add to this with the details as necessary, but I would say overall, most of this is plants that our curtailments that have started in Q2 and some of it is linked to where we’ve had maintenance or reliability issues, but then chosen to not restart or restart slower. With regard to the second part of the question is not possible to really give a firm answer to or at least a good answer to, but as you you’ve probably seen, I mean, this is a — it’s a, there’s movement in the parameters nearly all the time, both the gas price and the fertilizer prices. So as mentioned, there’s a bit of difference than between the industrial sector and the fertilizer sector. But as we’ve seen in the past, prices will — can change and certainly what we saw last autumn was when energy prices rose with some time delay fertilizer prices rose too.
Silje Nygaard
I can maybe just confirm as to say that in a way, some of the plants, like for example, the one in Italy, that other plants, which you maybe have seen in publication as well, that was down due to an unplanned stop in the second quarter and then with the high gas prices we’ve chosen them to continue to keep it down basically and in curtailment. So, part of it is also — was also stopped in the second quarter.
Unidentified Analyst
Okay, perfect. Thank you for that.
Operator
We will now take our next question from Rikin Patel from BNP Paribas. Please go ahead.
Rikin Patel
Hi, good afternoon. Thanks for taking my questions. Just firstly on your gas cost guides, could you remind us if this assumes full production and if you adjust for the curtailments you’ve made and discussed and also for external ammonia sourcing what does that gas headwind number look like for H2?
And secondly, just coming back to the conversation around the production cuts you’ve made within that 1.7 million of finished products production, could you maybe provide a breakdown between the different products and plants I mean in which that falls upon? And I guess similar to the question asked previously I mean, if we look at a lot of spreads out there for nitrates and urea those are in negative territory right now and so how should we think about that 1.7 million number going forwards? Do we expect that to, I guess, become a bit more material? Thank you.
Silje Nygaard
I can maybe start Thor on the details on the finished fertilizer the breakdown of the 1.7, that is basically around, it’s a bit more than half of it is urea and then as Thor pointed two earlier, it’s mainly urea, like to use, because we have this system of surcharges on the industrial side, which enables continuous production and a lot of our urea production in Europe, it goes to industrial purposes. And then the remaining half of these 1.7 are our nitrates and that is case. And of course, just to mention that as well, in a way it’s as we — we will monitor and adapt to this going forward as well. So yes we have this flexibility in our production mixed in a way to take out that product, that at any point where it makes the most financial sense for Yara.
Thor Giæver
Yes, and hi Rikin. The last part of your question I think was maybe similar to the previous question I answered sort of, if I understood you right, it was sort of, how do we think about that is going forward and that’s again, will depend on market development. But as we’ve seen in the past, past year or so the energy price rises have at least in the past led to fertilizer price increases.
Silje Nygaard
And then maybe Rikin if I can just add on there, your question on the energy guiding, I just quick to confirm that that is based on the production volumes for, from last year, as we always do both on the energy guiding, but also on the realized energy price. So for the third quarter actually, as you may recall, we had the curtailments last year, just at the end of the third quarter, but there were no major impacts in third quarter and then we had slightly or somewhat reduced ammonia production in the fourth quarter. And of course this is so, and that will not be reflected in the energy guiding. And I think when we approach the fourth quarter, happy to have a discussion with the IR team on that to go through how we can model that and whether it’s necessary to make adjustments.
Rikin Patel
Thank you.
Operator
We will take our next question from Adrien Tamagno from Berenberg. Please go ahead.
Adrien Tamagno
Hello?
Thor Giæver
Yes, please go ahead.
Adrien Tamagno
Yes, okay. Yes, so considering the inflation in oil prices first you cannot really afford the $900 to a $1000 per ton nitrates which would be needed for producers to be in positive territory. So how do we think about prices going forward if crop prices remain muted for nitrates? That is the first one. And the second one is around your utilization rate. How should we think about the level at which you need to shut down the plant in the event of a gas rationing in some European countries or if you already have visibility, whether or not you will receive priority allocation? That would be helpful as well. Thank you.
Thor Giæver
Yes, I can start. Hi this is Thor again. I mean, your first question you were talking about nitrates, but I suspect you maybe meant urea, because as of today nitrates are, I mean urea is the issue. That’s where prices now are not high enough in a way to justify production. But I think your angle was farmer affordability, which as far as I can see is actually strong enough to justify higher prices in Europe. I don’t know Dag Tore if you want to comment further on that.
Yes, Adrien sure. I mean now that we see now consumption decline as we talked about and so there is of course the marginal volumes are of course, maybe not viable for the farmers either, but it doesn’t mean stop fertilizing, but maybe reducing somewhat because of the worsening price ratio between the input and the output costs. Yes, but I mean, recently we have seen, probably seen the nitrate prices have already peaked up a little bit from the starting price that was announced. So it’s of course, a very different dynamic in the nitrates market in Europe compared to the global urea market, because we don’t have alternative nitrate sourcing basically for the European market while we can, of course always import urea, so it’s a bit different dynamic.
Dag Tore Mo
So on the second question on, if I understood it right, it was about sort of gas rationing scenarios where I mean, it’s not really possible to, there isn’t one scenario here to put it that way, as you’ve probably seen the EU are still in the process of working at their potential scenarios, how you would allocate between markets. There are agreements being made between countries and so on, but it’s still not a, what should we say, not a finished product that we can all analyze. But naturally we are and have been planning for such scenarios at plant level, at national level and at Europe level. I would add at this stage, it’s important to say that Yara is contributing to saving gas in Europe, because we are importing more ammonia from our overseas assets and curtailing our European ones, even if, you know, not from a rationing standpoint, but from an optimization standpoint. So, and the general statement I would then make about Russian scenarios is we need to see obviously how they unfold. We have quite detailed contingency plans in place, but I think you can expect us to use our flexibility to its full extent then as well,
Operator
We will now take our next question from [indiscernible] Seshadri from Citi. Please go ahead.
Unidentified Analyst
Hi. Thank you for taking the questions, a couple on the bit more on the micro side. Can you talk about the progress of the harvest in Europe at the moment, especially in the current hot temperatures I mean kind of how is the yields looking like? And I guess this is question which is on a high level, any comments on the key moving parts impacting the global grade inventories? Just trying to understand kind of dynamics with these debt to use ratios.
And then secondly linked to the European gas situation, how much capacity do you estimate is currently offline in the region? I know you’ve given numbers Yara specifically, but I don’t know if you have estimates for kind of Europe as whole in terms of how much capacity is down, that would be really helpful. Thank you.
Svein Tore Holsether
Yes, I think when it comes to yield outlook in Europe, of course, when it comes to wheat, the wheat is more or less harvested or pretty much so, but there is actually very worsening outlook because of the dry and very hot conditions. So whenever there is an update from the European Union or others, there is always a downgrade. So I don’t know exactly where the number will end, but there is, there has been a deteriorating outlook for European yields clearly over the last couple of months. In other parts of the world, the north America where they have a very, have a very poor wheat. The wheat, but now they have very good conditions for the spring wheat and so far it looks also good for corn even though they got started late. And so you can probably see that the prices for grains have rise is fairly stable have been all through this crisis, but both corn and wheat prices have dropped quite a bit recently and it’s all just an interesting comment, maybe that in parallel with that, you can see that financial investors, those regarded as non-commercials in this context, they have sold more than half of their, whatever sitting on of long positions just a few months ago.
So there has clearly been a negative sentiment in the financial markets concerning this, and then you can of course speculate. We can both speculate how much of that is due to the strong dollar, how much is due to macroeconomics, uncertainty and recession fears and these kind of things also, because it is hard to see kind of fundamental factors in the food or grain markets that are suddenly much better now than they were a couple of months ago, although these discussions are ongoing whether to allow Ukraine and grain exports or often these kind of issues, but I don’t know what the right price is, but it’s I guess, as we were earlier alluding to it’s a little bit hard to understand the recent price developments in view of fundamental use just yet.
Dag Tore Mo
And on the curtailments, are those we, you know, not everybody announced and a lot of people do adjustments. So let’s say from a urea perspective in Europe [indiscernible] has announced closure in Spain. Romania has an announced closure. We have announced our closures. We are pretty sure that most players are adjusting downwards and are not selling urea to agriculture in Europe these days, right because that doesn’t make sense. So and there is not much exports out of Europe either. So, I think you can safely assume that it’s a failure market wide reaction to this both on the ammonia and urea side.
Unidentified Analyst
And sorry, just to follow up on the first question and any comments or new thought of, on China on the China grain or the corn demand there being, you’re hearing data points around that being significantly lower than it has been in the prior years, any comments of [indiscernible]?
Dag Tore Mo
Yes, I don’t have any particular insights. I observed that USDA is now working on an assumption that it will drop some. They imported just 62 million, 63 million tons of grains last year or something and now the USDA is working on an estimate of let’s say 57 million, 58 million at the moment for the coming year. They recently bought quite a bit, but I have also seen stories as you are probably hinting at that they could be that there will be a little bit of reduction in Chinese import demand of grain and if so, that’s of course, one factor that will make it a little bit more available for others. So yes, it’s certainly an important point because one of the key drivers for this shortage we are having is clearly, and the increased appetite from China and actually importing grains went from 24 million tons to 60 million tons in a year.
Unidentified Analyst
Yes, that’s very helpful. Thank you.
Operator
We will now take our next question from Chetan Udeshi from JP Morgan. Please go ahead.
Chetan Udeshi
Yes, hi. Thanks for taking my question and apologies if any of these questions have been answered because some of us had to wait for 15 minutes to just get on the call. So I mean, my question was, I saw that chart you guys had on the nitrate stocks at the producer level in Europe. I was wondering if you can help us with any sense you get or any data you have on like the stock level for finished fertilizers in other parts of the world, because we keep seeing these news of warehouses flushed with fertilizers in Brazil, et cetera. And I don’t know how much, like how to keep a track of it, but I’m sure you guys have a better pulse of the market in the key regions globally. So any color there would be useful.
And just on cash return, we’ve seen Yara now operating at well below target leverage for last few quarters. But whatever — every time it seems like the cash return decision is being sort of pushed out for the future quarters. I’m just wondering, is there an element of like, do you guys have some particular concern around gas rationing, which is making maybe you guys a bit more cautious at this point to return cash right away or I’m just trying to understand why we’ve not seen the cash that’s been already announced today for instance? Thanks.
Thor Giæver
Yes, I can start with the last one. I mean, as we touched on in the presentation, we certainly recognize and have a strong dividend capacity given the earnings we have and of course in recent years, when that has been the case, we have typically had an extra dividend in the second half of the year. And of course we have only just paid a record annual dividend in May. So, and we’ll, consider this for the third quarter. Your — I mean, what you mentioned about gas rationing, I mean, that’s one example of, I think several, I mean more even more general statement is that these are quite volatile markets. So, but with all those comments in mind I think that’s really how we view the situation and as we say we’ll consider this specifically in connection with third quarter.
I guess on the stocks question, well Silje you can have a try.
Dag Tore Mo
I can have a maybe try. You know, China of course, did disconnected itself from the market by introducing or what is widely expected as not only constraints on exports like so far, but a full stop of urea exports until April is the kind of latest information and quote, touch on therefore safe exports that are well below normal levels. So they kind of they’ve disconnected themselves from the global market.
When it comes to India and the rest of Asia, I think that stocks must be running at fairly low levels, that people are struck by these high prices across all nutrients and are I think pretty much buying last minute. In Europe, it’s not, we don’t think there’s only the industry stocks that are low. I suspect that we hardly mention farmers sitting over lot of inventories. They’re probably trying to buy as less possible, basically. So then and Africa is also struggling with the financing issues, working capital high prices having to kind of cancel or postpone and so on.
So, then you are kind of left with America, which is a little bit more of a question mark. U.S., you’ve probably seen that U.S. have been seeking to export some urea now. So it actually looks like they sourced a little bit too much for this season and maybe underestimated a little bit the farmer response to the high prices. So, right now there is a little bit weaker sentiment in the U.S. Gulf. You can probably observe them for instance, a year ago when, when stocks were extremely low and you got the hurricanes and so forth later on.
So, for U.S. year-on-year a little bit weaker, and in Brazil it’s a little bit hard to know, because it’s off season. So, what you often see if it’s very optimistic and agriculture farmers are very keen to buy forward. And now I think they are a little bit less keen to buy forward because of the high prices, but the value chain is still having to make sure that the product is entering Brazil. So they have imported quite a bit of product, so there is probably some unsold inventories in Brazil. But there is a question of that doesn’t, that’s not necessarily bad because the season is not coming up in the second half of the year, so it might well be well needed. So, but of course it still creates maybe a little bit more concern among players than if it’s already sold to the farmer. I don’t know if there are other comments, something like that.
Svein Tore Holsether
No other comments around the table, so Chetan I hope that’s helpful.
Operator
We will now take our next question from Andrew Scott from UBS. Please go ahead.
Andrew Scott
Yes, good afternoon, thanks. And again, apologies if this has been asked, I also struggled to get on. The comment Thor I heard you say on the webcast about Americas being impacted by sanctions. It’s also in your financial report. I’m slightly confused as to what exactly is the issue there, because I think back to Q1, you said that you were fairly seamlessly sourcing potash elsewhere away from Russia and Belarus. So maybe I’m mixing up two issues, two separate issues, so if you can help me there, that’d be great. I’ve got another question in a second as well, but we’ll start with that, thanks.
Thor Giæver
Yes, thanks Andrew and I appreciate one question at a time that’s probably [indiscernible] otherwise, yes. But no, that’s — these are not unrelated and it’s a good question. I think that the key thing is that we have been able to operate our NPK plants. We’ve had to switch quite a bit of sourcing there and also of course there’s been demand changes because of the higher prices and not least for potash, but overall we have not had to in a way reduce NPK production despite all this.
But when it comes to Brazil, the main sourcing we do there is straight P and K imports and a lot of them were from Russia and Belarus. And so what we’ve done there is quite significantly reduce our sourcing and where that doesn’t hits our compound NPK production, but it’s not linked to the comment we’re making about America’s there is that we’re selling, we have significantly lower deliveries of blend NPKs in particular. So hopefully that clarifies.
Andrew Scott
Yes, that does. Thank you. Yes, the second question apologies, it’s a bit picky, but it’s just so I understand the math. The comment you made, I think Silje, you said, that the basis for the gas guidance was on Q3 production levels last year. So if I take 410, which I think was the year-on-year headwind maybe this is the wrong way of looking at it, and then I look at your chart in your slide deck the Slide 21, it’s roughly a three-fold increase year-on-year. So on my math, that’s sort of, somewhere well north of 1.1, which is your guidance. I just wanted you to help me what I’m doing wrong, I can’t get 1.1 billion. Thanks.
Svein Tore Holsether
Sounds like maybe something I need to follow up.
Andrew Scott
I could take it offline if it’s easier, absolutely.
Silje Nygaard
So, Andrew it’s Silje. If you just send me that calculation in an email, we’ll be happy to help you.
Andrew Scott
I’ll do that. Yes, thanks a lot.
Operator
We will now take our next question from Joel Jackson from BMO Capital Markets. Please go ahead.
Joel Jackson
Hi, thanks for taking my additional questions. I have two, I’ll ask them one by one. Maybe you guys can provide a bit of color on the demand disruption that you’re seeing in Europe, Brazil and elsewhere for the different fertilizers and what among nitrogen, phosphate and potash is most at risk for demand disruption?
Thor Giæver
Yes, I think Brazil is a bit difficult for us because this hit after the peak season happens in Brazil. So we haven’t, I don’t think we have really seen yet what the farmers action will be in Brazil for their export oriented and have — are growing a lot of crops that have a very favorable pricing. So that should help us quite a lot and actually possibly expanding their margins. So but it’s a different seasonality in Brazil, but what we’ve seen in Europe is that there is demand disruption on all three nutrients and P and K more than N, but also on N partly due to the weather factors in Southern Europe, which also plays into this with extremely dry conditions, but also because of a more risk and a poor quarter relative pricing between the inputs and outputs. So yes, but I don’t think we know yet exactly how Brazil will play out.
And on the risks, I think you clearly need the most demand. I mean, you have demand disruption in the sense that you have a dropping consumption right or lower consumption that people would like, it’s not, but it’s not the demand that is dropping as such. So there are kind of supply, there are supply limitations and so if you look at available supply, you will see that you will, you can measure what kind of volume effects you can expect and then of course you need the most demand disruption on potash because there is less supply of potash with Belarus being out the market almost 100%.
Russia is coming back closer to normal recently, but they had also a significant drop on phosphate. The factors are lower exports from China, Morocco, et cetera, not so much the Russian situation really which also leads to demand disruption there. And on the nitrogen side, you have export reductions from China, you have lack of Ukrainian production and you have also Norwegian curtailments in Europe. So it’s basically the supply side that is making these demand disruption dynamic necessary. Hope that’s the most.
Joel Jackson
Perfect, thank you. I appreciate that. And the second question I have is in regards to sourcing potash, is you are currently sourcing from your Cali and European and if not, maybe why not and whether or not Yara is having any difficulty sourcing potash in general? Thank you.
Svein Tore Holsether
Yes, I mean, I’ll refrain from commenting on specific suppliers, but in general we have reduced sourcing where we see, as you probably know, in some cases it’s not a 100% clear, what the — let’s say in many cases, there are sanctioned individuals where it’s, it can be open for discussion to what extent they are linked to some of the companies. But we as you can imagine, have a very low risk appetite for doing any trade that could be exposed to sanctions. But as we stated in the presentation we have, and actually in the previous question, we have been able to maintain our NPK, our compound NPK production by sourcing more from other existing suppliers and in some cases entering new supply agreements. But where we have reduced the significant flow is our, is to Brazil in particular which has led to a reduction in blend NPK deliveries for us.
Joel Jackson
Okay, thanks. Thanks for the clarity.
Operator
We will now take our next question from Lisa De Neve from Morgan Stanley. Please go ahead.
Lisa De Neve
Hi, thank you so much for taking my two extra questions. So the first one and I’ll put them one for one, bit of a weird one, maybe. So you’ve announced some curtailments and the curtailment situation going forward, clearly hinges on the number of dynamics, which are beyond your control. But at the same time, you have seen that demand has been very soft and your production year-to-date has been with some small maintenance rounds and some small curtailments very limited. So could you be able to give us an idea of how your inventory levels are at the moment in terms of volumes? It’s really hard for us to ascertain that given that the wild price swings we’ve seen. That’s my first question.
Svein Tore Holsether
Yes I think it’s important to say that we need to manage risk as well. And so part of this is, as we’ve mentioned, that for the Northern Hemisphere, this is off season. Farmers tend to be more preoccupied with harvest and so it’s not the time of the year where you normally have a lot of order taking or deliveries for that matter. But as you are no doubt, well aware, I mean that the gas prices are high now, particularly relative to the urea price, but also so volatile that we are quite reluctant let’s say to produce without having a firm order or put the other way around to take orders that we are going to produce further ahead in time where we don’t know what the gas cost is. So that’s really the key dynamic and so another way of putting that is that, we don’t have particularly high stocks and most of our stocks are sold.
Lisa De Neve
Okay, great. Thank you very much for that. And then just another follow-up on the raw material procurement, can you just, we talked about the quarter and the fact that your compound NPK production was not effected in the second quarter. How should we think about the second half? And secondly, because you are supplying less blended NPKs to Brazil, have you seen demand switching to other nitrogen products? Thank you.
Svein Tore Holsether
Could you repeat the first question please? I didn’t quite catch it.
Lisa De Neve
Yes, so my first question is on second half compound NPK production, and then because you’re supplying less blended NPK to Brazil, do you see farmers switching the demand that normally would be there for blended NPK towards other nitrogen fertilizers?
Svein Tore Holsether
Yes, so the NPK part is, I think can link actually to the previous answer that this is I mean, we have curtailments in place mainly due to this sort of off season issue. So, assuming that is a temporary situation now, there isn’t any reason to believe that we should have major NPK curtailments. As for Brazil, I maybe look to Dag Tore that I think that partly some of this products, that we are not sourcing is making its way into Brazil through other channels. So that would be my, it’s not obvious that this change is a big, creates a big shift in the market. But having said that our premium product deliveries are almost in line with a year ago for Americas as a whole, so that…
Lisa De Neve
Okay, that’s very helpful. And just one small follow up, of course you have some temporary NPK curtailments right now, but this is blended or compound?
Svein Tore Holsether
Yes, that’s yes, I mean, our curtailments are all compounds.
Lisa De Neve
Okay, great. Okay, thank you.
Svein Tore Holsether
I’ll rephrase that. We don’t really, I mean for blend NPKs, it’s yes we don’t include that in our guidance. It’s a more, should we say at any given time the operating rates of blend NPK vary quite a lot. But also it doesn’t have the same kind of earnings impact, as if you have curtailments for compound NPK.
Lisa De Neve
Okay, thank you very much.
Operator
We will now take our next question from Andrew Noel from Chemical ESG. Please go ahead.
Andrew Noel
Hi, good morning. Thank you for taking my questions. The first one is just on M&A. There’s a fair amount of specialist nutrient assets on the market currently. And given you sort of said you are fairly cautious around an extra dividend, is that the same for you in M&A or and it would be interesting to know what might be on your wish list in terms of technology in that direction? That’s the first question, thank you.
Svein Tore Holsether
Yes, I will keep it quite brief there. I think first of all, we have a strategy which is now I would say more focused on improving our operations and growing to some extent organically within new business areas. But secondly, to the extent we are looking at NPK, sorry at M&A opportunities, we will not be very, very transparent on them upfront. We will tend to announce we’ve done them not before.
Andrew Noel
Okay, and just the second again, a short one, just following on from the previous questions about gas rationing and then EU prioritizing supplies, if that eventuality comes to pass, I mean, you’ve mentioned you’ve got contingency plans. Is there anything the industry is doing proactively though in terms of lobbying to make sure you are at the head of the queue? I’m kind of starting to visualize lots of different sectors within the chemical industry, all battling to be at the front of the queue here. So any color you can provide on that would be interesting, just how the dynamics are playing out perhaps politically. Thank you.
Svein Tore Holsether
Yes, it’s Svein Tore. I can a say a few things around this topic. First of all, we have a very good dialogue, both internationally and within European Union in terms of the importance of our industry and the impact to farm yields. We all know that, the impact is for fertilizers on crops. We’re talking about 50% yield reduction in the first harvest. That’s one part of it. So it’s an important product to be produced and then we have all the other implications and industries that we also serve and Thor touched on several of them within the industrial segment with the ad blue being the biggest. And where that’s a vital component of infrastructure as the trucks will not be able to run unless they have access to [indiscernible].
And then there are all the other industries that also depend on ammonia and fertilizer production in Europe, whether it’s for food production, food preservation, water cleaning and so on. And we saw some of the impacts of that already before the war with these curtailments back in fall of last year and it was really visualized how many industries depend on our industry for like input. That said, we are also part of the, of a solution in order to reduce gas consumption in Europe as well and for Yara in particular, since we have flexibility in our operating model. And since we’re also the world’s largest trader of ammonia, and we have an infrastructure globally, including ships to bring ammonia across regions that this in itself can help to reduce the gas consumption in Europe.
And then it’s important to have a dialogue around that, how we can contribute with our flexibility to reduce the gas consumption and to see how that could potentially be compensated as part of the solution. But this is changing every day as we see now in the recent month that gas prices have doubled we are five times of that last year and it’s about using our flexible operating model both to optimize results for Yara to produce the vital product and also to be transparent on the importance of what we produce and we feel like we have to have a good dialogue around that.
Andrew Noel
Thank you very much
Operator
[Operator Instructions] We will now take our next question from Benjamin Benhamou from Boussard & Gavaudan. Please go ahead, sir.
Benjamin Benhamou
Hi yes. I was just wondering whether you could clarify your outlook on the Chinese supply and Chinese exports? Thank you.
Dag Tore Mo
Yes, they have curtailed export significantly from before when they introduced in October 15 last year, these new inspection routines in the ports, et cetera, so both nitrogen and phosphate exports are down sharply. And now the recent information, now suggest that they are maybe not issuing official statements, but that they have basically except for some government to government deals and maybe the smaller cargos from neighboring countries of which our blue can build one elements that they are pretty much banning urea exports through March next year is the latest information we have.
And that on phosphates they have because of the larger domestic surplus that they are doing it a little bit differently, so that they have actually given allocations quarterly allocations to the major phosphate exporters on what they are allowed to export and that these levels are sharply down from what the usual exports have been. So overall, both for nitrogen and phosphates a significant reduction in Chinese exports.
Benjamin Benhamou
Thank you.
Operator
As there are no further questions at this time, I’d like to turn the call back to our speakers for any additional or closing remarks.
Silje Nygaard
Thank you, Operator. So just the practical information, that’s and apologies that some of you have had some issues with dialing into the call today. There will be a replay available for those of you who are interested in that. You can find the details in the invitation we sent a week ago and if you don’t find it, you can just reach out to the Investor Relations team and we will help you. And that will be available from this afternoon at 4:00 p.m. Oslo time. So with that, thank you for listening and dialing in to today’s telephone conference and now we wish you a nice summer. Thank you.
Operator
Thank you. That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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