By Victoria Klesty
OSLO (Reuters) -Fertiliser maker Yara International reported on Friday a bigger-than-expected drop in third-quarter earnings as falling prices squeezed margins, and warned it may cut production.
Yara, which last year capped its European ammonia production due to a surge in gas costs, said it had produced at almost full capacity during the third quarter and would optimise production in response to market conditions.
"There is a risk of new nitrogen curtailments if slow European demand continues," the Norwegian company said.
Its July-September earnings before interest, tax, depreciation and amortisation, and excluding one-off items, fell 60% to $396 million. Analysts in a company-provided poll had on average expected a profit of $630 million.
Yara's share price dropped 5.5% by 0903 GMT, hitting its lowest level since early 2021.
"The miss (compared to estimates) is primarily on the EBITDA leverage from volumes/mix which was much lower than we had expected," analysts at JP Morgan said in a note to clients.
Revenue fell 38% year-on-year, reflecting lower ammonia prices.
"We are at a much lower margin situation compared to last year," CEO Svein Holsether told Reuters. "It's especially Europe that is hard hit because even though energy prices are lower they are still relatively high compared to our competitors, among them Russia."
Farmers have also had a tough season, hit by droughts and floods, he said.
Yara said gas costs for the fourth quarter of 2023 were estimated to be $520 million lower than a year earlier.
Gas is a key feedstock to make ammonia, a fertiliser that provides plants with nitrogen necessary to build proteins and to bind the sun's energy through photosynthesis.
Prices of urea, made from ammonia and the most commonly used fertiliser globally, have increased since the end of June, although gas prices have roughly doubled in the same period.
During the third quarter, Yara idled annual capacity of 80,000 tonnes of ammonia, or 6% of its European capacity, and 130,000 tonnes of finished product, or 3% of its European capacity, compared with 17% and 10% respectively in the second quarter.