Nitrogen prices will remain low into 2018, according to Norwegian fertiliser giant Yara. Reporting half year results, Yara said the continued increase in capacity for urea production was weighing on global nitrogen pricing and that this situation was likely to persist into 2018.

Traditionally, the benchmark for global nitrogen pricing has been set in China, which is the world’s largest producer and exporter. But rising coal prices (which is the main energy source for Chinese producers) has led to a substantial decline in Chinese urea production and consequentially exports have fallen.

Capitalising on China’s problems, fertiliser companies in Europe and the US have increased production and lowered prices to capture market share from Chinese exporters. With more newly built nitrogen manufacturing plants set to come online in the next year, Yara anticipate nitrogen prices will remain subdued well into 2018.

At a time when fertiliser prices are weak, Yara has said its energy costs are set to rise considerably in the second half of this year which should lead to margin pressure. Based on spot-priced gas costs, Yara is forecasting its energy costs to increase by €8m to €16m for the second half of 2017.

In the first half of this year, Yara recorded a 9% decline in sales to less than €5bn despite a slight increase (+1%) in the volume of fertiliser sold. Operating profits for the first half of the year more than halved (-62%) to €281m as profit margins showed a massive decline from 14% in 2016 to less than 6% this year.

The sharp decline in operating profit reflects the weakness in fertiliser prices at present coupled with rising energy costs for Europe’s largest fertiliser company.

“Our industry is facing strong over-supply of urea and other commodity nitrogen products, and we have expected this development for some time,” said Yara chief executive Svein Tore Holsether.