Yara Thailand expects a 5-10% year-on-year increase in revenue, even as global nitrogen fertiliser prices have fallen to a lower average since September of 2008.
Norwegian-based chemical company Yara International ASA has been suffering in the midst of lower fertiliser prices and an oversupply of the commodity. In 2015-16, the company reported a 12.6% dip in revenue and a 28% fall in earnings before interest, taxes, depreciation and amortisation.
"The next few years will become more difficult. In 2016, the fertiliser industry was confronted with oversupply and falling margins," said Svein Tore Holsether, president and chief executive of Yara International.
Yara's most significant market risk is linked to the margin between nitrogen fertiliser prices and natural gas prices. Average nitrogen fertiliser prices are at their lowest since September 2008, according to Gary Schnitkey, of the department of agriculture of the University of Illinois.
Yara's average urea and nitrate fertiliser prices decreased around 25%. While the cost of gas, a key ingredient in the production of the fertiliser, was down 30%, "lower energy cost offset only around one third of the negative price effects during 2016," according to Yara.
Mehdi Sain-Andre, Yara Thailand managing director, declined to comment on the unit's profitability this year, but said: "The business in Thailand has been fairly positive on the back of good weather and crop prices. We don't talk so much about increasing profitability, but more in terms of the number of farmers served."
Mr Sain-Andre declined to comment on the effect of lower fertiliser prices on the unit's bottom or top-line. However, the Thai unit of the company is expecting a revenue increase anywhere between 5-10%, assuming good performance in December.
Thailand is a mature market, and represents one of the two largest markets for Yara in Asia, along with China.
"Last year the whole industry went through a drop, but is coming back on track," said Mr Sain-Andre.
In Thailand the company focuses on a 15-20% niche market of highly profitable crops, which includes some fruits and vegetables and excludes rice. "In other markets in Asia we might focus on only 5% of the market, that's why Thailand is important," he added.
Reuter's Worldscope database predicts Yara International will log a slight revenue decrease in 2017, but move up 7% next year.
The company will recover by 38% in 2018, fuelled by lower supply growth. However, that optimism should be tempered given the low profitability of key farming products and resistance to higher prices, especially in Europe, according to UBS analyst Andrew Stott.
There is evidence of a "robust recovery in the global nitrogen markets," fuelled by shrinking Chinese exports and solid demand in Latin America, said Mr Stott.
UBS estimates the average urea price of US$222 (7,236 baht) per tonne in 2017 will rise to $245 per tonne in 2018.
A large driver behind this increase is lower exports from China (that account for about a third of the global urea export market), which have been held back by high coal prices. So far in 2017, China had a loss in production of 4 million tonnes, compared to last year. A continuation of this trend could benefit Yara, as it may result in higher fertiliser prices.
While production in China is down, the drop could offset production increases in the US. Urea production in the US increased 10% in 2016. This year, the county's production capacity could surge by more than 4 million tonnes, as five big plants expand or come online, according to Chemical Industry Intelligence provider ICIS.
Urea production capacity could also rise by 4.1 million metric tons this year, with at least five massive new plants or expansions due to start operating. This increase would put the US well on track to increase its production by 50% from 2015-20, said ICIS.
In the face of an uncertain global market, the Thai unit of Yara will focus on expanding its customer base and seek to offer packages, which may include digital farming solutions like soil analysis, leaf analysis and weather forecasts in addition to fertilisers.
Yara International will seek to expand its footprint in developing markets in Asia and Latin America.
In Brazil, the company committed more than 2.5 billion Norwegian kroner (9.8 billion baht) to a plant in Rio Grande last year. Demand for Yara's products in the South American country grew 60% from 2015 to 2016.
In India, the company recently concluded its acquisition of a Tata Chemical urea plant and distribution business for US$400 million (13 billion baht). The factory will be Yara's first production facility in Asia, and will have a 2-million-tonne capacity. "We are in the final stages of the legal processes," said Mr Sain-Andre.
"Our strategy in Asia is pretty aggressive. We are putting a lot of energy into opening up countries like Myanmar, where we started importing products," said Mr Sain-Andre.
"In developing markets like Vietnam, Indonesia and the Philippines as well as in more mature markets like Thailand, there is a lot of potential to increase profitability by increasing farmer's technology and knowledge."
The former Tata plan will strengthen the company's foothold in India, the world's second largest fertiliser market, but there is no indication of a similar investment in store for Thailand.
"Not having a production facility in Thailand does not put us at a disadvantage, because everyone has to import [fertiliser]," he said. "It is very much based on local resources like oil reserves or gas production. We are a nitrogen-based company, and Thailand has not invested in nitrogen production."
Moving forward Yara Thailand will package fertiliser with digital farming solutions like Yara N Tester, which is used to evaluate the need for nitrogen in crops.