CF Industries Holdings Inc. reported net earnings of $93.6 million ($1.65 per diluted share) for the second quarter ending June 30, 2007, more than doubling the year-ago results of $42.6 million ($.77 per share). Sales were $848.9 million, up 23 percent from the year-ago $688.7 million. Volumes were up 6 percent, to 2.75 million st from 2.58 million st.
CF said it was well positioned to take advantage of increased corn acreage and a delay in its planting, noting that heavy spring rains pushed back planting in several states. “For CF Industries, our well positioned inventories and flexible distribution system enabled us to deliver excellent results in the face of this rapidly changing business environment,” said CF President and CEO Stephen Wilson. “In particular, we were able to take advantage of heavy ammonia demand during the late spring period, which included significant side dress application.” Wilson touted CF’s high operating rates and logistical performance.
Second-quarter nitrogen gross margins moved up to $122.8 million on sales of $671.5 million, versus the year-ago $90.0 million and $550.8 million, respectively. Tons of product sold were 2.24 million st, up from 2.03 million st. While average ammonia selling prices were off from year-ago levels – $390/st from $421/st – they were up from the prior quarter’s $298/st. Urea prices were up, at $331/st from $259/st, while UAN was $206/st, up from $183/st FOB. Ammonia volumes were up, at 679,000 st from 516,000 st, and UAN was up as well, at 805,000 st from 700,000 st. Urea was off at 719,000 st, down from 780,000 st.
Natural gas costs were up slightly at Donaldsonville to $7.61/mmBtu from $7.12/mmBtu, but were down at Medicine Hat – $6.52/mmBtu from $6.98/mmBtu. CF did report a second-quarter $36.3 million ($.41 per share) non-cash pre-tax unrealized loss ($48 million loss first half) from mark-to-market adjustments on gas derivatives associated with the FPP program, compared to a year-ago gain of $11.7 million.
Nitrogen sales during the quarter represented 1.56 million st under CF’s Forward Purchasing Program, representing 70 percent of nitrogen volume. This compares to the year-ago 1.0 million st, or 49 percent.
Second-quarter phosphate gross margins were $54.8 million on sales of $177.4 million, up from the year-ago $11.2 million and $137.9 million, respectively. Improved pricing offset a modest decline in volume as the company held product from the export market in anticipation of strong late quarter domestic sales, which did not fully materialize due to cold, wet weather. Tons sold were 510,000 st, down from 554,000 st. DAP sales were 406,000 st with an average price of $349/st, versus the year-ago 452,000 st and $247/st. MAP sales were 104,000 st at $341/st FOB, compared to the year-ago 102,000 st and $258/st. During the quarter, FPP sales totaled 220,000 st, or 43 percent of segment sales. By comparison, year-ago FPP sales were 51,000, or 9 percent.
Six-month net earnings were $150.8 million ($2.67 per share) on sales of $1.32 billion, versus the year-ago $18 million ($.33 per share) and $1.1 billion, respectively. The year-ago first half was negatively impacted by first quarter 2006 natural gas costs and uncertainty in agricultural markets, among other factors.
CF was very optimistic about the second half of 2007. “The strong spring fertilizer application season left the domestic industry with inventories at generally low levels, especially for ammonia and UAN,” said Wilson. “During the third quarter, we expect to rebuild our inventories, positioning supply in anticipation of a strong fall season.” Likewise, he said high farmer income and steady demand for corn should encourage strong fall fertilizer demand. He also said spring delays may increase ammonia applications. In addition, he thinks farmers likely did not get down all the phosphate they needed in the spring, and they may put it down in the fall.
Wilson told analysts that while 2008 corn acreage may not match the 2007 crop, Doane’s is reporting it will top the 90 million acre mark.
On the phosphate market, CF notes that demand is growing globally, and capacity increases are expected to be modest through at least 2010.
CF noted that as of July 26, 2007, its FPP bookings for the remainder of 2007 stood at nearly 2.1 million st, up from the 1.1 million st for the remainder of 2006 at this time last year.
CF also announced that it is taking a closer look at both coal gasification and uranium recovery from phosphate. CF has signed an agreement with Uhde Corp. of America, a company within ThyssenKrupp USA Inc., to proceed with preliminary engineering, including a front-end engineering and design study to develop a gasification project at CF’s Donaldsonville, La., nitrogen complex. The proposed facility would produce hydrogen and carbon dioxide from a mixture of petroleum coke and coal. This would replace hydrogen currently produced from natural gas at two of the complex’s existing four anhydrous ammonia plants. The study is expected to take four to six months. Construction could begin during the second half of 2009, which would lead to commercial operation in late 2012. Wilson told analysts the project would likely have a cost north of $1 billion.
CF and NUKEM Inc. have signed an exclusivity agreement to explore the feasibility of developing and constructing a uranium recovery facility at CF’s Plant City Phosphate Complex in Plant City, Fla. The two are currently seeking long-term supply contracts with U.S. electric utilities that would purchase approximately 900,000 pounds annually of U308, a uranium compound used in electric power generation. It would be a byproduct of CF’s phosphate operations. CF said if the project proceeds, it could be in production within three to four years. Wilson put a boxcar price on the project at $200 million or less.
In other news, CF reported that the Medicine Hat nitrogen facility will have a complex-wide turnaround starting Aug. 2, with expectations that it will be back online in early September. Medicine Hat has a gross annual capacity of 1.2 million mt of anhydrous ammonia, including amounts upgraded to 735,000 mt of granular urea. CF said the work includes upgrading the electrical system, and is part of an ongoing commitment to maintain and enhance all plants to state-of-the-art condition. CF said it is well positioned to carry out the work while meeting commitments to customers.