Some $5 million in start-up costs at LSB Industries Inc.’s Pryor, Okla. nitrogen facility were the major reason the company’s chemical business segment reported an operating loss of $369,000 on sales of $53.7 million for the fourth quarter ending Dec. 31, 2009. The year-ago loss, which included $1 million in Pryor costs, was $3.1 million on sales of $94.8 million.
“Excluding the start-up costs of the Pryor facility incurred during the fourth quarter, both our chemical and climate control businesses operated profitably in a very challenging economy,” said Jack Golsen, LSB chairman and CEO. Pryor start-up costs were $17.2 million for the year. Currently, Pryor monthly operating start-up costs, excluding UAN, are running at about $1.6 million, in addition to variable costs such as natural gas and electricity.
While the Pryor anhydrous ammonia plant started up in January, the company is still in the process of increasing its UAN production. When it reaches sustained targeted rates, Pryor will issue a press release. The company says that the delays are primarily related to long lead times to refurbish certain major equipment. In the meantime, LSB continues to produce and store ammonia at the plant.
“As far as we know, and unless something new develops, and with chemical plants you never know, we have everything we need right now,” Golsen told analysts. Industry sources note that the plant is long-idled, and taking some time to get it running is expected. LSB had hoped to have the plant up last summer.
“We are going to have at least 35,000 st/y of ammonia to sell, in addition to 325,000 st/y of UAN, and there are other parts of the plant that could be restarted that we don’t have any announced plans at this point,” said Barry Golsen, LSB vice chairman and president.
Jack Golsen said the ammonia plant that is coming up – number four – has the capacity to produce 700 st/d. It will start off at 525 st/d, giving the company 35,000 st/y of excess ammonia to sell. “If there’s a market for it, we can kick that plant up to 700 st/d.
“In addition, we have two other ammonia plants … and they produce 200 st/d. So altogether, we can produce 900 st/d of ammonia. And there are many products that we could make out of the ammonia.”
LSB also noted that it began producing diesel emission fluid (DEF) at its Cherokee Nitrogen facility in January. The product, named Earthpure DEF, is sold under a long-term agreement to Yara North America.
LSB hesitated over questions as to how big the company’s share of the DEF market would be, saying that, like others, it was still trying to assess that market. “We know that the market is eventually going to be humongous,” said Barry Golsen. Jack Golsen added that Yara does have to take minimum quantities from LSB each year, with those amounts increasing each year for five years.
Analysts, citing recent nitrogen merger news, prodded LSB to put a value on its nitrogen plants. Golsen said LSB is undervalued, but that the company was not going to talk about what its plans are, nor was it free to speculate about the value of the plants. He did say that there appears to be a premium on North American nitrogen plants right now.
“With respect to our chemical business, signs point to improvement in 2010 in all of its markets,” said Golsen. “We are especially pleased to see UAN pricing firming following a period of low prices. Looking ahead, the outlook is good for grain and crop production and fertilizer required to support them, including UAN. Despite the delays, we remain confident that the Pryor facility will be a valuable asset for LSB once it is fully operational. We estimate that our all-in costs to refurbish the Pryor facility are a fraction of the cost to construct a new plant with comparable capacities.”
LSB told analysts that, while nitrogen fertilizer demand appears to be favorable, first-quarter activity was impacted by excessively wet weather and the planting season having started late.
A fourth-quarter drop in chemical sales was attributed primarily to selling price declines across all product lines. LSB said a sales volume decline in mining products was partially offset by sales volume gains in agricultural products and industrial sales. The decline was also influenced by a reduction of volume at the Baytown facility.
Fourth-quarter ag product sales were $16.8 million, 48 percent lower than year-ago levels. Much lower market prices per ton resulted in lower sales and lower margins. Shipped tonnage of UAN, which is produced at Cherokee, Ala., was 35 percent higher than a year ago. However, revenues from these sales decreased 55 percent.
Looking forward, LSB expects that the pricing for UAN will be comparable to the first quarter of last year.
As for ag grade AN from the El Dorado, Ark., facility, revenues were down 41 percent from the year-ago quarter, though tons shipped were up 11 percent.
Although industrial chemical sales were down 37 percent to $22.9 million, tons shipped were up 15 percent. “We believe that in the long run, there will be steady requirements for our industrial assets and we’re beginning to see increased demand as the economy improves.”
Mining sales were $14 million, down 47 percent from year-ago levels. Tons shipped were down 65 percent.
Full-year operating income for LSB’s chemical division was $15.1 million on sales of $257.8 million, down from 2008’s $31.3 million and $424.1 million, respectively.
Company-wide fourth-quarter net income was only $38,000, with a per share value of less than zero, on sales of $115.3 million, versus the year-ago $3.6 million ($.16 per share) and $179.5 million.
For the year, LSB reported net income of $21.6 million ($.96 per diluted share) on sales of $531.8 million, down from 2008’s $36.5 million ($1.58 per share) and $749 million.
LSB’s climate control business has also been under pressure due to overall economic conditions. However, LSB said its products are starting to see some positive benefit from the federal stimulus package. For the fourth quarter, climate operating income was $5.6 million on sales of $59.7 million, versus the year-ago $7.9 million and $81 million. Full-year income was $37.7 million on sales of $266.2 million, down slightly from 2008’s $38.9 million and $311.4 million, respectively