Phosphate Holdings Inc. (PHI) executives told analysts April 8 that the company expects to make a profit in the first quarter ended March 31, 2010. This would be the first quarter with a profit for the company in the last six. PHI reported a net loss of $2.8 million for the fourth quarter ending Dec. 31, 2009 (GM March 29, p. 1).
PHI, which is the sole shareholder in Mississippi Phosphates Inc., said that a rebound of DAP prices will help it make a profit in the first quarter, though production will be crimped by turnarounds.
PHI CEO Robert Jones said that after 18 months of a myopic focus on liquidity, PHI’s financial condition has also improved. Jones said it has no money drawn on its revolving credit account.
Jones said that from Jan. 1, 2010, through the third week of March 2010, export DAP prices went from $380/mt to $505/mt. He said prices in late March dropped to $440/mt based on large volume purchases from India. He noted that since then prices have recovered to $460/mt FOB, and added that the near-term outlook is for stable to slightly improving prices.
Jones expects a good healthy demand for the U.S. spring season. He said anhydrous ammonia is moving and DAP prices have nudged upward over the last week. Like most, he noted dealer caution, but said empty bins now are good for the fall season. Jones said that while some may still be reporting wet conditions, compared to last year, conditions are normal.
First-quarter cold weather plagued the Pascagoula, Miss., facility, as did problems with the company’s sulfuric acid plants. Both served to cut production levels below expectations.
Equipment for the acid plant is being delivered this month, and repairs are still to be made. Once repairs are made, PHI expects improved production rates; however, it noted that these are old plants, and that outages are to be expected, though it is considering its long-term options.
“Murphy was at work and hitting all cylinders during the first quarter,” said Jones.
PHI capital expenditures are expected to be $12 million in 2010. During the first quarter it spent about $2.2 million on turnarounds, and expects another turnaround later in the year to cost $3.5 million.
As for raw material costs, Jones said that while spot sulfur sales have been concluded at over $200/lt due to tight conditions in the first quarter, PHI is now seeing a loosening of supply. He said expectations of $200/lt for second quarter contracts now appear to be exaggerated. However, he still expects to see a significant increase in the second quarter, but not as much as expected earlier.
Jones noted that import ammonia prices have been going down, with Tampa April prices dropping to $415/mt DEL from March’s $450/mt DEL. He expects the balance of the second quarter to see weakening ammonia prices.
Asked if the company might look elsewhere for phosphate rock, as other phosphate producers have done, Jones said PHI has a more than 20-year relationship with Morocco’s OCP, with incredible supply and delivery. He said it was mutually beneficial to both companies.
Jones revealed that PHI has signed a term sheet for off-market financing for $25 million. He expects the deal to be closed within 30 days. The identity of the provider remains confidential at this time. “The primary purpose is to give us a cushion,” said Jones. “We have been at peril for some period of time without adequate financing.”
Jones also said the company’s initial public offering (GM Nov. 24, 2008, Oct. 20, 2008) is back on the front burner and being aggressively analyzed. He said the main question is when to proceed – soon, or after the company has a couple of quarters of profits under its belt. He noted that the company initiated an IPO process 18 months ago, but that in September 2008 the roof caved in. Since then the industry has been through an extended trough, with the company focusing on liquidity and survival. Jones expects a decision on when to proceed in coming weeks.
Proceeds from the IPO were to help the company fund a new sulfuric acid plant and DAP expansion.