Although Mississippi Phosphates Corp.’s production problems are continuing in the second quarter ending June 30, 2010, they should be fixed by the third quarter, executives told analysts in a June 15 teleconference.
Mississippi Phosphates is a wholly-owned unit of Phosphate Holdings Inc. (PHI).
The company said sulfuric acid plant problems that hampered production in the first quarter ending March 31, 2010, have continued into the second quarter. Had the company been able to produce at budgeted levels in the first quarter, EBITDA would have been $11.5 million, versus the actual $7.2 million.
PHI is projecting second-quarter DAP and sulfuric acid production at 155,000 st and 169,000 st, respectively, which is 80 percent below budgeted levels and similar to the first quarter. Two coolers in the sulfuric acid plants have been continual problems. Replacements were ordered in 2009 and have been delivered. One will be installed by the end of June, with more piping and foundation work needed for the other cooler to be installed.
PHI expects both sulfuric acid plants to be online as of July 1, with one at slightly reduced rates due to the need for the second cooler. One will be operating at 1,200-1,300 st/d rather than its regular capacity of 1,500 st/d as a result. Regardless, third-quarter DAP and acid production should be back to more normal levels, and above rates for the first and second quarters.
Also in late May, there was a failure of a waste heat boiler. As a result, an acid plant had to go down. It is expected to be back up by the end of June.
PHI said the DAP market is currently in transition with the end of the U.S. spring season. The company expects the U.S. market to be quiet until the second half of July or August. It said buyers have been reluctant to buy summer fill, adding that crop prices will likely be key, with recent USDA assessments of lower ending stocks and increased consumption being positives, including good corn demand for ethanol.
Going into the third quarter, PHI expects good phosphate demand from Latin America – particularly Brazil – as well as Pakistan and Turkey.
As for raw material costs, PHI believes there is a surplus in the international ammonia market, and sees room for margin reductions in price. However, it notes that those prices may be near the floor. In the sulfur market, it says spot prices are falling, with pressure for lower contract prices for the third quarter.
As reported a few weeks ago, PHI’s first quarter had reported positive results (GM May 31, p. 12), the first after five consecutive quarters of losses. PHI reported first-quarter net income of $2.6 million ($.31 per diluted share), compared to the year-ago loss of $11.6 million ($1.51 per diluted share). First-quarter sales moved up, to $60.1 million from the year-ago $54.2 million.
Miss Phos sold 142,900 st of DAP during the first quarter at an average price of $414.98/st, versus the year-ago 180,400 st and $293.16/st, respectively. Of the 142,928 st sold in the first quarter 2010, 102,868 st moved into the export market.
The company said that due to accounting treatment afforded certain transactions due first quarter 2009, a comparison of first-quarter 2009 and first-quarter 2010 per-ton prices is not meaningful. During first quarter 2009, the company recorded the sale and associated costs on 45,194 st of DAP delivered in satisfaction of a deposit arrangement entered into during 2008.
First-quarter operating income was $4.2 million, versus a year-ago operating loss of $18.3 million. EBITDA was $7.2 million, versus the year-ago negative EBITDA of $15.9 million. Of the $15.9 million, $15.3 million was attributable to the write-down of inventory values and the recognition of unrealized losses on firm raw material purchase commitments.
First-quarter DAP production was 145,564 st, up from the year-ago 99,363 st. During the latter period, Miss Phos reduced production as a result of weak market conditions. The cost of phosphate rock in the first quarter was down 23 percent from year-ago levels. The company has a supply contract with Morocco’s OCP running through June 30, 2012. Prices are renegotiated quarterly.
Miss Phos received good news from the Mississippi Department of Environmental Quality (MDEQ) in May, when the agency found no violations of the facility’s wastewater discharge permit at the company’s Pascagoula, Miss., facility. In September 2009, the U.S. Environmental Protection Agency (EPA) issued a Notice of Violation as well as an administrative order under Section 7003(a) of the Resource Conservation and Recovery Act (RCRA). The order alleges that Miss Phos has contaminated soil, surface water, and groundwater by allowing low pH water to escape from containment areas. It directs the company to take specified actions and provides a schedule for compliance. Miss Phos says that since the order was issued, its testing confirms that the groundwater impacts are due primarily to low pH groundwater contact with shallow groundwater within a relatively small portion of the facility, with no evidence of offsite impacts. Miss Phos says remediation of the low pH groundwater will allow naturally occurring metals to return to their natural state.
PHI says it continues to fully cooperate with EPA and MDEQ. To date, it has expensed $2 million to cover these costs and capitalized $205,000. It estimates it could incur another $1.8 million in capital costs to address EPA and MDEQ requirements. The total expense is expected to be approximately $4 million.