CF Industries Holdings Inc. President and CEO Stephen Wilson told analysts Nov. 5 that CF will continue with the diesel emissions fluids (DEF) business, which it acquired when it bought Terra Industries Inc. earlier this year. He said the business is continuing the way that the Terra Environmental Technologies team had planned.
Soon after buying Terra CF had said it would review the DEF business, leading some industry watchers to speculate that CF might opt to shed the fledgling unit perhaps to Yara International ASA, the dominant international player in the DEF industry.
Wilson noted that the Woodward, Okla. 500,000 st/y UAN expansion, which is expected to come online in the fourth quarter, will also include modifications that will add 30 million gallons of DEF capacity. “We expect to embark on projects at other facilities in the future,” said Wilson. “Our customers know they can count on us for reliable supply and for leadership in this growing market.
“This is a business that has tremendous upside potential, but it is a very new business that we are nurturing,” said Wilson. Putting it in perspective, Wilson said for the first nine months of 2010, even though sales of DEF have moved up rapidly, it has only consumed the equivalent of 5,000 tons of granular urea. “And if you look at our release in the third quarter (GM Nov. 8, p. 12), we shipped 713,000 st of granular urea in the third quarter alone, and almost 2.2 million tons in the first nine months of this year.” So as for CF’s product mix at this point, Wilson said DEF is insignificant.
Wilson outlined several positives for the nitrogen market. Near-term, he said colder temperatures have allowed agricultural ammonia use to get underway earlier than normal in the upper Midwest. He is also upbeat about the U.S. Environmental Protection Agency’s approval of E15 ethanol blends for model year 2007 and newer cars, and expects a decision on 2001-2006 cars this month. For the 2011 fertilizer year, Wilson is projecting increased plant acreage and higher nutrient application rates to lift nitrogen demand to over 13 million nutrient tons, the second highest on record.
Despite CF’s earlier announcement that it has cut some industrial ammonia contracts, CF Vice President of Sales and Marketing Bert Frost told analysts that it is still a valuable part of CF’s mix. “We’re working to improve that section, whether it’s through pricing or logistics that improve our returns, but we do need to utilize those customers for our system.”
“We manage our book of business on a dynamic basis, and there will be times when industrial is very attractive to us, and times when it’s not so attractive,” added Wilson. “Our objective with all of our products is we aim to put it to the highest and best use. So we don’t have an aversion to industrial business. We’re not totally wed to ag business. We want the highest margin business that we can make on a sustained basis.”
Wilson said the company is producing all the ammonia that it can produce. Upgrading in recent years has been a no-brainer, he said. “We get value on our upgrading and we get value from the ammonia that we sell as direct application.”
Wilson said it now has more options for ammonia coming out of legacy Terra locations. “Terra did not have the extensive ammonia distribution system that legacy CF had and limited storage at the plant sites. And so now, we have the flexibility to move that ammonia in more directions and for a greater variety of uses.”
Industry sources noted that CF was simply making less margins on industrial contracts and that it is much more profitable right now to be selling spot ammonia for direct application.
As for other parts of its business, CF said its GrowHow venture in the United Kingdom is performing well and is benefiting from an extremely strong nitrate market. It said the Trinidad ammonia plant has become a great partner for its CF phosphate operations in Florida.
As for phosphate, Wilson said a strong domestic DAP market will make it less likely to export in the near term. On phosphates, the company said it is closely watching for any changes that China might make to export duties, as well as reported delays of Saudi Arabia’s Ma’aden project to late 2011 or 2012.
CF sees hurdles for Peruvian project;
Orica seeks to partner with CF
CF’s proposed nitrogen project in Peru is still awaiting the resolution of major infrastructure issues, i.e., the building of natural gas pipelines, which are a prerequisite for the facility. While Wilson said the project is still “interesting and intriguing,” he said CF is currently spending the minimum amount necessary on it right now.
Ironically, Orica Ltd. Managing Director and CEO Graeme Liebelt is a little more upbeat on the project, telling analysts last week that Orica is seeking to partner with CF. He said CF wants to pursue the project and that they are very enthusiastic. Liebelt went on to say that CF is preoccupied with its acquisition of Terra Industries Inc. and has probably pushed back its plans by three to six months. Liebelt said the project still looks viable and Orica is highly interested. “We think we’ve got the best project for an expansion in Latin America presently, and so we’re pursuing it with all our energy.”
CF said Nov. 12 that it had no further comment on Peru. In the past, CF was Orica’s competitor for a gas contract so as to develop a nitrogen plant (GM Nov. 26, 2007). CF won. Orica’s partner at that time was Terra Industries Inc., which CF has since acquired. Back in 2007, had Orica and Terra won they were looking toward a $1 billion nitrogen plant at the southern port of Pisco, perhaps improving the construction timeline and costs by bringing in idled plants from Terra’s Donaldsonville complex.
Back in 2009, CF gave rough cost estimates for the project in San Juan de Marcona of between $1.5-$2 billion, with further study expected to produce a more precise estimate (GM Oct. 19, 2009). The expected capacity was 910,000 mt/y of anhydrous ammonia and 1.3 million mt/y of urea. Most of the ammonia would be used to produce the urea, but a smaller portion would be available for sale to third parties.