CF Industries Holdings Inc. reported a 55% decline in net earnings attributable to common stockholders for the second quarter ended June 30, 2023, to $527 million ($2.70 per diluted share) from last year’s $1.17 billion ($5.58 per diluted share). Even so, the EPS for the quarter beat the average analyst estimate of $2.19 (Bloomberg Consensus).
Adjusted EBITDA came in 56% lower, at $857 million versus last year’s $1.95 billion. Second-quarter net sales were 47% lower year-over-year, to $1.78 billion from $3.39 billion in 2022.
CF said second-quarter average selling prices were lower than 2022 due to higher global supply availability as lower energy costs led to increased global operating rates. Sales volumes in the second quarter of 2023 were higher than 2022 as higher UAN volumes were partially offset by lower ammonium nitrate sales volumes.
“Despite downward pressure in the global nitrogen market compared to the unprecedented pricing environment in 2022, industry fundamentals remain positive and forward global energy curves suggest attractive margin opportunities for our cost-advantaged network for the foreseeable future,” said Tony Will, CF’s President and CEO.
Will noted global nitrogen prices stabilized during the latter part of the second quarter as robust demand for spring application emerged in North America, and smaller importing regions such as Asia (excluding India) and Latin America (excluding Brazil) returned to average purchasing patterns compared to 2022.
He said the Northern Hemisphere ended the first half of 2023 with low inventories of nitrogen fertilizer, which, along with expected strong demand from Brazil and India, should support a positive demand environment in the second half of the year.
“Longer-term, we expect the global nitrogen supply-demand balance will remain positive, underpinned by agriculture-led demand and forward energy curves that point to wider-than-average energy spreads for LNG-dependent producers in Europe and Asia,” he said.
Will said the need to replenish global grains stocks, which has supported high prices for corn, wheat, and canola, will continue to drive global nitrogen demand, noting that stocks-to-use ratios remain low for feed grains and oilseeds following lower-than-expected production in 2022.
“We believe that it will take at least two years of harvests at trend yield to fully replenish global grains stocks, supporting strong grains plantings and incentivizing nitrogen fertilizer application over this time period,” he said.
Will said the outlook for farm profitability in North America remained strong for all major crops in the 2023 spring application season, helping drive significant increases in corn and wheat plantings in the US.
“We believe that the North American inventory position at the end of the second quarter for all nitrogen products was below average due to lower import levels, higher export volumes, and increased plant corn and wheat acreage compared to the prior year,” he said.
For Brazil, CF expects urea consumption this year to remain strong, supported by higher corn-planted acres and robust farm incomes, with potential for higher import volumes in the second half of 2023 as favorable weather conditions could encourage demand against a backdrop of low inventories.
However, CF believes production economics in Europe will remain challenged as declining global nitrogen prices continue to make it difficult for European producers to compete with imports, despite the decline in natural gas prices in the region. Approximately 25% of Europe’s ammonia capacity, 20% of its urea capacity, and 35% of its UAN capacity were reported in shutdown/curtailment as of June 2023, CF noted.
“We do not expect full ammonia capacity production rates to return to the region during the year, with a corresponding higher-than-normal level of nitrogen imports to the region, with some facilities continuing to favor importing ammonia in order to manufacture upgraded products,” Will said.
CF expects its own gross ammonia production for full-year 2023 to be in the range of 9.0-9.5 million mt. CF Fertilisers, CF’s UK subsidiary, announced late last month that it will permanently close the ammonia plant at its Billingham complex (GM July 28, p. 1). The Billingham ammonia unit has been halted since August 2022 (GM Aug. 26, 2022), and CF Fertilisers intends to continue producing ammonium nitrate and nitric acid at the site using imported ammonia, as it has for the past 10 months.
For the first half of 2023, CF reported net earnings attributable to common stockholders of the company of $1.09 billion ($5.55 per diluted share), down from $2.05 billion ($9.78 per diluted share) in the same period last year. Six-month adjusted EBITDA was 52% lower year-over-year, to $1.72 billion from $3.60 billion, while net sales for the period declined 39%, to $3.79 billion from $6.26 billion.
CF said average selling prices for the six-month period were lower than 2022 due to higher global supply availability as lower global energy costs led to increased global operating rates. Sales volumes in the first half of 2023 were similar to the first half of last year as higher granular urea sales volumes offset lower ammonium nitrate and ammonia sales volumes.
The average cost of natural gas reflected in CF’s cost of sales was $4.56 per MMBtu in the first half of this year, compared to $6.79 per MMBtu in the same period last year.
In other news, CF said its plans to purchase the Waggaman, La, ammonia plant from Incitec Pivot Ltd. (GM March 24, p. 1) remain subject to the receipt of certain regulatory approvals and other customary closing conditions. The company also touted its growing list of blue and green ammonia projects (GM April 28, p. 1).
Production (000 st)
| 1Q-23 | 1Q-22 | 1-H 2023 | 1H-2022 | |
| Ammonia | 2,374 | 2,470 | 4,733 | 5,083 |
| Gran urea | 1,122 | 1,157 | 2,333 | 2,231 |
| UAN 32 | 1,665 | 1,633 | 3,263 | 3,498 |
| AN | 300 | 399 | 688 | 804 |
Ammonia
| 1Q-23 | 1Q-22 | 1-H 2023 | 1H-2022 | |
| Net Sales ($/M) | 525 | 1,115 | 949 | 1,755 |
| Gross Margin ($/M) | 222 | 673 | 366 | 1,033 |
| Sales Volumes (000 st) | 1,053 | 1,035 | 1,705 | 1,762 |
| Avg Selling Price ($/st) | 499 | 1,077 | 557 | 996 |
Granular Urea
| 1Q-23 | 1Q-22 | 1-H 2023 | 1H-2022 | |
| Net Sales ($/M) | 460 | 833 | 1,071 | 1,598 |
| Gross Margin ($/M) | 238 | 473 | 522 | 968 |
| Sales Volumes (000 st) | 1,147 | 1,181 | 2,470 | 2,277 |
| Avg Selling Price ($/st) | 401 | 705 | 434 | 702 |
UAN
| 1Q-23 | 1Q-22 | 1-H 2023 | 1H-2022 | |
| Net Sales ($/M) | 548 | 976 | 1,215 | 1,991 |
| Gross Margin ($/M) | 259 | 633 | 580 | 1,303 |
| Sales Volumes (000 st) | 1,809 | 1,626 | 3,471 | 3,454 |
| Avg Selling Price ($/st) | 303 | 600 | 350 | 576 |
AN
| 1Q-23 | 1Q-22 | 1-H 2023 | 1H-2022 | |
| Net Sales ($/M) | 104 | 253 | 263 | 476 |
| Gross Margin ($/M) | 23 | 102 | 78 | 154 |
| Sales Volumes (000 st) | 369 | 436 | 743 | 864 |
| Avg Selling Price ($/st) | 282 | 580 | 354 | 551 |
Other
| 1Q-23 | 1Q-22 | 1-H 2023 | 1H-2022 | |
| Net Sales ($/M) | 138 | 212 | 289 | 437 |
| Gross Margin ($/M) | 62 | 110 | 121 | 231 |
| Sales Volumes (000 st) | 560 | 557 | 1,084 | 1,102 |
| Avg Selling Price ($/st) | 246 | 381 | 267 | 397 |