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Market Watch

Ammonia, Ammonium Nitrate, Ammonium Sulfate, Asia, Black Sea, Central Florida, Eastern Cornbelt, India, Market Watch, Middle East, Nitrogen Solutions, Pacific N.W., Pakistan, Phosphate, Potash, South Central, Southeast, Southern Plains, Sulfur, Tampa, U.S. Exports, U.S. Gulf, Urea, Western, Western Cornbelt

AMMONIA

U.S. Gulf/Tampa: No changes in the Tampa prices last week, but higher prices elsewhere in the world could be reflected in upcoming negotiations. According to the fertilizer trade data reported by the U.S. Department of Commerce, the U.S. imported 23 mt of anhydrous ammonia from Russia through the port of Savannah in February at a price of $11,657,662, which would work out to $506,855/mt. The Fertilizer Industry contacted USDOC, and the tonnage was adjusted to 23,107 mt.

Eastern Cornbelt: The ammonia market in Illinois had reportedly dropped slightly to the $440/st FOB level for spot tons from Illinois River shipping points. Forward contract ammonia for April through June was referenced as high as $550-$560/st FOB regional terminals.

Western Cornbelt: The anhydrous ammonia market continued to be quoted at $400-$440/st FOB most regional terminals. A Nebraska source reported the spot market in his area at the $420/st FOB level for the most recent business. One supplier was also offering forward contract ammonia for April through June at the $420/st FOB mark in Nebraska, along with $455/st FOB in Missouri and up to $535/st FOB Iowa shipping points.

Southern Plains: The anhydrous ammonia market was tagged at $305-$340/st FOB regional production points for prompt tons. Out of pipeline terminals in Kansas, the dealer market was pegged at $350-$360/st FOB.

South Central: Anhydrous ammonia was tagged at $430-$450/st FOB regional terminals to the dealer, with the low reported at Memphis, Tenn.

Black Sea: Prices keep edging up. Sources now report that bids were laid on the table at $275/mt FOB. Producers are still reportedly asking $300/mt FOB. Demand in Europe, the Western Hemisphere, and Asia, combined with limited supply, is moving the price up.

Producers are anxious to get the price past $320/mt FOB, the break-even price, according to Asian sources. Transammonia was able to pick up a deal on a cargo of 15,000 mt from OPZ as reported earlier. At that time the price was pegged at $250/mt FOB. Now, say sources, that price is long gone.

While the $275/mt FOB bid is being talked about, sources could not point to any actual business at that level. Asian sources say the old Trammo business is clearly the bottom of the market and $275/mt FOB is the upper end.

One trader noted the $250/mt FOB price was not doable last week. Once the $275/mt FOB bid was made, producers moved straight to $300/mt.

As last week came to an end, sellers were rejecting $275/mt FOB and buyers were rejecting $300/mt FOB. But the firm bid remains a matter of record, and at a level buyers will accept.

Middle East: Contract prices into India keep edging up. Another deal was concluded last week at $284/mt CFR, which has an estimated netback of $260-$265/mt FOB.

Producers argue that freight is only $20/mt. They conclude then that any material in the low $260s/mt FOB is no longer a viable option for a sale. Some traders, however, argue freight and handling could be as much as $25/mt, taking the price back to $260/mt FOB.

Even with the haggling over the real freight rate, sources say it is now impossible to get material in the low $260s/mt FOB. Producers still argue the “right” price should be $300/mt FOB. They contend the limited production going on in the area, along with strong demand from Southeast Asia and India, is keeping the price on a steady upward trajectory.

Despite all the talk of tight supplies and overheated demand, Asian sources peg the Middle East market at $265-$270/mt FOB.

Asia: Buyers continue to make inquiries to traders and producers. Sources say Korean and Taiwanese buyers are being especially aggressive in making their requests for tons.

Most of the inquiries are coming from industrial buyers. As the global economy slowed, many industries did not buy their usual replacement tons until the last minute. And that last minute is now.

Sources say the buying currently only looks like buyers replacing what was used during the past two months or so. Ordinarily, many of these buyers would be taking cargoes every two to three weeks instead of waiting six to eight weeks to make a purchase. Now that buying is taking place, end users are calling any trader who might be able to get the ammonia they need.

The Mitsui and Mitsubishi Indonesian plants are running at 100 percent capacity, with just about every ounce accounted for in sales through April.

There are reports that Chinese buyers have begun to make inquiries for cargoes. Sources say Beijing is encouraging imports so Chinese industries could conserve the natural gas and coal used for domestic ammonia production.

The move to import also helps industrial buyers. Chinese ammonia is priced higher than the international market because of the rising domestic price of inputs.

Western Europe: Sources report the increases in prices out of Yuzhnyy are beginning to have an impact on European prices. Prices of $320/mt C&F, which represented the high end earlier this month, now appear to be on the low end of the market. Best bets at this time place the market in Northwest Europe at $310-$335/mt C&F.

UREA

U.S. Gulf: Wet weather and other unfavorable conditions continued to delay the beginning of the spring season last week, and urea sales were among the victims. With the lack of sales, prices began to soften – but not significantly. Sources tagged the barge market in the $290-$295/st FOB range again last week.

Koch was said to have raised its price to $300/st FOB, possibly as a result of production problems. Prices may rise near the end of the month when product begins to move from terminals, sources said. In Iowa, farmers may consider switching from ammonia to urea because of standing water in cornfields. Corn prices were holding up well in comparison to soybeans last week, which will help the sale of urea and DAP.

Eastern Cornbelt: Granular urea was quoted at $335-$350/st FOB, reflecting a drop from last report. The low was reported in Illinois on a spot basis, while the upper numbers reflected the dealer market in Ohio and Indiana.

Western Cornbelt: The granular urea market was showing some weakness in the region last week. Sources pegged the dealer market at $330-$345/st FOB in the region, down some $20/st from recent levels. One supplier in Iowa reported a $335/st FOB dealer price at midweek.

Southern Plains: One source described urea movement as “solid” in recent weeks. The dealer price for granular urea was quoted at $320-$325/st FOB the Tulsa market, which was down from last report. Sources said Koch’s Enid, Okla., urea plant was back up after some additional downtime during the previous week (GM March 16, p. 2), but as of press time the plant’s operational status was unconfirmed.

South Central: Urea was moving in some areas where corn planting was underway last week. The granular urea market was pegged at $325-$335/st FOB regional terminals to the dealer, down $10/st from last report.

In other locations, however, sources said fertilizer movement has been uncharacteristically slow. “We’re just not doing anything,” said one Arkansas source. “We’re bad late, and I’m nervous.” He said money is tight and that is certainly a contributing factor, but growers are also being much more cautious. “People on all products are just waiting until the very last minute,” he said. “They normally wouldn’t do the things they’re doing.”

Southeast: Granular urea was pegged at $330-$340/st FOB port terminals to the dealer, also down from last report.

Pakistan: The industry is still waiting for TCP to make a decision based on the last tender. Template had the lowest offer of 25,000 mt at $298/mt CFR. No other firm was willing to match that price.

And yet, by the end of last week – long past the validity date – TCP had not made an award. Sources say TCP could easily wait for a more opportune time to buy. Global prices are softening, and the need for tons in Pakistan is not as desperate as it was a few months ago.

Political pressure to build reserves is now being tempered by the belief of some that if the global market price falls, the country would be better off buying more tons at a lower price.

The bottom line is that TCP can afford to wait a few more weeks – maybe even a couple of months – before making new purchases. If India also waits well into late April or early May, sources say the lack of business from these two major buyers could force the price down once again.

India: Most watchers in Asia are now convinced nothing will come from India until the new fiscal year starts April 1. And just two weeks after that, balloting begins in a national election.

The delay until the new fiscal year begins was pragmatic, said one trader. Any tender called in March would have an impact into April and May. The buyers needed to know how much money they would have to make their deals.

Sources report Indian urea stockpiles are sufficiently large that no area should experience any shortages. But in the middle of a political campaign the definition of “sufficient stockpiles” depends on whether a person is for or against the current government. Opposition leaders have been denouncing shortages of urea in key electoral districts for the past few months. The government counters that existing stockpiles, along with purchases made at the end of 2008, provide more than enough urea for the farmers.

Industry sources say the first tender to start strengthening the reserve stockpiles might come as early as the second week of April. Conventional wisdom says the first tender will not be called until the balloting is done at the end of the month.

Black Sea: With no one buying, producers are hard pressed to hold onto the gains they made in late February and earlier this month.

One Asian trader said if a buyer made a firm bid of $250/mt FOB, he would get a signed deal in a flash. The only problem, this trader continued, is that there are no buyers at that level. No one has been able to confirm any deal at $250/mt FOB, but there has been talk of $255-$260/mt FOB being passed back and forth among traders.

The Template offer into the TCP/Pakistan tender of $298/mt CFR showed that at least one trading house puts the Yuzhnyy market closer to $240/mt FOB than $250/mt FOB. With TCP not issuing any awards yet, however, sources are hard pressed to show any real business at the lower levels.

Middle East: Even as the Black Sea softens, sources say the producers are holding their own on prices in the Arab Gulf. The steady price in the area is not due to strong demand, say sources, but rather to steady contracts and limited production.

Demand from the Western Hemisphere under contracts, along with limited production from SABIC, PIC, and QAFCO, is keeping producers from getting worried about building up any reserves.

As expected in the area, when asked, all producers claim they are sold out. They also – reluctantly – say the price has not shifted in the past week.

With the Yuzhnyy price slipping, one trader did note that either the Black Sea price would have to come up or the Middle East price would have to come down. And soon.

NITROGEN SOLUTIONS

U.S. Gulf: Prices for nitrogen solutions were relatively steady last week, as activity tended to fall with the delay of the spring season. The NOLA barge range was $190-$195/st FOB, or $5.94-$6.09/unit for 32 percent. Paper sales for the summer were running in the $170s/st FOB.

Eastern Cornbelt: Sources tagged the UAN-32 spot market at $250-$270/st ($7.81-$8.44/unit) FOB regional terminals to the dealer. Reference prices for forward contract tons for the April-May shipping period ranged from $8.65-$8.95/unit FOB in the region.

Western Cornbelt: UAN-32 remained at $250-$280/st ($7.81-$8.75/unit) FOB regional terminals to the dealer, with the low out of spot Mississippi River locations and the upper end reflecting reference levels out of Missouri River terminals.

Southern Plains: UAN-32 pricing was down from last report. The dealer market was reported at $225-$240/st ($7.03-$7.50/unit) FOB regional terminals, with most spot quotes falling in the $230-$235/st ($7.19-$7.34/unit) range.

South Central: UAN-32 was quoted at $245-$250/st ($7.66-$7.81) FOB regional terminals for prompt tons to the dealer, reflecting a slight drop from last report.

Southeast: Nitrogen solutions tons were moving out of regional tanks to field locations last week. Sources pegged the dealer market for UAN-30 at $225-$235/st ($7.50-$7.83/unit) FOB regional terminals, down from last report, with some describing recent activity as brisk out of those locations.

AMMONIUM NITRATE

U.S. Gulf: Nitrate sales were also slow last week, and prices were unchanged at $225-$230/st FOB.

Western Cornbelt: Ammonium nitrate was quoted at $270-$280/st FOB in the region, down slightly from last report

Southern Plains: Ammonium nitrate remained at $250-$260/st FOB Catoosa, Okla.

South Central: The ammonium nitrate market remained at $270-$280/st FOB regional terminals to the dealer. There were reports of lower-priced material out of the Blytheville, Ark., market, but no actual levels were confirmed, and some talked of quality issues.

Southeast: Sources quoted the Tampa ammonium nitrate market at $320-$350/st FOB, with the low end of that range also quoted FOB Savannah, Ga., to the dealer.

AMMONIUM SULFATE

Eastern Cornbelt: Granular ammonium sulfate was reported at $225-$245/st FOB in the region, reflecting another increase from last report.

Western Cornbelt: Granular ammonium sulfate was up from last report at $235-$245/st FOB in the region. One Missouri source pegged the dealer market in his area at a firm $240/st FOB last week and in tight supply. Agrium announced another pricing increase for granular ammonium sulfate. Effective April 1, the posting will move to $255/st DEL in North Dakota, Minnesota, and Wisconsin, up $20/st from the March 1 reference level.

Southern Plains: The granular ammonium sulfate market was unchanged at $200-$250/st FOB Texas shipping points, with the low FOB Freeport and the upper end FOB Plainview.

South Central: Granular ammonium sulfate was quoted at $200-$225/st FOB in the region, with the low end reported out of the Memphis market. Some sources expressed concern about sulfate inventories for the upcoming rice application season in May.

Southeast: Granular ammonium sulfate was quoted at $175-$180/st FOB terminals for allocated tons to the dealer. Granular ammonium sulfate postings from DSM remained at $175/st FOB Augusta, Ga., and $214/st DEL into Florida, with standard grade referenced at $149/st FOB Augusta and $178/st DEL in Florida.

Pacific Northwest: Agrium will raise its granular ammonium sulfate postings on April 1 to $250/st FOB warehouse locations in Washington, Idaho, Oregon, and Nevada, and $255/st DEL in those same states plus Montana and Wyoming. Those levels reflect a $20/st increase from Agrium’s March 1 postings in the region.

PHOSPHATES

Central Florida: Activity began to pick up in Georgia last week, but most of the Northeast and eastern Midwest was still too wet or cold to get back into the fields. In Florida, crops were well into the season, but a three-year drought was posing a serious threat of fire. Although many people were hoping for an early start to the spring season, most now believe the market will begin to kick off around the first of April.

CF Industries surprised a few people last week when it lowered its asking price for Central Florida DAP from $320/st to $315/st FOB to match Mosaic’s price. The move was apparently designed to drum up more business, but sources said it failed to generate much more interest.

Mosaic has apparently increased its phosphate production to around 75 percent of capacity, which was still below normal but far more than the 30 percent it was running at a month or so ago.

The Central Florida DAP price range was unchanged from the previous week’s $315-$320/st FOB range. PCS Sales had no published price. Mosaic’s price was $315/st FOB for DAP and $325/st FOB for MAP. CF was at $315/st FOB for DAP and $20/st FOB higher for MAP. The price from Agrifos remained at $350/st FOB for trucks and $345/st FOB for rail shipments.

U.S. Gulf: Producers and traders pulled back on the river system last week as unfavorable weather continued to stifle their markets and ambitions. Most sales activity was at the warehouse level, but even that was described as only decent.

Prices for NOLA DAP barges stalled early last week after CF Industries lowered its asking prices – $315/st FOB for DAP and $335/st FOB for MAP. Shortly afterwards, traders responded with even lower prices in some cases.

Corn prices for December were up again last week, as farmers were making final decisions on what crops to plant for the season. With a price of well over $4/bushel for corn, prospects would be bright for the phosphate industry if more than 86 million acres were planted – less so if it’s below 84 million. Farmers had not shared their plans with their local dealers as of late last week, so dealers were reluctant to make moves to fill their bins. However, most in the industry think activity will take a big jump somewhere around the beginning of April.

The impact of the national economy on the season was not clear last week, but the thinking tended toward the notion that things have hit bottom and the only place to go is up. With banks being given the resources by the new administration to loan more money, credit should become less of a problem.

Shortly after CF’s price drop, a few barges were sold as low as $310/st FOB. A little later in the week, the price was moving back upward to around $315/st FOB. Prices will likely remain slightly depressed until activity picks up, but no massive increases were on the horizon in the next couple of weeks.

The NOLA DAP barge range last week fell just a little, from $315-$318/st to $310-$315/st FOB. Mosaic has a $10/st FOB additional charge for MAP, while CF’s MAP was $20/st FOB higher than its DAP price.

Eastern Cornbelt: DAP pricing out of river warehouses continued to be quoted in the $355-$375/st FOB range in the region. MAP was $10/st higher than DAP. One regional supplier was referencing forward contract DAP for April through June at $375/st FOB Peoria, Ill., and Cincinnati.

10-34-0 pricing remained in a broad range at $650-$750/st FOB in the region, with the low in Illinois.

Western Cornbelt: DAP remained at $360-$370/st FOB most regional warehouses to the dealer, with the upper end reported at the $390/st FOB level out of some warehouse locations in western Missouri. MAP was pegged at $370-$400/st FOB to the dealer; a Nebraska source reported a $385/st DEL price to his location last week. One supplier was referencing forward contract DAP for April through June at the $370/st mark FOB St. Louis.

The 10-34-0 market remained in a broad range at $575-$680/st FOB in the region, with the upper end reported in Missouri.

Southern Plains: DAP pricing to the dealer was unchanged at $350-$360/st FOB Catoosa, with MAP pegged at $360-$370/st FOB the port and in fairly tight supply. 10-34-0 pricing continued to cover a wide range, from a low of $500-$525/st FOB in Texas to $565-$605/st FOB in the Kansas market.

South Central: The DAP market was tagged at $340-$350/st FOB regional warehouses to the dealer, with MAP at a $10-$15/st premium. One source reported fairly brisk movement of DAP on corn ground in his location. TSP was quoted at $320-$325/st FOB to the dealer, with some spotty movement to the field reported for that product as well.

U.S. Export: TransAmmonia sold two handymax vessels – about 80,000 mt total – into India for delivery in April. The price was $405/mt CFR, which will equate to around $360/mt FOB at the time of shipping. Although freight rates have been on the upswing, transportation costs were expected to fall slightly in April. Last week, freight to the west coast of India was running about $48/mt and $53/mt to the east coast of that country. The cost for shipping to Brazil was a little below $25/mt.

PhosChem made no new sales last week, but was said to be negotiating with Brazil for a price that would netback to around $375/mt FOB.

The Fertilizer Institute issued its report for phosphate exports in February last week. Of course, India was still the top customer for DAP at 80,096 mt – but was not in triple digits, as it normally has been in recent months. Thailand was the second biggest buyer at 31,400 mt, with Canada not far behind at 29,471 mt. The total for the month was 260,063 mt, a decrease of 7.7 percent compared to February 2008. For the calendar-year-to-date, India received 223,891 mt, Canada 49,503 mt, and Vietnam 45,649 mt. Total exports so far this year were 471,484 mt, which was a reduction of 25.8 percent compared to the same period a year ago.

TFI said Australia was the leading importer of U.S. MAP at 57,034 mt, followed by Mexico at 27,488 mt and Canada at 13,874 mt. Total MAP exports in February amounted to 106,444 mt. MAP exports for the calendar-year-to-date through February were 152,310 mt, a decrease of 22.2 percent from 2008 at that time.

POTASH

Eastern Cornbelt: Sources pegged the potash market in the $680-$720/st FOB range in the region from brokers or resellers, with the low reported in Illinois on a spot basis. There were also reports of dealer-to-dealer trades of potash taking place at substantially lower numbers in Illinois and Indiana, with some even claiming as low as the upper-$500s/st, but transactions at that level were not confirmed.

Western Cornbelt: Potash out of regional warehouses was pegged at $680-$720/st FOB range to the dealer, depending on grade and location, with most sources quoting $700/st as a common dealer price from secondary sources. One source pegged the market in his trade area at $705/st FOB for red granular and $715/st FOB for white granular potash last week. Another said he had sourced some brokered granular potash for as low as $685/st DEL to his location at mid-month.

Southern Plains: Granular potash FOB Carlsbad, N.M., was reported in the $760s/st FOB, while potash out of regional warehouses locations was quoted at $690-$720/st FOB from secondary sources. Most sources put the warehouse potash market last week at the $700/st FOB level to the dealer, give or take.

South Central: Potash was pegged at $690-$720/st FOB regional warehouses to the dealer, with most sources quoting the low end of that range for spot tons from brokers or resellers. One source reported moving some potash to the field in recent weeks, but said volumes are not what they should be for this time of year. He said he expects total spring usage in his trade area to be 40-50 percent of normal “when it’s all said and done.”

Southeast: Sources tagged the potash market at $775/st FOB for trucked tons from blend plants, while rail-delivered tons continued to be referenced in the low-$800s/st from producers.

SULFUR

Tampa: A balance between supply and demand grew closer last week as phosphate producer Mosaic cranked up its production, which was running at around 75 percent of capacity. The greater demand has meant less sulfur was going to prillers on the Gulf coast. In addition, refineries were using more sweet-crude oil, which produced less sulfur for the market.

As panic attacks in the sulfur industry were being soothed, the market could be headed for a bit of stability – at least more than in the previous three months. Still in the distance, prices for second quarter contracts may call for payments of some kind from customers, who have had a free ride in the Tampa molten market since the first of the year.

Transportation was not a problem last week, either with rail or vessels. In April, the Mexicans’ sulfur transport vessel will be taken out of service for maintenance, but that should not create any real problems.

The Week in Fertilizer Stocks

Fertilizer Stocks
Producer Symbol Price Week Ago Year Ago
Agrium AGU 37.83 36.23 63.10
CF Industries CF 69.42 67.38 106.34
Intrepid Potash IPI 17.28 15.66 N/A
Mosaic MOS 43.50 43.21 97.25
PotashCorp POT 79.22 77.66 144.47
Terra Industries TRA 27.92 26.40 36.19
Terra Nitrogen TNH 129.86 126.53 112.63
Distribution/Retail
Andersons Inc. ANDE 13.34 12.50 41.71
Deere & Co. DE 31.83 29.90 79.49
Scotts SMG 32.41 30.28 32.82

Agrium, CF, Terra roller coaster continues; CF rejects Agrium bid, keeps up pressure on Terra

Featured, News

CF Industries Holdings Inc. said March 9 that its board of directors has rejected the proposal from Agrium Inc. as grossly inadequate. CF also announced that its board of directors has reaffirmed its intention to pursue a business combination with Terra Industries Inc.

In a letter to the Agrium board, CF said Agrium’s proposal is opportunistic, and that CF believes it is a transparent attempt to interfere with CF’s proposed business combination with Terra.

“We are deeply disappointed that CF’s board of directors has rejected Agrium’s proposal without even attempting to engage us in exploratory discussions,” said Agrium President and CEO Mike Wilson. “We continue to believe that our proposed transaction is a superb opportunity to create value for both Agrium and CF stockholders – we are motivated by the outstanding long-term prospects of this compelling combination and not, as CF alleges, by a desire to interfere with its attempt to buy Terra Industries. It appears that CF’s board and management concluded that CF’s stockholders would choose Agrium’s offer over CF’s proposed Terra acquisition and, as a result, decided to use an unusual non-voting security to deny their own stockholders a voice in this critical decision. We believe that CF stockholders view receiving a substantial premium from Agrium as a far superior alternative to paying a large premium to Terra stockholders. We expect to achieve approximately $150 million in operating synergies from the combination of Agrium and CF – 50 percent more than what CF has said it expects from a combination with Terra.”

“While our preference is to work together with CF to negotiate a definitive merger agreement, we remain fully committed to acquiring CF and are considering all available options,” Wilson continued. “We intend to commence shortly an exchange offer to acquire all outstanding shares of CF common stock.”

CF sent a letter to Terra reaffirming its interest and saying it would now be prepared to enter into a negotiated merger agreement with Terra on terms that provide certain value assurances to Terra’s stockholders. Specifically, CF would agree to an exchange ratio based on $27.50 for each Terra share, with an exchange ratio of not less than 0.4129 of a CF share and not more than 0.4539 of a CF share. The $27.50 per share represents an almost 70 percent premium to Terra’s stock price before CF made its offer, while peer group stock performance has been essentially flat since that time. While for Terra’s stockholders these terms provide value assurance and the possibility of a higher exchange ratio than the current offer, they also provide CF’s stockholders with the possibility of a lower exchange ratio if CF’s stock performs as CF expects it will. CF said Agrium’s proposal only validates the value and upside potential in the CF stock.

The original CF offer valued Terra at $20 per share (GM Jan. 19, p. 1).

CF noted that Terra’s Schedule 14D-9 raised the issue of whether, given Agrium’s proposal, CF will be able to obtain the stockholder approval required under NYSE rules to issue CF common stock. “While we are confident that the CF Industries stockholders will support a business combination with Terra, we are prepared to address the issue you raised by structuring the transaction so that a vote by the CF Industries stockholders will not be required,” said CF. “We are prepared to enter into a negotiated merger agreement under which we would issue a participating preferred stock that would trade at parity with CF Industries common stock.” CF said the issuance of the participating preferred stock would not require a vote of the CF Industries stockholders under the NYSE rules.

On March 11, Terra said its board unanimously concluded that this most recent version of CF’s proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF, and would deliver less value to its shareholders than would owning Terra on a stand-alone basis.

On March 12, CF said it filed with the U.S. Securities and Exchange Commission preliminary proxy materials in connection with its nomination of independent directors to replace three members of Terra’s board at Terra’s 2009 annual stockholders meeting. As earlier reported, the three are John Lilly, David Wilson, and Irving Yoskowitz (GM Feb. 9, p. 1).

Terra’s 2009 annual meeting is required under its bylaws to be held not later than May 15.

CVR reports strong nitrogen results for 4Q, year; UAN expansion deferred

Featured, News, Nitrogen, UAN

CVR Energy Inc.’s nitrogen business excelled in the fourth quarter and the year ending Dec. 31, 2008, to help offset some negative numbers from the company’s refining business. Even in the fourth quarter, which included the economic downturn, the nitrogen business reported operating income of $21.2 million on sales of $67.4 million, up from the year-ago $11.7 million and $50.8 million, respectively. While nitrogen tons sold were off slightly, higher selling prices kept the unit ahead of the year-ago quarter.

Nitrogen operating income for the year was $116.8 million on sales of $263.0 million, up from 2007’s $46.6 million and $165.9 million, respectively.

CVR reported fourth-quarter net income of $11.1 million ($.13 per diluted share) on sales of $699.7 million, versus the year-ago loss of $24.5 million ($.28 per share) and $1.15 billion. For the year, net income was $163.9 million ($1.90 per share) and $5.02 billion, versus 2007’s loss of $67.6 million ($.78 per share) and $3.0 billion.

2007 results were affected by a major turnaround and expansion at the company’s refinery, as well as significant downtime and costs associated with a major flood.

CVR took a goodwill impairment loss of $42.8 million in the refinery unit in the fourth quarter 2008. Results were also impacted by a planned turnaround at the nitrogen plant, an unplanned outage affecting the refinery’s fluid catalytic cracking unit, and a loss on extinguishment of debt of about $10 million associated with amending the company’s credit facility.

The refinery had a fourth-quarter operating loss of $153.8 million on sales of $636.4 million, versus the year-ago income of $22.6 million and $1.1 billion, respectively. For the year, it had operating income of $31.9 million on sales of $4.8 billion, versus 2007’s $144.9 million and $2.8 billion, respectively.

As a nod to the current economic climate, CVR told analysts that it has deferred the completion of its UAN expansion, as well as some smaller discretionary projects. The UAN expansion was to increase current capacity by 50 percent, to over 1 million st/y. CVR has also moved a 2010 refinery turnaround into 2011, and is focused on minimizing costs and aggressively managing capital expenditures.

Stan Riemann, chief operating officer, said the current order book for UAN is approximately 90,000 st, at an average price of just over $380/st. He said the company is not locking in forward prices, but is selling prompt. He indicated that recent prompt ammonia sales have been at $350/st FOB and UAN at $220-$230/st FOB, and he said those numbers have been creeping up as it gets closer to the spring season.

He expects pricing to be more similar to 2007 numbers than the blow-out numbers of 2008. “And quite frankly, in our area on nitrogen….we just have not seen producers cut back on wheat or on the corn. They seem to be going after it with, as you would expect them to, to get bushels off the acres.” He said based on this reading, CVR is feeling good about nitrogen.

000 st 4Q-08 4Q-07 2008 2007
Ammonia (gross produced) 85.9 81.8 359.1 326.1
Ammonia (net of sale) 29.2 23.0 112.5 91.8
UAN 137.2 144.3 599.2 576.9
Petcoke consumed 000 st 201.1 124.2 451.9 449.8
Petcoke cost $/st $33 $25 $31 $30
Sales 000 st
Ammonia 34.2 33.3 99.4 92.1
UAN 132.2 141.3 594.2 555.4
Total sales 166.4 174.6 693.6 647.5
Pricing per plant gate $/st
Ammonia $536 $408 $557 $376
UAN $324 $236 $303 $211
On-stream factors percent
Gasification 78.0 97.7 87.8 90.0
Ammonia 76.4 96.7 86.2 87.7
UAN 74.7 79.4 83.4 78.7

LSB income off, sales up; company moves ahead with Pryor startup

News

LSB Industries Inc. reported increased sales for the fourth quarter and year ending Dec. 31, 2008; however, net income was off. Fourth-quarter net income was $3.6 million ($.16 per diluted share) on sales of $179.5 million, versus the year-ago $4.5 million ($.20 per share) and $134.6 million, respectively. Operating income dropped to $1.8 million from $11.2 million.

“The decline in fourth quarter operating income was partly attributable to certain unusual loss items primarily related to the steep decline in commodities and the effects of the general economic slowdown, both occurring in the latter half of 2008,” said LSB CFO Tony Shelby. In addition, income was negatively impacted by additional unrealized losses relating to commodities contracts still held at year-end of $2.3 million, and $5.1 million as a result of unplanned downtime in the third quarter at the Cherokee nitrogen plan, which was offset by income of $7.6 million from a litigation judgment.

The chemical segment had a fourth-quarter loss of $3.1 million on sales of $94.8 million, versus the year-ago income of $7.9 million and $66.4 million, respectively.

For the year, LSB reported net income of $36.5 million ($1.58 per share) on sales of $749 million, versus 2007’s $46.9 million ($1.84 per share) and $586.4 million. Operating income was $59.1 million in 2008, up slightly from 2007’s $59 million.

Chemical segment operating profit for the year was $31.3 million on sales of $424.1 million, versus the year-ago $35.0 million and $288.8 million.

Going forward, LSB is upbeat that agricultural sales volumes will be about the same in 2009 as in 2008, though due to sales price declines, sales dollars will be down. The company also said that after a period of unprecedented price volatility, that there has been some settling and the market is moving forward. “We expect that many of our mining and industrial customers will take less product in 2009 than in 2008 due to the downturn in housing, automotive and other sectors,” said Barry Golsen, LSB president and chief operating officer. “However, to a certain degree we are insulated by sales agreements with either minimum volume requirements or fixed profit arrangements.”

LSB reiterated that it has received permits to restart its Pryor, Okla., nitrogen plant and is moving ahead with plans for the plant to restart in the third quarter, producing 325,000 st/y of UAN and 35,000 st/y of anhydrous ammonia. LSB told analysts that more than one party is interested in the offtake from the plant, and that it expects an agreement in 45 days. To proceed with the startup it expects to spend another $6-$8 million on capital equipment. In total, it expects to spend some $13-$17 million to complete the startup, with some $7-$9 million borrowed.

While LSB believes sales will be off in its Climate Control business due to the economy, it says the unit should see growth opportunities under the federal stimulus plan as its geothermal heat pumps and other products are used to modernize government facilities. In addition, the unit should benefit from tax breaks for the installation of efficient heating and cooling systems.

Railroad tariff elicits stiff opposition from fert industry

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The railroad and chemical/fertilizer industries are sparring again over the transportation of toxic-by-inhalation (TIH) commodities such as anhydrous ammonia and chlorine.

Union Pacific Railroad (UP) recently issued a tariff for the movement of TIH commodities asking for shipper indemnification for railroad negligence, and on Feb. 18 filed a petition at the Surface Transportation Board (STB) requesting guidance on its common carrier obligation in cases where, according to UP, ample supplies of chlorine are available from much closer suppliers.

The Fertilizer Institute reported that ammonia shippers responded by expressing strong opposition to UP’s Tariff 6607, and were advised by the railroad that the tariff was issued for a particular chlorine movement and does not affect contracts under which ammonia is shipped. UP subsequently released a revised tariff on Feb. 12, but in a March 6 memo to TFI’s Board of Directors, TFI President Ford B. West said TFI remains staunchly opposed to the tariff and adamant that UP withdraw it. West said that after a careful review of the revised tariff, TFI believes it “shifts liability for a rail accident to shippers” of TIH materials.

West also sent a letter on March 6 to Diane Duren, vice president and general manager of chemicals for UP, expressing TFI’s continued opposition to Tariff 6607. West reminded Duren that the STB has yet to rule on a July 2008 request by the Association of American Railroads (AAR) to limit railroad liability for incidents involving TIH materials by requiring shippers to indemnify the railroads for their own negligence as a condition to their common carrier obligation.

“TFI and its ammonia shippers have offered the UP and the other Class I railroads a proposal to purchase secondary insurance to help address the rail industry’s concerns,” West said in the letter. “Instead of working with us, the UP supported the AAR’s proposal to the STB and, without clarification from the STB, you have now proceeded with Tariff 6607.”

“We understand that ammonia shipped on the UP is currently under contract,” West continued. “However, we have learned that some railroads are already requesting indemnification by TIH shippers for railroad negligence when contracts come up for renewal. Any railroad, including UP, could do so. If the shipper finds that request to be unacceptable, it would have to transport via tariff, in which case the UP Tariff 6607 would apply. TFI finds this unacceptable and believes this action shows UP’s intent to carry this matter far beyond a tariff that as you have claimed is currently applicable to only one UP customer.” West concluded the letter by urging UP to withdraw the tariff, and welcomed further discussions with the railroad.

The railroad industry has long argued that it wants out of its common carrier obligation to transport TIH commodities, claiming the revenues generated by such shipments are far outweighed by the risks (GM March 17, 2008). In a pointed exchange one year ago, AAR released a statement calling on chemical companies to stop manufacturing highly toxic chemicals and use safer alternatives instead. TFI took “vigorous exception” to the statement, claiming chemicals such as ammonia “are essential to growing food for millions of Americans.”

Recent cases often cited as evidence of the dangers posed by TIH shipments include a January 2002 Canadian Pacific Railway derailment and tank car rupture in Minot, N.D., that released an ammonia cloud that killed one local resident and sent others to the hospital (GM Jan. 21, 2002); a June 2004 chlorine tank car rupture in Macdona, Texas, that resulted from a collision between a UP train and a BNSF train, killing three and sending 43 to the hospital due to chlorine inhalation; and the January 2005 collision of two Norfolk Southern trains in Graniteville, S.C., which caused a tank car rupture and chlorine release that killed nine people and required some 250 people to be treated for chlorine exposure.

In its March 2008 response to AAR’s call for safer chemical alternatives, TFI noted that the National Transportation Safety Board had determined that both the Minot and Graniteville accidents were the result of railroad operational and infrastructure failures. “Perhaps the public would be served better if the railroads were required to ensure that they are doing everything possible to keep rail tank cars safely on the tracks,” West said at the time.

Viterra posts 1Q loss, cites new write-down; remains positive about 2009 volumes

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A fertilizer inventory write-down of C$28.1 million helped move Viterra into the loss column for the first quarter ending Jan. 31, 2009. Viterra reported a net loss of $33 million ($.14 per diluted share) on sales of $1.4 billion, versus the year-ago net income of $41.2 million ($.20 per share) and $1.3 billion, respectively. Excluding the write-down, Viterra’s net loss was $13.6 million ($.06 per share). The loss also included a $3.2 million realized loss and $3.5 million marked-to-market unrealized loss on natural gas hedging, a reflection of lower gas prices during the period.

Viterra also took a $24 million fertilizer inventory write-down in the fourth quarter of fiscal 2008 ending Oct. 31, 2008 (GM Jan. 26, 2009, p. 1).

“It is not unusual to record an operating loss in the first quarter, particularly if fall fertilizer applications do not materialize,” said President and CEO Mayo Schmidt. “Even with the slow start this year, we expect a solid financial year in 2009. Farmers are now working closely with us to make sure they are positioned with the right products to plant a profitable crop in the spring. As such, we anticipate good demand for our agri-products and service offerings, particularly in our third quarter, which is the period in which we generate the bulk of our earnings.”

Due to higher prices, actual fertilizer sales were up in the first quarter, to $169.7 million from the year-ago $155.4 million. Other inputs sales were up as well: crop protection at $3 million versus $1.84 million; seed at $1.93 million versus $784,000; and equipment at $11.6 million versus $7.9 million.

Viterra said average pricing across all major fertilizer nutrients was up approximately 31 percent from the year-ago quarter and was the primary reason for the $14.3 million increase in fertilizer sales. Fertilizer volumes were down approximately 15.7 percent quarter-over-quarter.

Total sales for the Agri-Product segment were $186.2 million, up from the year-ago $165.9 million. The segment reported a gross loss of $8.6 million, versus the year-ago profit of $47.1 million. EBITDA and EBIT were also negative at $43.2 million and $54.5 million, compared to the year-ago positives of $18.2 million and $6.9 million, respectively.

Viterra said that seed bookings, prepayments, and discussions with customers across Western Canada indicate that the upcoming seeded acreage will likely be similar to the 2008 crop. Viterra retail customer prepayments totaled $242.2 million at Jan. 31, 2009, which compares to the year-ago $276.9 million. However, Schmidt noted to analysts that in the current year, a larger portion of this is devoted to seed, crop protection, and equipment than to fertilizer. He said the fertilizer portion is down significantly as a result of the high level of uncertainty seen in November and December.

Viterra told analysts that fertilizer volumes were off about 50,000 mt in the first quarter. “As we move into the second quarter, we certainly see an uptick in our volumes for February,” said Doug Wonnacott, Agri Products senior vice president. He expects nitrogen volumes to be relatively flat or slightly up in Western Canada, with one key factor being the soft fall. He said a significant amount of ammonia did not get down, which means that there’s probably going to be an extra couple 100,000 mt of urea that the market is going to have to move in season. Wonnacott expects phosphate movement to be off 10 percent, and potash about 30 percent. As for actual expected use, he put those as 70 percent nitrogen, 20 percent phosphate, and 10 percent potash. He said fertilizer prices have begun to stabilize and that Western Canadian urea prices have bottomed out at about C$600/mt.

Wonnacott added that there is still a significant amount of empty space at the farm gate, meaning there will be a tremendous amount of stress and strain on the logistics system this spring.

“Producers appear to be optimistic,” said Schmidt. “The expectation is that canola acreage, a heavy user of nitrogen fertilizer, will remain at least consistent with 2008 record levels. This is also a positive sign for Viterra as a large portion of our proprietary seed varieties are of canola.” Schmidt said the company has been getting tremendous feedback on canola bookings. “We’re about 92 percent of last year.”

Viterra noted that it quickly moved to assure that its customers would have access to some $1.4 billion in credit.

“I believe that certainly the volumes are going to be similar or higher for 2009,” said Schmidt. He said for seed, crop protection, and equipment, those numbers will be very strong. For fertilizer, he expects volumes overall will be up. He also thinks margins will be the same or a little higher in all four product areas.

Viterra operates 253 ag retail facilities in Western Canada and holds a 34 percent stake in Canadian Fertilizer Ltd., the nitrogen plant in Medicine Hat, Alberta. Viterra is entitled to 34 percent of the 1.5 million mt of merchantable product from the plant, split equally between granular urea and anhydrous ammonia. Viterra expects the plant, which has been running at 75 percent capacity, will soon resume full production.

Viterra said the plant provides it with about 40-50 percent of its nitrogen needs. Viterra said should CF Industries Holdings Inc. have to divest its stake in CFL due to an acquisition, that Viterra could use the additional capacity to move through its resale system.

Fertilizer scheme nets eight months in prison

News Briefs, Northern Plains

Fargo, N.D.-A former fertilizer manager for ConAgra Foods Inc. has been sentenced to only half the term in prison recommended by prosecutors for bilking his employer out of more than $600,000 over nine years, but he still may be on the hook for restitution. “We recommended 30 months and he got only eight months in corrections and eight in home confinement, for a total of 16 months,” Assistant U.S. Attorney Jennifer Puhl remarked to Green Markets. “We’re disappointed of course, but we accept it.” Larry Schrader, 70, of West Fargo, had pleaded guilty (GM Archives) to one felony count of transportation of stolen goods for a scheme that involved loading out liquid fertilizer from the former ConAgra outlet in Moorhead, Minn., where he worked as sales manager, and selling it through his own business, NC Marketing. Puhl told the court that Schrader often would order workers to replace the stolen fertilizer with water and tell them not to record the transaction, creating what she described as “a tremendous amount of stress on the employees.” Schrader was quoted in the press as saying, “I would just like to apologize for what I did to ConAgra. I would like to apologize to my family for putting them through this, the embarrassment.” U.S. District Judge Ralph Erickson reportedly said Schrader had committed a significant property crime because it involved a lot of money over a long time, but that the 30-month prison sentence recommended by prosecutors would put too much of a burden on social services to care for Schrader’s family. Erickson postponed the restitution hearing until later this month. Puhl said ConAgra’s successor, Gavilon LLC, which took over ConAgra Trade Group earlier this year, has declined any money that could be recovered. But what Gavilon wants and Schrader’s financial worth likely won’t be factors, according to Puhl. “The restitution act makes it definite that these decisions are not based on the ability to pay,” she explained.

TFI urges fast response from DHS on AN sales regs

Ammonium Nitrate, News Briefs, Northeast

Washington-The Fertilizer Institute on March 5 urged the Department of Homeland Security to move quickly to establish final regulations regarding the sale and distribution of ammonium nitrate. DHS issued an Advanced Notice of Public Rulemaking for the new regulations last fall (GM Nov. 3, 2008), and accepted industry comments until late December. The regulations stem from the Secure Handling of Ammonium Nitrate Act, which was approved by Congress in late 2007. The bill requires AN facilities and prospective AN purchasers to apply for registration numbers from DHS in order to sell, transfer, and/or purchase AN, and authorizes DHS to conduct background checks of all prospective registrants. The law also requires all AN facilities to keep records of sales or transfers of AN for at least two years after each transaction, and to promptly report the theft or loss of AN to Federal law enforcement officials. The rule gives DHS the authority to conduct regulatory compliance inspections and audits of AN facilities, and to assess penalties for violations. TFI said it is eager for DHS to complete the rule, because one national standard would be more effective and easier to enforce than a “patchwork quilt of rules that vary from state to state.” States that have imposed or are considering their own AN sales regulations include Kansas, Oklahoma, Nevada, South Carolina, Maryland, California, New York, and Michigan. DHS has not said when its rulemaking review would be completed.