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Terra 3Q earnings more than triple

Featured, News

Terra Industries Inc. net income for the third quarter ending Sept. 30, 2008 more than tripled to $171.4 million ($1.64 per diluted share) on sales of $788.3 million, versus the year-ago $54.4 million ($.51 per share) and $577.9 million, respectively.

“We are pleased with Terra’s third quarter performance,” said Terra President and CEO Mike Bennett. “We also expect strong fourth quarter performance, in part because we have secured margins on substantial volumes of forward sales against which we have locked in natural gas purchases.

“As we look ahead to 2009,” Bennett continued, “industry projections indicate an increase in nitrogen fertilizer demand driven by increased demand for grain. It remains to be seen what effect the broad economic slowdown will have on our industrial customers. To date, credit issues have not had a notable impact on our customer base.

“While current global urea prices are sharply lower than they were in the summer, domestic natural gas prices have also dropped dramatically, continuing to support favorable projected margins.”

During the third quarter, Terra restarted its Donaldsonville, La., ammonia plant. Due to mechanical and weather-related issues, the plant operated intermittently in August and through mid-September. As a result, the plant incurred start-up costs of $7.5 million. These are included in cost of sales for the 2008 third quarter. The plant has operated well since late September.

Terra told analysts that it had a successful turnaround of its Port Neal, Iowa, plant in August. In 2009, it expects to undergo turnarounds at Yazoo City, Woodward, and one half of the Verdigris plant. It will also have a turnaround of the Courtright, Ont., urea plant.

Nine-month net income was $476.3 million ($4.54 per share) on sales of $2.2 billion, compared to the year-ago $132.2 million ($1.24 per share) and $1.77 billion.

3Q-08 Sales Vol. 3Q-08 Price 3Q-07 Vol. 3Q-07 Price
NH3 392 598 410 308
UAN 1,055 349 974 238
Urea 21 432 24 298
AN 172 388 132 248
NG 9.94 7.12
YTD-08 Sales Vol. YTD-08 Price YTD-07 Vol. YTD-07 Price
NH3 1,303 532 1,245 334
UAN 3,072 326 3,060 218
Urea 75 422 88 305
AN 539 339 499 243
NG 8.74 6.95

* Sales volumes in thousand st; prices are average unit; natural gas is mmbtu.

FertiNitro upgraded by Fitch; cites positive fert prices, improved operations, stability

News

Fitch Ratings, New York, has upgraded FertiNitro Finance Inc. bonds, citing a favorable fertilizer price environment and improved operations, as well as a relatively stable situation in the Venezuela domestic market. Fitch upgraded to “B-” from “CCC” US$250 million 8.29 percent secured bonds due 2020. The rating outlook is stable. Fitch said it expects past operational problems will gradually be resolved.

Fitch said that while FertiNitro has experienced a highly favorable price environment, and production levels of ammonia and urea at near nameplate capacity – above 2007 levels – the project needs to demonstrate the capacity to operate efficiently on a sustained basis. Following this month’s turnaround, FertiNitro plans to proceed with its capital expenditure program; Fitch expects these events to yield long term operational improvements.

After more than a year of the Venezuela decree-law in effect, Fitch says FertiNitro’s sales have been stable and redirection of its offtake to supply the domestic market was less than initially expected. Fitch has been informed by FertiNitro that 160,000 mt of Petroquimica de Venezuela S.A.’s (Pequiven) urea offtake would be redirected to the domestic market in 2008. According to the decree, the redirected output must be sold in local currency for the equivalent of approximately US$72/mt. Going forward, Fitch believes that redirection of some of FertiNitro’s output may have modest effects to the project’s revenues. In addition, the shareholders have decided to provide certain additional capital contributions to FertiNitro to support the continued economic viability of the Project, which Fitch views positively.

Demand for urea in Venezuela is estimated by Pequiven to be approximately 400,000 – 500,000 mt. Pequiven’s wholly-owned plants in the Ana Maria Campos (ex-Tablazo) and Moron complexes are not producing sufficient urea to satisfy domestic requirements. In 2007, the aggregate production level of these plants was under 150,000 mt. Fitch views the continued reliance on FertiNitro as a concern. While local sales from FertiNitro in 2007 were approximately 192,000 mt, sales up to August 2008 have been only 128,000 mt. Fitch will continue to monitor urea production in Venezuela, as well as domestic demand.

Higher ammonia and urea prices have enabled FertiNitro to withstand growing operating cost pressures, primarily from natural gas prices. FertiNitro’s debt service coverage ratio for 2007 was at 2.82 times (x); as of July 2008 it was at 4.14x.

FertiNitro’s current financial profile and prospective near-term operating performance are consistent with the “B-” credit rating given that the project remains vulnerable to a variety of risks, principally including the reliability of the plant and the challenging Venezuelan sovereign and operating environment.

FertiNitro, located in the Jose Petrochemical Complex in Venezuela, ranks as one of the world’s largest nitrogen-based fertilizer plants, with nameplate daily production capacity of 3,600 mt of ammonia and 4,400 mt of urea. It is owned 35 percent by a Koch Industries, Inc. subsidiary; 35 percent by Pequiven, a state-owned petrochemicals company; 20 percent by a Snamprogetti S.p.A. subsidiary; and 10 percent by Cerveceria Polar, a C.A. subsidiary.

PotashCorp pays $115 M for more of ICL

News Briefs, Saskatchewan

Saskatoon-PotashCorp revealed last week that it has increased its stake in Israel Chemicals Ltd. from 10 percent to 11 percent. It paid $115 million for the extra stock. The company revealed this to analysts last week, saying an opportunity came up and it took it. PotashCorp President and CEO Bill Doyle told analysts that there are good opportunities right now for further company growth. “And certain competitors of ours may find themselves to be in a leveraged position unexpectedly. And there may be opportunity for us to take advantage of that.”

Yara temporarily stops production at Ferrara

News Briefs

Oslo-Yara International ASA said Oct. 24 that on Nov. 1, 2008, it will temporarily stop production of urea and ammonia at its site in Ferrara, Italy. The plant, which transforms natural gas into ammonia and urea, has an annual production capacity of 600,000 mt of ammonia and 500,000 mt of urea. The decision to stop production temporarily is related to the current situation in international urea markets, where lower activity and price levels have impacted profitability. The Ferrara plant will be conserved and on standby for start-up when market conditions improve. Lay-offs are not anticipated, as employees will attend to plant safety and other tasks within the group. In the meantime, Yara says it will continue to fulfill customer contracts from built-up stock and alternative product sourcing.

Terra Nitrogen reports 3Q net income of $106.2 M

News Briefs, Western Cornbelt

Sioux City-Terra Nitrogen Co. LP reported net income of $106.2 million ($3.41 per lp unit) on sales of $246.4 million for the third quarter ending Sept. 30, 2008, versus the year-ago $45.6 million ($2.42 per unit) and $133.0 million, respectively. TNCLP cited higher nitrogen selling prices and sales volumes, partially offset by higher natural gas costs. Nine-month net income was $317.9 million ($11.35 per unit) on sales of $677.5 million, up from the year-ago $138.0 million ($7.31 per unit) and $438.0 million, respectively.

2008 Volumes 2008 Price 2007 Volumes 2007 Price
NH3 68 664 57 367
UAN 536 342 432 233
NG 9.28 7.02
2008 Volumes 2008 Price 2007 Volumes 2007 Price
NH3 222 582 221 370
UAN 1,560 321 1,486 215
NG 8.00 6.70

* Sales volumes in thousand st; prices are average unit; natural gas is mmbtu.

Bunge 3Q fertilizer earnings off 25 percent

News Briefs, Northeast

White Plains, N.Y.-Bunge Ltd. saw a 25 percent drop in fertilizer earnings (EBIT) for the third quarter ending Sept. 30, 2008, to $84 million on sales of $1.9 billion versus the year-ago $112 million and $1.24 billion, respectively. Volumes were down due to soybean and corn farmers accelerating purchases in the first half and a tight credit environment. Higher margins were offset by $215 million of foreign exchange losses resulting from the devaluation of the Brazilian real on the U.S. dollar-denominated financing of working capital. Actual sales volumes were off 24 percent, to 3.08 million mt from the year-ago 4 million mt. Despite the quarter, nine-month fertilizer earnings are up 179 percent, at $610 million on sales of $4.9 billion versus the year-ago $219 million and $2.6 billion. YTD volumes were off 8 percent, to 8.75 million mt from the year-ago 9.53 million mt. Bunge-wide third-quarter net income was off 33 percent, to $234 million ($1.70 per diluted share) on sales of $14.8 billion, versus the year-ago $351 million ($2.70 per share) and $9.7 billion. YTD net income was up 139 percent to $1.27 billion ($9.26 per share) on sales of $41.6 billion, versus the year-ago $533 million ($4.12 per share) and $25.4 billion. Bunge said it sees the current market environment as short-lived, and that the basic fundamentals of its industry remain intact and should generate compelling growth for companies with global asset networks and broad product offerings.

LSB extends contracts with Bayer and Nelson

News Briefs, Southern Plains

Oklahoma City-LSB Industries Inc. said Oct. 24 that its subsidiary, El Dorado Nitrogen LP, has completed its renewal and extension discussions with Bayer MaterialScience LLC and will continue its strategic supply relationship into the next decade. The new five-year agreement provides for El Dorado to supply Bayer with its total requirements for nitric acid at its Baytown, Texas, polyurethane intermediates complex. The El Dorado facility is a world-class nitric acid manufacturing facility capable of producing more than 475,000 tons of nitric acid each year. “We are proud to be chosen by Bayer to continue working with them at their world-scale Baytown complex,” said Jack Golsen, LSB chairman and CEO. “Bayer and our LSB chemical business operations have had an excellent business relationship over these past ten years, and we look forward to working together in the future.” Separately, Cherokee Nitrogen Co., a subsidiary of LSB’s chemical business, also announced the extension of its ammonium nitrate supply requirements agreement with Nelson Brothers LLC for its emulsion plant on the Cherokee, Ala., site.

Four ammonia cars involved in Manitoba wreck

Ammonia, Canada, News Briefs

Brandon, Manitoba-Two anhydrous ammonia tanker cars tipped on their sides without causing a major incident Oct. 22 when eight of the 77 cars on a westbound CN freight train derailed while pulling into the Brandon freight yard. CN officials reported that while there were no leaks from the two ammonia cars and two others that remained upright, emergency response crews transferred a small amount of the chemical into trucks as a precaution because of a hospital, homes, schools, and businesses located nearby. The other four cars were reported to be empty. CN spokesman Kevin Franchuk told Green Markets that recovery operations at the site were expected to be completed by late the next day, and that railway inspectors and a team from the Canadian Transportation Safety Board were conducting an investigation. He said there were no injuries in the incident, but couldn’t confirm press reports that students in six schools were held under emergency “shelter in place” procedures until around 4 p.m. and nearby residents were advised to remain inside. Police blocked residential streets and notified businesses and residents downwind, but there was no order issued to evacuate the area. Representatives of Koch Fertilizer Canada Ltd. and Westco Fertilizer were also on scene, but Franchuk didn’t know what role they took. He said he believed the anhydrous was being shipped out of Brandon.

Seventeen go to hospital in Florida SO2 incident

Florida, News Briefs

Mulberry, Fla.-Cool air and fog were cited as causes of the temporary hospitalization on Oct. 18 of 17 contract workers at The Mosaic Co.’s sulfuric acid plant at its Bartow phosphate processing plant in Mulberry, Fla. Mosaic spokesman David Townsend said a weather inversion of cool air and fog pushed a cloud of SO2 to ground level, where about 25 contract workers were affected by the gas. Normally, the gas passes into the atmosphere and does not immediately return to ground level. Townsend said emergency medical personnel transported 17 of the workers to a nearby hospital for treatment; only one stayed the night, due to high blood pressure. Workers began complaining about the smell and shortness of breath, but none of the injuries were considered serious. Because of the large number of people involved, EMT officials called a bus to transport the injured to the hospital.

Co-op ends nearly 100 years in business

Great Lakes, News Briefs

Kingsley, Mich.-Kingsley Co-operative, a part of agriculture in this area for almost 100 years, will no longer exist after Nov. 1. That’s the date set for auctioning off what’s left of this town landmark, which closed its doors earlier this month after operating at the same location in downtown Kingsley since 1919. “It’s been so slow for a long time, it kind of outlived it usefulness really,” Rick Van Pelt, president of the board and a longtime farmer in Kingsley, told the local press. “The whole world is changing all the time and that thing’s been there a hundred years.” Brenda Bigelow, co-op manager for the past 5 1/2 years, was still on the job last week to say there’s not much inventory left for the auctioneer. “We’re out of fertilizer, grass seed, field grain and bagged feed,” she offered. “It pretty much amounts to the lawn and garden and pet supplies. There may be some interest in the mixer, scales and other equipment.” The surrounding area has slowly changed to residential, but Bigelow said there’s been no real operating problems except being squeezed for space on only a half-acre, which didn’t leave room for parking or for semis to turn around. Now, except for a few nearby individuals who have mixers, many farmers will have to drive to Traverse City 10 miles away, McBain 30 miles away, or other towns for their fertilizer supplies. She says there’s a good chance the property will be torn down for redeveloping. One party, however, may be interested in using the warehouse for processing canola grain into ethanol.