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Coffeyville does IPO as CVR Energy; eyes 50 percent increase in UAN capacity

Featured, News, UAN

The owners of Coffeyville refinery and nitrogen plants filed an IPO Sept. 26 to sell $300 million worth of stock in CVR Energy Inc. Coffeyville Refining & Marketing Inc. and Coffeyville Nitrogen Fertilizers Inc. will be direct, wholly-owned subsidiaries of CVR, which is headquartered in Sugar Land, Texas, with its major production facilities in Coffeyville, Kan.

Prior to March 3, 2004, these assets were operated as a small component of Farmland Industries Inc., which filed for bankruptcy protection on May 31, 2002. Pegasus Partners II LP, a Connecticut-based firm, put together a deal to buy the assets. As a result, Coffeyville Resources, LLC, a subsidiary of Coffeyville Group Holdings, LLC, won the bankruptcy court auction for Farmland’s petroleum business and a nitrogen fertilizer plant, completing the purchase of these assets on March 3, 2004.

Coffeyville/Pegasus did an IPO in February 2005 (GM Feb. 21, 2005, p. 1). However, on June 24, 2005, pursuant to a stock purchase agreement dated May 15, 2005, Coffeyville Acquisition LLC acquired all of the subsidiaries of Coffeyville Group Holdings LLC. The Goldman Sachs Funds and the Kelso Funds own substantially all of the common units of Coffeyville Acquisition LLC, which currently owns all of the company’s capital stock.

According to the new IPO, Goldman made capital contributions of $112.8 million and Kelso $110.8 million in connection with the acquisition from Pegasus, with the total proceeds received by Pegasus and other unit holders being $526.2 million after the repayment of the predecessor’s credit facility. Pegasus bought the assets via bankruptcy for $107 million and the assumption of $23 million of liabilities. These are the same assets that the U.S. bankruptcy judge labeled an “albatross” around Farmland’s neck.

After the new stock sale Goldman and Kelso will continue to control the company, though their approximate stake has not been revealed.

CVR said revenues for the year ending June 30, 2006, were $3 billion, with an adjusted EBITDA of $357.4 million. Some 81 percent of operating income came from the petroleum side of the business, with the rest being fertilizer.

CVR noted significant upgrades at both the refinery and fertilizer plant since the Goldman/Kelso acquisition. The Coffeyville refinery produces 108,000 barrels per day at the Coffeyville, Kan., refinery. Historically, that figure had been 90,000.

Coffeyville’s nitrogen plant, built in 2000, has run at full capacity since 2003. It underwent a scheduled turnaround in 2006 and recently completed an expansion of the spare gasifier to increase the fertilizer production capacity. Ammonia capacity is 430,000 st/y, while UAN is 720,000 st/y. The company is considering a further expansion that could increase its ability to upgrade ammonia into UAN by approximately 50 percent, to 1,040,000 st/y. CVR already notes that it has the largest fully integrated single train UAN production facility in North America.

Nitrogen net sales increased 16 percent, or $13.1 million, to $95.6 million for the six months ended June 30, 2006, as compared to the year-ago net sales of $82.5 million. Nitrogen operating income was up 6 percent, or $2.1 million, to $37.1 million during the recent six months, versus the year-ago $35 million.

Company-wide operating income was $214.9 million on sales of $1.55 billion for the recent six months, versus the year-ago $98.7 million and $1.03 billion, respectively.

CVR says nitrogen sales have increased since it started doing its own marketing. Its primary geographic markets for fertilizer include Kansas, Missouri, Nebraska, Iowa, Illinois, and Texas. Approximately 80 percent of its ammonia goes to the ag market, with the rest to industrial. Major ag customers include MFA, United Suppliers Inc., Brandt Consolidated Inc., Interchem, Growmark Inc., Mid West Fertilizer Inc., DeBruce Grain Inc., and Agriliance LLC. Major industrial buyers are Tessenderlo Kerley Inc. and Truth Chemical. During the six months ending June 30, 2006, Brandt and MFA accounted for 22.9 percent and 12.5 percent of ammonia sales, respectively, while Agriliance and ConAgra Fertilizer accounted for 6.4 percent and 5.5 percent of UAN.

CVR said its UAN production represents 5.7 percent of U.S. demand, and its ammonia less than 1 percent of demand.

CVR estimates that the nitrogen plant will continue to have a production cost advantage in comparison to U.S. Gulf producers at natural gas prices as low as $2.50/mmBtu. CVR estimates that its distribution cost advantage over U.S. Gulf importers is approximately $65/st for ammonia and $37/st for UAN. CVR currently upgrades two-thirds of its ammonia into UAN.

CVR uses 950-1,050 st/d of pet coke from its refinery and another 250-300 st/d sourced from third parties, and converts its to 1,200 st/d of ammonia. A majority of the ammonia is converted to 2,075 st/d of UAN. CVR says capacity utilization has steadily increased over the past 5.5 years. As of June 30, 2006, the gasifier was at 97.4 percent, ammonia utilization at 103.2 percent, and UAN at 121 percent.

CVR said as of June 30, 2006, total debt was $508.3 million and availability of $55.2 million under its revolving credit facility. Assets as of June 30, 2006, were listed at $1.4 billion, with long-term liabilities of $930 million.

Wesley Clark, a 2004 presidential candidate and a former Supreme Commander of NATO, is among CVR’s board members. Other directors include Scott Lebovitz and Kenneth Pontarelli of Goldman Sachs, and George Matelich and Stanley Osborne of Kelso.

Congress approves industry-supported chem security regs in DHS appropriations bill

Featured, News

Last week the fertilizer and chemical industries praised the chemical facility security provisions that were approved by members of the House and Senate as part of the $34.8 billion FY 2007 Homeland Security Appropriations Bill. The compromise language on chemical site security was reached late on Sept. 25 after a reconciliation conference to resolve differences between the House and Senate versions of the bill.

According to The Fertilizer Institute, the approved language provides the Department of Homeland Security (DHS), and not the EPA, with jurisdiction over chemical plant security. In addition, the conference language does not mandate the use of Inherently Safer Technology (IST), a provision that TFI, the Agricultural Retailers Association (ARA), and the American Chemistry Council (ACC) strongly opposed.

“There is no substitute for anhydrous ammonia in the production of all nitrogen fertilizers,” said TFI President Ford West. “Our industry has fought hard against including IST in such a bill, so we are pleased that Congress has recognized that mandating IST is not the answer to our nation’s security problems.”

TFI said another favorable provision in the bill states that DHS may approve alternative security programs from states or private entities, such as the Agribusiness Security Working Group’s Security Vulnerability Assessment (SVA).”We are also pleased that facilities regulated under the Maritime Transportation Security Act of 2002 (MTSA) will not need to undergo further regulations,” West said. “Those facilities already in compliance with MTSA regulations will not be affected.”

ACC President and CEO Jack Gerard also welcomed the compromise version that emerged from the reconciliation conference. “Congress just took an important step toward enacting meaningful chemical security legislation,” Gerard said in a Sept. 26 statement. “While not perfect, it is a fair compromise that allows the Department of Homeland Security to protect this critical part of the nation’s infrastructure and builds on the leadership demonstrated by our members, who have already spent nearly $3 billion enhancing security under the Responsible Care Security Code.”

ARA said an IST mandate “would have potentially required costly analysis by Agriculture retailers and distributors and could have led to the ban on the use of important plant nutrient products such as anhydrous ammonia or ammonium nitrate fertilizer.” ARA also praised the proposal for allowing alternative private sector security plans that meet DHS approval. “We believe Asmark Institute’s SVA program, which has been utilized by a large segment of the industry, and other similar security efforts that have been completed by agriculture retailers and distributors, should be given every consideration as being in compliance with DHS security requirements,” ARA said.

According to the approved chemical security language in the bill, within six months of the bill’s passage DHS is authorized to issue interim final regulations establishing risk-based performance standards for chemical facility security, as well as requiring vulnerability assessments and the development and implementation of site security plans for chemical facilities. The regulations are required of facilities that DHS believes present high levels of security risk, but do not apply to facilities that are already regulated by the Maritime Transportation Security Act of 2002.

DHS has the authority to review and approve each vulnerability assessment and site security plan, and may reject site security plans that fail to satisfy the risk-based performance standards. However, the agency can also “approve alternative security programs established by private sector entities, Federal, State, or local authorities, or other applicable laws if [DHS] determines that the requirements of such programs meet the requirements of this section and the interim regulations.”

DHS is further authorized to audit and inspect chemical facilities, and must provide written notification, opportunities for consultation, and a deadline for any facilities found to be out of compliance. Facilities that remain out of compliance are subject to civil penalties and closure. The language also includes provisions to protect propriety information from becoming public.

The security measures are scheduled to expire three years after implementation, giving Congress more time to agree on a permanent, comprehensive security program for U.S. chemical plants. ARA cited this deadline as a potential downside, however. “ARA is hopeful that the risk-based, tiered DHS chemical security regulations implemented would not be completely overhauled by Congress, as it would be very disruptive to on-going industry security efforts,” ARA’s Richard Gupton told Green Markets. “Senators Frank Lautenberg (D-N.J.) and Barrack Obama (D-Ill.) have already indicated they will continue to push their environmental activist / protrial lawyer chemical security bill next year.”

House and Senate leaders first reached an agreement on the chemical security provisions on Sept. 21, but the ensuing negotiations revolved around whether the compromise language would be included in the DHS appropriations bill.

“This is a major victory. I think all parties realized that this effort was simply too important to fail,” Senate Homeland Security Committee Chairman Susan Collins (R-Maine) said in a Sept. 21 statement announcing the deal. “The Department of Homeland Security needs the authority to ensure that our nation’s chemical plants are properly secured, and that’s exactly what we’ve delivered,” added House Homeland Security Committee Chairman Peter King (R-N.Y.). “This is a historic step forward in the security of our homeland.”

The chemical security provisions were immediately criticized by opponents for not going far enough. The New York Times op-ed page on Sept. 25 called the compromise “a near-complete cave-in to industry, and yet more proof that when it comes to a choice between homeland security and the desires of corporate America, the Republican leadership always goes with big business.”

The New York Times went on to state that the rules for submitting security plans are “hopelessly vague,” and that “any federal chemical plant law should make it clear that states have the right to impose stricter requirements to protect their citizens from harm.” A reasonable law, the newspaper said, “would make it clear that the secretary of homeland security can order chemical plants to adopt specific safety measures, like replacing highly dangerous chemicals with ones that pose less of a danger to people in the surrounding area.”

The FY 2007 Homeland Security Appropriations Bill was initially expected to pass the House and Senate by the end of the week, but ARA’s Gupton told Green Markets late on Thursday that the timeline remained uncertain, calling the bill a “moving target.” House Majority Leader John Boehner (R-Ohio) indicated on Thursday that the bill would likely be considered on the House floor on Friday, with Senate action expected by Saturday.

Sen. Collins on Sept. 28 issued a statement urging conferees to support the bill before Congress recesses for the mid-term elections. “This bill represents a comprehensive package of carefully crafted national security improvements,” she said. “There are major advances in protection for chemical facilities, which are a major homeland security vulnerability.”

Blast triggers ammonia release at Bayer plant

Ammonia, News Briefs

Baytown, Tex.-State and federal investigators expect to take several weeks investigating an explosion of a toluene diisocyanate (TDI) tank undergoing maintenance Sept. 26 at the Bayer Material Sciences plant here that injured 22 Bayer and contractor employees and ruptured and caused a release from an ammonia tank. According to the Texas Commission on Environmental Quality (TCEQ), 21 of the injured were treated and released at a hospital, while one was admitted with second degree burns on his back. TCEQ said an unknown quantity of ammonia was released into the atmosphere as the ruptured tank continued to leak a small amount throughout the day. Bayer suppressed the ammonia with water that was captured within the facility’s process storm sewer system and flowed into a permitted waste water treatment plant. Later in the afternoon Bayer placed a vacuum scrubber over the valve that was leaking. The company’s health and safety staff used Draeger monitoring equipment to track the ammonia levels downwind of the incident area, with the highest recording of 5 parts per million approximately a half mile from the scene, which is still within the Bayer fenced area.

$6M fire hits Calif. fertilizer complex

News Briefs

Suisun City, Calif.-Investigators have traced a devastating fire Sept. 22 at the EB Stone & Son organic fertilizer complex to spontaneous combustion in a storage pile of manure and other compost. The resulting fire was spread by wind and high temperatures. Smoke continued to rise over the weekend from the 20-acre site, where flames destroyed manufacturing and bagging facilities, a chemical warehouse, and offices; caused evacuation of 13 nearby businesses and three homes; and closed a road for three days, Capt. Dan Schindler of the Montezuma Fire District told Green Markets. He said the concern was about a possible explosion of ammonium nitrate in a warehouse, along with propane and diesel in storage tanks. “After we learned about the chemicals we pulled out our crews and let it burn,” the fire captain said. Schindler, who estimated the loss at $6 million, said control was turned back last Monday to the owners, who were reluctant to talk about any of the details. EB Stone Manager Scott Todd said the company is working to get back in business. “Our phone lines are operating and our suppliers are responding (to our situation).” Todd said some packers are qualified to manufacture products, so shipping is continuing uninterrupted. He declined to talk about the contents of the building, where Schindler said 90 tons of ammonium nitrate, 60 tons of aluminum sulfate, and other seven or eight other chemicals were warehoused.

Douglass Fertilizer expands with PCS acquisition

News Briefs

Maitland, Fla.-Douglass Fertilizer & Chemical Inc. recently announced that it has acquired from PCS Sales the assets related to the Florida Favorite Fertilizer-Clewiston, Fla., liquid fertilizer facility. Although the terms of the sale were not released, Douglass said the purchase would allow it to strengthen its commitment to southern Florida and expand its opportunities to serve the agricultural and turf markets in that area. Douglass also announced that Applied Solutions & Technologies, a division of the company, had reached a distribution and technical support agreement with Agrium Inc., under which Applied Solutions will distribute pHairway® and N-pHuric® water treatment specialty products in the turf, horticultural, and agricultural markets in the U.S., with the exception of California, Washington, Oregon, Arizona, and Idaho. Douglass said Agrium and Applied Solutions will work closely with current and new customers to provide technical support, training, and promotion for this product line. Douglass Fertilizer & Chemical Inc. is a privately held company that serves the retail market, with corporate offices in Maitland and additional locations in Zellwood, Lake Placid, Hastings, and Ft. Myers, Fla. Douglass also provides raw materials to other retailers through its wholesale division, DFC Sales. The company has four liquid production facilities with capacity of more than 250,000 tons annually, as well as storage capacity of 25,000 tons. Douglass is also a basic producer of ammonium polyphosphate.

Growmark donates to Illinois ag foundation

News Briefs

Bloomington, Ill.-Bill Davisson, CEO of Growmark Inc., recently presented Illinois Farm Bureau President Philip Nelson a $60,281.78 check for the IAA Foundation and agriculture literacy programs. The donation brought the three-year total from the cooperative to more than $180,000. Illinois Farm Bureau leaders established the IAA Foundation in 1987 to provide scholarships for agriculture and agribusiness students, help fund research, support projects to develop farm leaders, and support charitable causes. “There was a time when children grew up on or around farms and knew agriculture was the source of their food and fiber. But times have changed,” Davisson said. “Today, most children don’t know their food comes from the farm or the importance of agriculture. We are working to change that.”

Management Briefs

Management Briefs

Fertilizer industry leader Joseph Sullivan, 73, passed away Sept. 27 in Chicago after a lengthy battle with cancer. Sullivan’s career cut a broad swath across the fertilizer industry. He was the retired chairman of IMC Global Inc., which later merged with The Mosaic Co. He was also a co-founder, CEO, and chairman of The Vigoro Co., which later merged with IMC. He was a scholarship student to Harvard, and also held an MBA from that school.

Sullivan friend Ed Wheeler credited Sullivan with acquiring a large potash producer in Canada, nitrogen facilities in East Dubuque, Ill., and phosphate facilities in Florida. “He mastered the art of managing large numbers of retail operations in the Midwest and Southeast,” said Wheeler. “It was generally believed that a large producer couldn’t operate retail outlets and at the same time be a substantial producer of the three elements of the fertilizer industry. He proved the ‘doubting Thomas’s’ wrong.”

Wheeler noted that Sullivan served as TFI chairman during President Richard Nixon’s ill-fated wage and price control edict. “The strain of these regulations nearly disrupted the entire global trading structure, and his knowledge and finesse led to the fertilizer industry being the first industry in the United States to be deregulated.”

Wheeler and others last week attested to Sullivan’s legendary loyalty and friendship.

Visitation will be held Oct. 3 from 4-7 pm at Old St. Patrick’s Church in Chicago, with a 7 p.m. Mass. Sullivan is survived by his wife, Jeanne, three children, and seven grandchildren. In lieu of flowers, donations may be made to one of his many favorite charities, The American Refugee Committee at 430 Oak Grove St., Ste. 204, Minneapolis, Minn. 55403. See www.archq.org.

Helm Fertilizer Corp. has announced that Michael Peyton, formerly with Terra Industries Inc. has joined Helm in its Tampa office. Peyton will be responsible for all purchasing and sales activities related to Helm’s fertilizer terminal business in Memphis, Tenn., Helena and Little Rock, Ark., and Cincinnati, Ohio.

Market Watch

Ammonia, Ammonium Nitrate, Ammonium Sulfate, Bangladesh, Black Sea, California, Central Florida, China, Eastern Cornbelt, India, Indonesia, Israel, Market Watch, Middle East, Nitrogen Solutions, NPK, Pacific N.W., Pakistan, Phosphate, Potash, Sulfur, Tampa, U.S. Exports, U.S. Gulf, Urea, Vietnam, Western Canada, Western Cornbelt

AMMONIA

U.S. Gulf/Tampa: Most major players concluded first half October business last week at $302/mt DEL. PotashCorp has agreed with Ineos for all deliveries to Texas during the entire month of October at a price of $312/mt, reflective of other recent transactions for both early and late month arrival in the U.S. Gulf. No new business was reported at NOLA.

Perhaps the biggest news at NOLA last week was in natural gas, not ammonia. The October NYMEX gas futures went off the board last week at $4.201/mmBtu, the lowest settlement of a front-month contract in four years.

Eastern Cornbelt: Ammonia pricing to dealers remained at $350-$360/st FOB regional terminals for cash tons, with forward pricing for spring listed from some suppliers in the $375-$380/st FOB range in the region.

Western Cornbelt: Ammonia remained at $345-$355/st FOB most regional terminals.

California: Little change was reported to spot fertilizer markets. Ammonia continued to be quoted at $395/st DEL from the majors. There were reports of lower priced tons moving on a spot basis, but sales at these lower numbers were described as limited. As for fertilizer movement, dealers reported some orders out for winter wheat and alfalfa work, and cotton sidedress activity will start after the harvest. The biggest push for post-harvest applications will start in mid-October and continue as long as weather conditions allow, one source said.

Pacific Northwest: Delivered anhydrous ammonia remained at $335-$345/st in Montana, and roughly $345-$365/st in Washington and Idaho. There were reports of recent one-off deals coming in as low as $315/st DEL, but these quotes were not typical of current dealer pricing in the region. One supplier was offering forward contract ammonia tons at the $345/st mark FOB Washington terminals for October through December, with 20-0-0 aqua ammonia listed at $90.50/st FOB for that period.

Western Canada: Anhydrous ammonia remained at $462-$497/mt DEL in the region.

UREA

U.S. Gulf: Granular urea prices continued to erode at NOLA last week. New business was reported to have occurred at the $218/st FOB mark, with some reporting offers as low as $215/st FOB for second half October and November. Others were reportedly searching for forward business as low as $210/st FOB, citing the upcoming arrival of imports.

Eastern Cornbelt: Granular urea remained at $260-$265/st FOB most regional terminals.

Western Cornbelt: Granular urea was $255-$260/st FOB river terminals in the region.

California: Granular urea was a nominal $310-$320/st FOB and $320-$330/st DEL in the state.

Pacific Northwest: Granular urea remained at $270-$275/st truck-DEL in the Pacific Northwest, with rail-delivered product pegged at the $265/st DEL level on a spot basis. There were reports of spot sales as high as $295/st DEL in western Washington due to tight supplies, but sales at these levels were few.

In Montana, the urea market was quoted at $255-$260/st DEL for cash market tons. Forward contract urea from one regional supplier was tagged at $265-$270/st DEL in Montana for November, $280/st DEL in Washington, Idaho, Oregon, and Utah for October through December, and $290/st DEL in Wyoming for the same three-month period.

Agrium’s September granular urea postings included $257-$262/st DEL in Montana and Wyoming, $280-$285/st DEL in the rest of the Pacific Northwest, and $287-$295/st DEL in Utah, depending on location. Warehouse postings from the company moved in early September to $280/st FOB in Washington.

Western Canada: Granular urea was quoted at $335-$355/mt DEL in the region.

Black Sea: Producers are trying to keep what they perceived as a rally going, but so far they are the only ones who think prices are in the $220s/mt FOB. Reportedly, producers are telling anyone who will listen that the market is $215-$225/mt FOB. The only problem is that the last done business – about two weeks ago – comes closer to $200/mt FOB.

Sources say the IPL/India business shows a netback for Yuzhnyy was closer to $205/mt FOB, and that nothing else is around to push up prices. Even the Baltic material that was offered, once freight differentials are worked in, put the Yuzhnyy market at $205/mt FOB.

Arguments that the MMTC/India tender will pick up some of the expected surplus are dismissed by most in the industry. The surplus at the ports is said to be sufficiently large that even once the IPL orders are covered, there will still be material sitting dockside.

MMTC is most likely looking to buy 300-500,000 mt between now and December. That amount will barely make a dent in what will be produced and sent to the piers at Yuzhnyy. At the same time, sources say, MMTC will not be taking all its tons from the Black Sea, so no matter how one looks at the situation, there is nothing to argue for higher prices.

Besides the apparent growth of a surplus in the area, sources say the continued presence of Chinese tons for the rest of this year, the restarting of the Sabic/Saudi Arabia plant later this month, the opening of a major Iranian plant next month, and all the material that is coming out of Libya and the new Egyptian plant play into the argument for lower prices. And adding into the mix that Indian buyers are now willing to take granular as well as prills means they have more options to buy than producers have to sell.

The way things are going, said one trader, many are lying low, looking for sub-$200/mt FOB material before popping up and putting money on the line. Not many think that level will be hit immediately, but with the last of the Indian business getting ready to be booked and with no other big business on the horizon, there is an expectation for lower prices going into the new year.

Until the MMTC tender results are known later this week, sources say the price has to be around $205-$210/mt FOB, despite calls by some traders and producers.

India: As expected, MMTC jumped in to take advantage of the soft market. The tender for an unspecified amount closes Oct. 3. Sources say the buyer is expected to take 300-500,000 mt. The tender documents say preference will be given to early deliveries, but, say observers, low-cost material is more readily available for November and December deals.

The amount being asked for will do little or nothing to boost prices, because the purchases are being spread out during three months when monthly Black Sea production alone exceeds the expected purchase. Add to the mix that Baltic, Chinese, and Middle East material will most likely be included in the tender offers, and sources expect to see MMTC get prices close to what IPL paid.

Sources say the October and November shipments already booked for IPL – about 700,000 mt – will take up most of the attention of shipping and port operators. Observers doubt MMTC will try to purchase tons for that same time period. One trader said it would be like throwing gas on a fire if it pushed for immediate shipment.

Right now the market is in balance, with late November and December looking soft. MMTC will most likely accept shipments at those times so as not to push up the price and to ensure vessel availability.

Once this round of buying is over, sources expect to see India go quiet until February or March. Without India in the global market, observers do not see any hope for a rebound. For the next three to four months other traditional markets – the United States and Australia – are all dead, with little hope they will become highly active.

China: Chinese material is expected to be offered in the MMTC/India tender, but it is not expected to play a major role in the buying consideration. Sources say MMTC wants bulk material, and with only a couple of exceptions, the Chinese ship bagged urea. Where Chinese material plays a significant role in the global market is the way it is being offered into multiple markets from the eastern Pacific coast to Turkey. By snapping up markets that were once serviced by the Middle East and the Black Sea, sources say the Chinese producers have all but guaranteed that efforts to raise the price by the Yuzhnyy producers will fail.

Middle East: Producers are now claiming supplies are tight. They are expected to be aggressive in the MMTC/India tender, with offers in the high $220s/mt FOB – especially for prills. Few are taking seriously the idea that higher granular prices are coming. With the Sabic plant coming back online this week and Iran starting up next month, sources say the glut of granular will get worse – from a producer’s perspective.

Prills are expected to move to a premium as more granular hits the market, but they will not move as dramatically as producers would like. With India and other buyers willing to shift between granular and prills, they will take the cheaper product – so instead of having only a few potential sources, the buyers have opened themselves up to the world. Prill prices in the region are expected to stay close to granular, and so will have little opportunity to move up.

Even as most in the industry say there are few reasons to consider higher prices out of the Middle East, producers are expected to push higher prices on India in the MMTC tender. What may hit them after the tender closes and negotiations begin, however, is all the material from China and Black and Baltic Seas sources that is expected to be offered.

MMTC is expected to demand prices similar to what IPL was able to get last month – about $243/mt CFR – which netbacks to $227-$228/mt FOB. Producers, however, are expected to try to move the prilled price into the $230s/mt FOB. Sources report a granular deal with Brazil a couple of weeks ago by Yara had a netback of $210-$213/mt FOB. At the same time, they are offering tons to Vietnam at $245/mt CFR for a netback of $217/mt FOB, give or take a buck. The delivered amount is about right for the Vietnamese market, albeit a bit high, say sources.

The $210/mt FOB for granular is seen as the low end of the register and the $217/mt FOB for prills is on the high end for that flavor of urea.

Bangladesh: Local media report the government has cleared funds to pay for the September BCIC tender. Unfortunately, say sources, none of the companies involved in the tender have as of yet been contacted and informed of the final results. For some in the area, this delay in announcing a winner in the most recent tender is not surprising. Eventually, said one trader, BCIC will make its award, but he does not expect the award to be for the full amount needed. Because some tenders have been scrapped or awards were given to companies that did not or could not perform, sources say BCIC will still need to make more purchases in the next couple of months.

Indonesia: A rumor began circulating around Asia late last week that some granular material will be made available to the global market. While any export is good for the producers because of the hard currency these sales generate, observers note that granular material is in a serious surplus position, and the addition of a cargo or two from Indonesia, while not devastating by itself, is not helpful to those trying to stabilize and raise prices.

NPK

Vietnam: Local media report a privately owned NPK plant opened in southern Vietnam. The Five Star International Joint Stock Company in the Mekong Delta is expected to turn out 300,000 mt/y of NPKs. The plant has port facilities that can handle small vessels – 5,000 mt – and so can receive small cargoes of the inputs needed. The port will also make shipment of small quantities by water easier. According to the government report, the plant can store as much as 80,000 mt at the facility.

Vietnam has a long history of NPK production. The blended fertilizer is needed for coffee, fruit, and vegetable production.

NITROGEN SOLUTIONS

Eastern Cornbelt: UAN-28 was steady at $163-$173/st ($5.82-$6.18/unit) FOB regional terminals.

Western Cornbelt: UAN spot pricing remained at $5.80-$6.09/unit FOB in the region.

California: UAN-32 was unchanged at $205-$215/st ($6.41-$6.72/unit) FOB and $220-$225/st ($6.88-$7.03/unit) DEL in the state.

Pacific Northwest: UAN-32 was tagged at $210-$215/st ($6.56-$6.72/unit) rail-DEL in the region, with truck-DEL product quoted as high as $223/st ($6.97/unit) on a spot basis.

Western Canada: UAN-28 pricing was steady at $213-$222/mt ($7.61-$7.93/unit) DEL in the region.

AMMONIUM NITRATE

Western Cornbelt: Ammonium nitrate remained at $245-$250/st FOB in the region.

California: No market was reported for ammonium nitrate in the state. CAN-17 was $205-$210/st FOB.

Pacific Northwest: CAN-17 was steady at $215-$220/st DEL in the region. Ammonium nitrate was quoted at $275-$280/st rail-DEL in Idaho and Washington.

AMMONIUM SULFATE

Eastern Cornbelt: Granular ammonium sulfate remained at $150-$155/st FOB in the region.

Western Cornbelt: Granular ammonium sulfate was unchanged at $150-$155/st FOB.

California: Ammonium sulfate was $170-$180/st rail-DEL, with the low for standard or coarse and the high for granular. The FOB market in the region was quoted at $180-$190/st, with the low again for standard or soluble and the high for granular.

Pacific Northwest: Ammonium sulfate remained at $170-$180/st DEL in the region, with the low for railed tons and the upper end for truck-DEL product.

Western Canada: Granular ammonium sulfate remained at $270/mt DEL.

PHOSPHATES

Central Florida: Although there has been little in the way of new phosphate sales for weeks until last week, the price of DAP from Central Florida last week appeared to be moving in the same direction as the river markets – down. Pressure has been on producers to drop the price, primarily because the expected boon from the fall season has not materialized, at least not yet. Some believe it will sometime soon. Expectations were that more corn will be planted this year than last, and if that turns out to be true, more phosphate will be needed.

Activity in the Northeast remained slow last week, but Ohio and Indiana were said to be poised to take off. That Midwest area is in the upriver country, and if demand does kick off in October, rail delivery will be the only real option, because the river north of St. Louis will close on Oct. 15. Any barges needed for the upriver area would already have to be moving in order to meet the deadline – then it will be rail only.

Rumors coming out of Europe last week held that Mosaic was quietly cutting back on its production, but that just wasn’t true. That would be against the company’s method of operation and its own good. If Mosaic was to cut back on production of DAP and other phosphates it would gladly tell everyone, because it would help to drive up prices – which Mosaic and other producers would love.

A few new DAP sales were made out of Central Florida last week, but at lower prices than previously, between $221/st FOB and $224/st FOB, which set the range. The previous week, the range was $223-$226/st FOB. Naturally, customers who place large orders get the lowest prices. Mosaic’s posted price was $228/st FOB, but was selling as low as $221/st FOB; CF’s posted price was said to be $227/st FOB, with sales in the same range as Mosaic’s. Mosaic discounts MAP $4/st from the price of DAP, while CF has no price difference. PotashCorp’s Central Florida reference price was still at $245/st FOB. In Texas, Agrifos’ prices were $255/st FOB for DAP or MAP.

U.S. Gulf: The NOLA DAP barge market showed signs of life last week as more barges were traded, but overall, prices remain depressed and there were no signs that would change anytime soon.

The biggest market last week was still for the winter wheat run, which was primarily in the Arkansas River area. However, most of the phosphate being sold there was coming from terminals, and reordering was still limited. Most terminals said their DAP bins were nearly full, and that was also the case with many dealers. Those supplies will have to run thin before more buying takes place, at least on a large scale. On the plus side, wheat prices were up to about $4.40/bushel. That was good news not only for farmers, but for fertilizer companies as well. The more money farmers have, the more fertilizer they will buy. Predictions have held that more corn will be planted this year than last, mainly for ethanol, and that will require using more fertilizers, especially DAP. Otherwise, crop production will suffer. One source called the phosphate market a “dog,” and unlikely to make any serious strides unless the price comes down even further. Buyers sense weakness in phosphate prices and were still holding out for even lower prices. However, those in the upriver areas north of St. Louis will be forced into the rail market because the river will close on Oct. 15, which is only about two weeks away. Barges for the upriver area would already have to be on their way in order to beat the deadline.

NOLA DAP barge sales ranged from as low as $218/st FOB to as high as $224/st FOB, which was a much more reasonable spread than the $218-$230/st FOB the previous week. Rumors were that NOLA DAP barges could be purchased as low as $217/st FOB, but that could not be confirmed.

Eastern Cornbelt: DAP and MAP were steady at $255-$265/st FOB, with the low out of river warehouses and the upper numbers inland. TSP was unchanged at $235-$239/st FOB river and $245/st FOB inland. 10-34-0 remained at $250-$260/st FOB in the region.

Western Cornbelt: DAP was pegged at $255-$265/st FOB regional warehouses, with MAP quoted in the same range. TSP was steady at $235-$245/st FOB, with the low on the river and the upper end inland. 10-34-0 was $250-$265/st FOB, with the low in Nebraska and the high in Iowa.

California: MAP remained at $315-$320/st FOB warehouse or DEL, with the low for railed tons and the high for truck-DEL product. DAP was $5/st higher than MAP. 10-34-0 was steady at $248-$253/st FOB, and 16-20-0 was $235-$240/st FOB in the state. One supplier reportedly has a $2/st increase scheduled for 10-34-0 in October.

Ortho-phosphoric acid was pegged at $5.40-$5.50/unit DEL, with super-phosphoric acid at $5.50-$5.60/unit DEL. A nickel/unit increase in phos acid postings is slated for October.

Pacific Northwest: DAP was quoted at $312-$317/st DEL, truck or rail, in the Pacific Northwest, with Montana pricing roughly $5/st less. MAP was quoted at $300-$310/st DEL. 16-20-0 was unchanged at $235-$245/st DEL. 10-34-0 remained at $240-$245/st FOB and $250-$260/st DEL in the region.

Super-phosphoric acid was $5.50-$5.60/unit DEL, and ortho-phosphoric was $5.40-$5.50/unit DEL in the region. Pricing is slated to firm to the upper end of those ranges after a nickel/unit posting increase in October.

Western Canada: MAP was unchanged at $390-$415/mt DEL in the region.

U.S. Export: The export market was quiet last week and PhosChem had little on its plate to export in October, although it has been very busy shipping to India for the past several months. The good news last week was that Pakistan had finally made a decision on its phosphate subsidy. With that out of the way, Pakistan was likely to begin buying and was believed to need as much as 200,000 mt, which would be a blessing to North American producers.

In October, CF Industries will officially join PhosChem, which will make even more phosphate available to it. That could be good or bad for the other members, depending on the market.

Rumors that could not be confirmed said the sales into Uruguay and Argentina made by Oakley and ConAgra sold for $288-$290/mt delivered, and that worked out to a netback of about $255/mt FOB. However, since that could not be confirmed, it cannot be used in the export DAP price range, which remained at $259-$263/mt FOB. Ocean freight rates fell slightly last week, which will help boost FOB prices for exporters.

Pakistan: Prime Minister Shaukat Aziz, chairing a meeting of Economic Coordination Committee of the Cabinet Sept. 27, approved a decrease in the price of DAP by Rs250 ($4.16). He said the government had allocated Rs. 12.3 billion to provide a subsidy on fertilizers. As much as 1 million tons of DAP is available in the country and 200,000 mt more will be imported, he said. “The price of fertilizers in the country will be decreased with the reduction of the prices in the international market.” Market sources welcome the government decision of reducing prices of DAP, but pointed out that the inventory of DAP in the country would not be more than 400,000 mt, and expressed hope that new shipments will start soon.

POTASH

Eastern Cornbelt: Potash was $195-$200/st FOB regional warehouses, depending on grade and locations. Effective Oct. 1, postings from PCS Sales FOB Saskatchewan mines will move to $178/st for standard, $183/st for soluble and granular, and $188/st for white granular. Also effective Oct. 1, Agrium’s Saskatchewan mines postings will move to $175/st for standard, $181/st for coarse, and $183/st for granular, with rail-delivered coarse posted at $210/st in the region. Agrium’s warehouse postings for coarse potash will move on that date to $204-$208/st FOB in the region.

Western Cornbelt: Potash remained at $193-$198/st FOB regional warehouses. Agrium’s rail-delivered coarse potash postings were scheduled to move on Oct. 1 to $212/st in the region, with warehouse postings at $208/st FOB Dubuque, Iowa, and Kansas City, Mo.

California: Potash movement on almonds will begin in the near term in the Central Valley. Potash remained at $227-$233/st FOB, and potassium nitrate was unchanged at $485/st FOB for bulk and $540/st FOB for 50-pound bags. Sulfate of potash (SOP) pricing was steady as well, at $343-$348/st FOB for granular and $331-$336/st FOB on standard/soluble.

Pacific Northwest: Potash remained at $210-$230/st DEL, depending on grade and location, with the low reported in southern Idaho. Washington sources quoted the common range for Canadian granular potash at the $227-$230/st DEL range last week.

Effective Oct. 1, Agrium’s rail-delivered postings for 0-0-60 muriate of potash are scheduled to move to $230/st in southern Idaho and Oregon’s Malheur County; $235/st in Washington, the Idaho panhandle, and Oregon excluding Malheur and Willamette counties; and $242/st in Oregon’s Willamette County. Coarse potash postings out of warehouse location are slated to move to $230/st FOB in Washington, the Idaho panhandle, and Oregon outside of Malheur and Willamette counties, and $237/st FOB in the Willamette Valley.

Western Canada: Coarse potash was quoted at $242-$257/mt FOB, with the low at plant sites and the higher end out of regional warehouses. Granular potash was pegged at $245/mt FOB the mine.

Israel: ICL Fertilizers reports that it has signed new potash supply agreements with its customers in India and China. Each of the contracts signed represents an expansion in the purchase commitments made by these major customers as compared with agreements signed in the past. ICL’s major Chinese customer has agreed to purchase more than two million tons of potash during the three-year period from January 2007 until December 2009, representing a 30 percent increase over the quantity stipulated in the previous 3-year agreement. Prices for these shipments will be determined at the beginning of each calendar year. ICL’s two major Indian customers have agreed to purchase about 800,000 mt tons during the nine-month period from August 2006 to April 2007, compared to a total of about 900,000 mt shipped to India in all of 2005.

SULFUR

Tampa: Negotiations for new prices for fourth-quarter sulfur contracts were still underway last week, and word was that Mosaic had joined PotashCorp in its quest to get a $7/lt rollback. However, it was also learned that Mosaic had agreed with at least one of its major sulfur suppliers to a $5/lt drop in price from the third quarter. PotashCorp was in the process of settling its contracts late last week in the same range. In the past, if a lower price has been reached by another major phosphate buyer and a major sulfur producer, the price Mosaic agreed to would be changed. It was not clear if that was still the situation. A rollback of $5/lt across the board would be in line with projections. The fact that an agreement was reached even before the new quarter began was highly unusual. Normally, talks do not even become serious until two or three weeks into the quarter.

Sulfur supplies continued to be more than adequate last week, and with nothing on the horizon to change that in the coming months, oil refiners will likely be willing to go even lower on their price for sulfur in the future. The world market continues to be depressed and ocean freight rates continue to be high, which makes the domestic market more attractive. Even Canadian sulfur producers were said to be unwilling to cut back on their shipments into the U.S. because of the poor conditions on the world market. If push comes to shove, sulfur producers would even be willing to take a loss simply to get rid of the stuff.

India: Under FACT’s tender Sept. 25, it received the following offers: 1) Swiss Singapore 3 x 15 ,000mt ex Mideast or Iran at $ 57.90/mt FOB sight or $68.70/mt CFR Cochin sight for shipment October-November, 2006; 2) Transfert 3 x 15,000 mt ex Mideast or Iran at $59.40/mt FOB sight or $72.40/mt CFR Cochin sight for shipment October-November, 2006; 3) Tradeline 1 x 15,000 mt ex Mideast or Iran at $54.95/mt FOB sight or $57.15/mt FOB including 180 days; $73.45/mt CFR Cochin sight or $76.20/mt CFR Cochin, including 180 days for shipment October 2006.

MARKET NOTES

India: Coromandel Fertilisers Ltd. has announced that it has signed a shareholders agreement with Group Chimique Tunisie and Compagnie des Phosphates de Gafsa of Tunisia, and Gujarat State Fertilisers and Chemicals Ltd., for the formation of a joint venture company in Tunisia for the production of phos acid. The company has informed the stock exchanges that the jv company has been incorporated in the name of “Tunisian Indian Fertilisers SA,” and the company’s chairman, A. Vellayan, was appointed as one of the directors of the company at a meeting held at Tunis. Coromandel said it has also signed a long-term commercial agreement with the jv for the supply of phos acid to its Indian facilities.

The Week in Fertilizer Stocks

Fertilizer Stocks
Company Symbol Price Week Ago Year Ago
Producer
Agrium AGU 27.17 25.75 21.46
CF Industries CF 17.29 16.91 15.15
Mosaic MOS 16.97 16.63 15.50
PotashCorp POT 105.57 100.23 93.05
Terra Industries TRA 7.80 7.73 6.48
Terra Nitrogen TNH 25.85 23.91 23.19
Distribution/Retail
Andersons Inc. ANDE 32.95 35.77 14.12
Lesco LSCO 8.11 8.81 14.92
Scotts SMG 44.71 43.18 42.89
UAP UAPH 21.85 21.45 17.66