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CP Rail to return to service June 1; fert industry applauds bill to end strike

Canadian Pacific Railway (CP) said it will have trains running again by Friday, June 1, after back-to-work legislation was approved on May 31 to end a walkout by 4,800 engineers, conductors, and rail traffic controllers represented by the Teamsters Canada Rail Conference.

The strike over employee pension benefits, which began shortly after midnight on May 22 (GM May 28, p. 1), put a halt to CP’s freight services across Canada, prompting warnings from Labor Minister Lisa Raitt about severe economic impacts, and demands from Canadian industry, including the fertilizer industry, to reach a quick resolution to minimize shipping delays. Raitt had warned that the strike would cost the economy C$540 million a week.

The back-to-work bill was introduced on May 28, one day after federally mediated discussions between CP and the union once again broke down. The legislation received House approval on May 30 and Senate approval during an emergency session on May 31. Following the Senate vote on Thursday, CP said it would have cars rolling again within 12 hours, and freight service returning to full capacity some 48 hours after that.

Raitt warned of the potential for lengthy delays, however, due to the shipping backlog that resulted from the nine-day strike. According to CP, the railroad moves approximately 10,000 shipments a day for some 3,000 customers across a 24,000 kilometer network.

In a May 28 statement, the Canadian Fertilizer Institute (CFI) applauded the back-to-work bill, saying its members “simply cannot afford the repercussions of a rail disruption.” Citing tight fertilizer inventories and strong global demand, CFI said the industry currently has unit trains of potash scheduled to move from Western Canada to Vancouver for export, as well as fertilizer scheduled to move domestically and cross-border to the U.S.

“Each day that CPR workers are off the job means lost exports and jobs for the fertilizer industry,” said Roger Larson, CFI president.“This disruption is escalating the real potential for layoffs and production shutdowns.”

Larson warned early in the week that fertilizer buyers in foreign markets could move to other sources of supply if the work stoppage continued and the bill’s passage was delayed. “Now is the time for all Parliamentarians to work together to ensure minimal damage is done to the Canadian economy, and Canadian export industries in particular,” Larson said.

The bill now sends the dispute to a government-appointed arbitrator, who has 90 days to impose a deal on the two sides unless they can reach their own agreement. In testimony before the Senate on May 30, Raitt said the two sides should agree to arbitration of their own making rather than “essentially roll the dice and let a body in Ottawa determine how an important issue like pensions is going to be decided.”

Contract negotiations between CP and the union began in October 2011. In a statement on May 29, CP said it has made “multiple reasonable and good faith offers to the Teamsters on various items such as pensions, health spending accounts, a 48-hour rest provision, and other fatigue management counter measures that add to and complement many existing regulatory and negotiated provisions.”

Peter Edwards, CP’s vice president of human resources and industrial relations, said these measures “and other work rule proposals offered by the company exceed those that the Teamsters have in place with other North American railways.”

Edwards also criticized the union for pushing their members “into an unnecessary work stoppage,” and refusing in negotiations to “minimize the impact on other affected CP employees, our customers, and the Canadian economy.”

Marubeni buys Gavilon for $3.6 B; OCI expects to retain marketing ties

Marubeni Corp., Tokyo, said May 29 that it will acquire all equity interests of Gavilon Holdings LLC, Omaha, in a deal valued at $3.6 billion. The deal will close after receipt of regulatory approvals, expected to be in September.

“We are pleased that our strategic review process has resulted in an agreement to become a wholly owned subsidiary of Marubeni,” said Gavilon CEO Greg Heckman. “As part of a larger trading organization, Gavilon will be well-positioned to more efficiently connect supply with growing global demand.”

Marubeni expects to grow its business using Gavilon’s commodities trading and distribution business, which deals with fertilizer, grain, and energy commodities. Gavilon has some 2,000 employees and is ranked America’s 19th largest private company by Forbes.

In fertilizer, Marubeni noted that Gavilon owns terminals, storage, and blending facilities in 59 strategic locations across the U.S., and maintains one of the largest wholesale networks in the U.S. To date, Marubeni’s largest subsidiary is Helena Chemical Co., Collierville, Tenn., the second largest agricultural production retail business in the U.S. Helena has 17 sales divisions, with about 390 sales outlets and more than 3,639 employees. As a result of the Gavilon acquisition, Marubeni says it will now possess both retail and wholesale businesses, and in the future will be able to extend its value chain to upstream businesses of raw material origination and fertilizer production. In addition, Gavilon owns import terminals, storage, and blending facilities in 15 locations across Mexico, South America, and Africa, and distributes fertilizer in over 20 countries.

In grain, Marubeni says it will gain over 140 grain loading sites and access to a vast grains storage and distribution network in the U.S., as well as sites in key production regions outside the U.S., such as Brazil, Australia, and Ukraine, which it will combine and utilize with its existing assets. It said Gavilon’s annual grain handling volume of 30 million mt will allow Marubeni to achieve a combined handling volume of over 55 million mt, which will further its competitiveness in the global grain trade.

Gavilon’s energy business deals mainly in crude oil, natural gas, and fuels, and is operated through a vast logistics network that includes 8 million barrels of crude oil storage capacity, 10 billion cubic feet of natural gas storage capacity, and 500,000 barrels of refined products storage capacity.

Marubeni listed Gavilon 2011 revenues at $17.85 billion, up from 2010’s $7.5 billion. At the end of 2011, it said total assets were valued at $6.2 billion and capital stock was $1.83 billion.

Major Gavilon investors included Ospraie Special Opportunities (Offshore) Ltd., The Ospraie Intermediate Fund Ltd., The Ospraie Fund LP, Ospraie Special Opportunities LP, General Atlantic GVN Master LP, and Quantum Strategic Partners Ltd., as well as George Soros’ Soros Fund Management LLC and Orascom Construction Industries (OCI).

OCI confirmed that it sold its 16.8 percent stake in Gavilon Group LLC to Marubeni for $604.8 million, saying that it initially paid $340 million for its stake. OCI said it will use the proceeds to finance its Fertilizer Group expansion in North America and potentially invest in other opportunities under review. In addition, it plans to return some of the proceeds to shareholders. OCI said its Fertilizer Group will maintain its existing relationship with Gavilon under the new ownership in marketing fertilizer products in North America.

Market Notes

Pakistan: Arysta LifeScience Pakistan and Antonio Tarazona Spain have reached a distribution agreement whereby Arysta will have access to Tarazona’s NPK fertilizers from its manufacturing facility in Spain.

Bangladesh: Bangladesh Chemical Industries Corp. (BCIC) is soliciting consulting firms regarding the Shahjalal Fertilizer Project (SFP) at Fenchugang, Sylhet, East Northern Bangladesh. It is slated to produce 580,000 mt/y of granular urea and 330,000 mt/y of ammonia.

The services are required throughout the project implementation period of about 32 months, or up to acceptance of the complex as per the contract between BCIC and China National Complete Plant Import and Export Corp. Ltd. (COMPLANT). The Bangladesh government has already allocated Taka 180 million (US$ 2.19 million) for the consulting services. The bid closing date is June 27, 2012.

Earlier, BCIC had appointed COMPLANT as general contractor on a turn-key basis. BCIC has also selected KBR for carbon dioxide removal technology, a MDEA process licensed by BASF to KBR for urea process, and the Stamicarbon granulation process. BCIC is hoping the project will be completed by June 15, 2015. Basic engineering design is now underway.

In other news, Bangladesh has reportedly approached the Asian Development Bank and shown interest to join a proposed four-nation Asian gas pipeline project to buy natural gas from Turkmenistan by the end of 2017. The project has become important for Dhaka to meet its growing energy requirements.

The project among Turkmenistan, Afghanistan, Pakistan, and India (TAPI) has come into the limelight after Turkmenistan signed an agreement last week to sell natural gas to India and Pakistan (GM May 28, p. 6).

Sulfur

Tampa: Supply and demand for sulfur remained in balance last week, even as refineries were finishing their turnarounds for spring. As a possible indication of the end of the turnaround season, the U.S. DOE reported that refinery capacity operating rates increased 1.0 percent, up from 88.1 percent to 89.1 percent, which was an extremely high rate of production. However, much of the oil being refined was low-sulfur sweet crude, which provides less molten product.

Still, Mosaic, which already had high inventories of sulfur, was receiving requests to accept additional supplies.

Vancouver: The House of Commons on May 30 passed a back-to-work bill to end the Canadian Pacific Railway (CP) strike by 4,800 members of the Teamsters Union, and the bill received Senate approval on May 31 (see front page story). CP was expected to have trains running again as early as June 1.

Benelux: The current price range was $210-$228/mt FOB.

Potash

U.S. Gulf: Potash barges remained a flat $480-$485/st FOB.

Eastern Cornbelt:
Potash remained flat at $515-$530/st FOB regional warehouses, depending on grade and location. Sources pegged the Cincinnati market at the $520/st FOB level for red granular potash.

Western Cornbelt:
Potash was steady at $510-$530/st FOB Western Cornbelt warehouses, depending on location, with most dealer quotes for red granular potash reported at the $520/st FOB mark, give or take. One source reported an offer for fall fill tons at the $515/st DEL level for small quantities.

Northern Plains: Minnesota sources quoted the granular potash market at $518/st FOB warehouses, with delivered tons reported in the $525-$540/st range in North Dakota. The potash market FOB Saskatchewan mines was flat at $480-$495/st, depending on grade, with list prices remaining in the $545-$557/st FOB range.

Northeast: Granular potash was flat at $535-$540/st FOB regional warehouses, with rail-delivered tons quoted at $545-$555/st in the Northeast.

Eastern Canada: Potash pricing out of Ontario warehouses remained at $610/mt FOB for red granular and $620/mt FOB for white granular tons. Sulfate of potash (SOP) was steady at $830/mt FOB in Ontario.

The K-Mag market in Eastern Canada remained at $495/mt FOB most regional warehouses.

Phosphates

Central Florida: The Northeast was in the process of finalizing planting for the spring season last week, but deliveries of phosphate into New York continued to be a problem due to a lack of backhauls out of the state.

Thanks to Tropical Storm Beryl, Florida finally got rain last week, especially in the northern and central areas of the state, where the heaviest precipitation was recorded.

Central Florida DAP was unchanged last week at $475-$480/st FOB. CF Industries’ posted price was at the $480/st FOB mark, and Mosaic was also at $480/st FOB. A small amount from traders who held positions obtained earlier could still be had for as low as $475/st FOB, but these tons were hard to find.

MAP continued to sell at a $20/st premium to DAP in Central Florida, about the same difference as from traders. PCS Sales, which produces MAP at its White Springs facility in North Florida, was selling at prices comparable to the market.

U.S. Gulf: With the spring season essentially over, activity for NOLA phosphate barges tapered off last week. The Midwest received some rain last week, and along with warm weather, crops were doing well. Assuming the trend continues, the fall season should be early this year, mirroring the early spring.

Activity at terminals was slower last week, which was expected because crops were already in the ground in most cases. The terminal range last week was still $515-$535/st FOB for DAP, with the lowest prices in southern areas and the upper end up north. MAP was about $20/st FOB higher.

Although transactions were down last week, the biggest difference in price was between exportable and non-exportable barges. Product from Mosaic could not be exported, but tons that came from CF Industries, Mississippi Phosphate, or PCS Sales could be exported.

Prices for 2012 corn futures were higher last week compared to the previous week, rising from $5.15/bushel to $5.225/bushel for December. The corn price for December 2013 was $5.2825/bushel, increasing from $5.235/bushel the previous reporting period. For November 2012, soybeans moved up slightly to $12.75/bushel from $12.74/bushel the previous week, and soybeans for November 2013 increased to $11.6275/bushel from $11.62/bushel a week earlier. Wheat for July 2012 fell to $6.4825/bushel from $6.6425/bushel the week before, and wheat for July 2013 was listed at $7.18/bushel last week, down from $7.27/bushel the previous week.

The prompt NOLA DAP barge price range for the week was up $5/st, to $485-$500/st FOB from the previous week’s $480-$495/st FOB, based on sales. MAP prices were in the $508-$530/st FOB range, with the highest price for exportable product. Most of the exportable MAP was coming from PCS Sales.

Eastern Cornbelt:
DAP was quoted at $520-$530/st FOB regional warehouse, with MAP $10-$15/st higher and in tight supply at some locations.

10-34-0 was pegged at $650-$680/st FOB in the Eastern Cornbelt, down from last report, but sources reported little new business to test the market.

Western Cornbelt: DAP was steady at $520-$525/st FOB most regional warehouses, with MAP pegged at $520-$535/st FOB. Out of the Catoosa market, sources quoted DAP at $520/st FOB and MAP at $530/st FOB last week.

The 10-34-0 market had reportedly slipped to as low as $590/st FOB on a spot basis in Iowa and Nebraska, though sources reported minimal demand. The upper end of the regional range was tagged at the $680/st FOB mark.

Northern Plains:
DAP pricing out of the Twin Cities market remained at $520/st FOB, with MAP pegged at the $540/st FOB level. Delivered MAP in North Dakota was quoted at $580/st. The 10-34-0 market was reported in a broad range at $620-$660/st FOB in the region, with the low FOB Grand Forks, N.D.

Ammonium Sulfate

Eastern Cornbelt: Ammonium sulfate was steady at $425-$445/st FOB in the Eastern Cornbelt region, with mid-grade referenced at the $415/st FOB level. Product remained in very tight supply in the region.

Ammonium thiosulfate remained at a nominal $370-$380/st FOB in the Eastern Cornbelt.

Western Cornbelt: Granular ammonium sulfate was unchanged at $415-$445/st FOB, depending on location, with the upper end reflecting dealer postings. Ammonium thiosulfate was pegged at $360-$385/st FOB in the Western Cornbelt, with the low reported in western Iowa.

Northern Plains: Granular ammonium sulfate was quoted at $425/st FOB and $435/st DEL in the Northern Plains region. Reference prices were pegged at the $445/st FOB and $435-$445/st DEL level, depending on location and supplier.

Northeast: Granular ammonium sulfate remained at $415-$425/st DEL in the Northeast, but sources reported little new business to test the market.

Eastern Canada: Granular ammonium sulfate was tagged at $485-$525/mt FOB in Eastern Canada, and was in tight supply as the season winds down.

Ammonium Nitrate

U.S. Gulf: Ammonium nitrate prices were firm-to-stronger last week, with sources citing the continued outage at El Dorado Chemical in Arkansas. While the company has not commented about the current status of the facility, initial reports of the severity of the explosion (GM May 21, p. 1) lead sources to predict ammonium nitrate production could be offline for some time.

As a result, sources said anyone actually needing AN is having to pay up for it, as supplies from CF, the other major domestic producer, are also said to be in short supply. And imports this time of year are not exactly plentiful.

Western Cornbelt:
Ammonium nitrate remained at $480-$490/st FOB in the Western Cornbelt region, and in tight supply.

Nitrogen Solutions

U.S. Gulf: Sources last week were transfixed on the forward market, rather than prompt, putting July-August fill prices in the $240-$280/st FOB range. Actual prompt transactions were hard to find, but sources said anything to garner a prompt trade would have to be sub-$300/st ($8.75-$9.06/unit) FOB.

Eastern Cornbelt:
UAN pricing in the region had reportedly slipped to $13.13-13.75/unit FOB, depending on location, with some terminals reportedly out of product in late May. The UAN-28 market in Cincinnati, Ohio, was pegged in the $370-$375/st ($13.21-$13.39/unit) FOB range late last week.

Western Cornbelt:
The UAN-32 market had reportedly slipped to $410-$432/st ($12.81-$13.50/unit) FOB regional terminals. Several Iowa sources pegged the common dealer price in the $410-$420/st ($12.81-$13.13/unit) FOB range in late May.

Northern Plains: The UAN-28 market was pegged at $372-$385/st ($13.29-$13.75/unit) FOB regional terminals, with delivered tons quoted as high as $455-$460/st ($16.25-$16.43/unit) in North Dakota.

Northeast: Heat, humidity, and heavy rainfall settled over much of the Northeast during the final days of May. The late May moisture continued to delay the completion of planting in some locations.

Sources reported some UAN movement for corn sidedressing, as weather and field conditions permitted. The UAN-32 market had reportedly slipped to $370-$393/st ($11.56-$12.28/unit) FOB coastal terminals in the Northeast, with the dealer market in upstate New York pegged at the $424/st ($13.25/unit) FOB mark.

Eastern Canada: Heavy rains were reported in northwestern Ontario and parts of Quebec in late May, which eased drought concerns. Sources continued to report some fertilizer movement for sidedress and the tail end of planting in some locations.

Ontario sources pegged the nitrogen solutions market at $398/mt for UAN-28 ($14.21/unit) FOB, with UAN-32 quoted at $454-$455/mt ($14.19-$14.22/unit) FOB. There were also reports of excess UAN-32 tons being bartered between dealers for as low as $420-$440/mt ($13.13-$13.75/unit) FOB in late May, however.

Urea

U.S. Gulf: The barge market is quickly transitioning as many were throwing out forward numbers rather than prompt, except for those in rice country that still may need barges.

Actual prompt sales were called $565-$595/st FOB early in the week, but by week’s end sources said barges could be had at $550/st FOB, with others suggesting $520/st was not too far off the mark.

Eastern Cornbelt: Fueled by weak demand and a rapidly plunging NOLA barge market, granular urea pricing in the region was “dropping like a bomb,” according to one contact. Sources pegged the dealer market in a broad range at $650-$700/st FOB regional terminals, with the lower numbers reported out of spot river locations in Ohio.
Those prices reflect a drop of $40-$60/st from last report.

Western Cornbelt: Granular urea was pegged in a broad range at $680-$720/st FOB in the Western Cornbelt last week. Sources said urea pricing out of Catoosa, Okla., had fallen to the $650/st FOB level.

Northern Plains:
Urea pricing had reportedly slipped to $680-$700/st FOB, with the low reported out of the Twin Cities market at midweek. Delivered urea in North Dakota ranged widely from $640-$700/st, “depending on who you talk to and who has tons for sale,” with the low end quoted for some dealer-to-dealer bartering of excess spring tons. Urea supplies were loosening up in the region in late May.

Northeast: With demand winding down, the granular urea market was falling as well. Sources pegged the dealer market at $670-$690/st FOB regional terminals, although reference prices remained at the $700/st FOB mark or higher at some locations. The low end of the range was reported FOB Fairless, Penn.

Eastern Canada:
Urea pricing in Eastern Canada was down from last report. Sources tagged the granular urea market at the $690/mt FOB mark in Ontario for any available tons in late May. Inventories were described as tight after strong demand in the region this spring.

Pakistan: The campaign to stop further imports of urea by the domestic producers stepped up a notch last week.

When the producers failed to prevent TCP from awarding Gavilon a contract for 100,000 mt of urea two weeks ago and from issuing a second tender for 200,000 mt to close June 25, they shifted their focus to the weak state of the country’s foreign reserves.

The urea producers first argued that the natural gas allotment taken from them for the consumer market should be restored so they could make up the 300,000 mt shortfall of urea. When that argument failed, the producers told the Ministry of Finance that it would be cheaper for the government to import fuel oil for the power sector rather than importing urea.

The producers laid out their spreadsheets for the finance ministry, saying the cost of importing 300,000 mt of urea at $522.86/mt CFR will cost about Rs14.4 billion (US$154 million). On top of that, they say, will be Rs5 billion (US$53 million) in subsidies.

The producers claim they can supply the whole 300,000 mt for RS9.9 billion (US$106 million). The savings, they say, could be used to help the power sector.
Besides the need for natural gas, the producers say the nearly 7,000 megawatt gap in output could be made up with imported fuel. They claim the support for the power sector would be a better expenditure of the government’s money rather than urea imports.

The government has already shaken loose some natural gas for producers in the north of the country. Production was slated to start last week.
In the meantime, TCP is proceeding with its next tender.

The rules under which the buying house operates state it can only take the lowest offer in any given