CF Industries Holdings Inc., which now calls itself the “new nitrogen fertilizer bellwether,” is moving quickly to realize some of those $135 million in synergies it promised when it bought Terra Industries Inc. CF Chairman, President, and CEO Stephen Wilson told attendees at the recent BMO Capital Markets Agriculture, Protein and Fertilizer Conference that the company has begun shipping anhydrous ammonia from its share of the Point Lisas, Trinidad, plant to Florida.
“We consume about 450,000 mt of ammonia in production of DAP and MAP; traditionally we bought that from Trinidad, paying market price for that,” said Wilson. “We have the ability to now supply most of that need through our 50 percent ownership in Point Lisas Nitrogen, so we’re substituting a purchase product price for a cost base supply to phosphate, and that’s a substantial benefit to us. So these early wins are one of the reasons that I’m so confident that we’re going to achieve the upper end of our synergy target.”
A CF source said its share of Point Lisas ammonia is about 360,000 st per year. He said CF and its subsidiary, Terra, have gone to the market largely as separate companies through the spring, and that over time the businesses will be integrated. “What share of the Trinidad capacity will go to Tampa depends on market conditions,” CF told Green Markets last week. Sources also noted that CF could move that ammonia to NOLA if the economics are best.
In the meantime, sources report that CF recently imported a 10,000 mt spot cargo from its Point Lisas facility. However, they also note that much of its Tampa ammonia has been bought on long-term contracts, the expiration dates of which were not immediately available last week. Traditionally, Yara North America has been a major supplier to the Tampa market, and this change could stir up Tampa market dynamics. CF lists its position as the global number two nitrogen fertilizer company, just behind Yara International ASA.
Wilson said CF is finding other ways to save money. It has cancelled 139 redundant railcars. “We have about 5,300 railcars in the combined fleet, there will be more of those opportunities as months continue,” said Wilson.
CF has used idled Terra barges to move UAN from Donaldsonville north and between production facilities. It switched customer orders between legacy CF and Terra sites for transportation cost savings. The company also avoided added storage construction costs, no longer needing a new ammonia bullet near Terre Haute, Ind., or a new UAN tank at Courtright, Ont.
Wilson detailed synergy savings, including $55-$65 million in SG&A expenses, headquarters consolidation, and estimated combined SG&A; $25-$30 million in logistics and railcars; $10-$15 million in purchases and procurement; $10-$15 million in Donaldsonville optimization, turnarounds, and capital expenditures, as well as reduction in inventory, resulting in lower carrying costs; and $5-$10 million in distribution facility optimization.
Wilson also detailed the significant advantages North American nitrogen producers have today in the natural gas market, especially versus those in Ukraine and Eastern Europe. “The change in the natural gas environment that we’ve seen over the last several years means that we should have higher highs in the cycle and higher lows in the cycle. As a result, we believe frankly that historic earnings multiples for nitrogen producers are now obsolete, as the volatility in our business occurs further above the break-even level for nitrogen producers.”
And not to forget about phosphates, CF said it is now the third-largest public phosphate company. “We’re still a world-scale player in phosphate. We have 13 years worth of fully permitted reserves.” However, Wilson noted that long-term the company will have to invest elsewhere, as there are not extensive reserves left in Florida beyond what existing players already have.
In the meantime, natural gas and capital costs are concerns as to whether CF will proceed with a new plant in Peru. Wilson said problems in getting a pipeline built to carry the gas to the plant, as well as $1.5 billion in capital costs, will have to be resolved. He said the company would continue to work on the project, but that it is moving slowly at this point.