CF Industries Holdings Inc.’s first-quarter net earnings of $560 million on revenues of $2 billion beat the average analyst estimates (Bloomberg Consensus) of $477 million and $1.87 billion, respectively. Adjusted EBITDA came in at $866 million, just shy of the analyst projection of $867 million.
While besting analysts, CF still fell way below its year-ago performance, which included net earnings of $883 million on sales of $2.87 billion and adjusted EBITDA of $1.65 billion. CF said first-quarter average selling prices were lower than 2022 due to higher global supply availability, as lower global energy costs led to increased global operating rates. Sales volumes in the first quarter of 2023 were lower than 2022, as lower UAN, ammonia, and AN sales volumes were partially offset by higher granular urea sales volumes.
“Agricultural purchases in North America took a wait-and-see approach as global nitrogen values fell and weather patterns did not support an early spring,” Bert Frost, CF Senior Vice President, Sales, Market Development and Supply Chain, told analysts. He added that several large importing regions were essentially absent from the market during the quarter as well, most notably India, which only had one tender during the quarter in large part due to higher domestic operating rates.
However, Frost said pricing in North America has risen as demand emerged and all products have started to move at a more normal rate. He noted that CF is on allocation at Port Neal and the plant is producing every day at maximum rates.
“So product is tight,” said Frost. “We don’t believe there is going to be enough urea, we believe that we’ll have to be migrating for second, third applications to ammonia and UAN, and we’re preparing for that with positioning product throughout the system and pricing has extended from the normal spread of NOLA, let’s say $30 to the Midwest, it’s between $50-$100 today, and will probably go up towards the higher end as we get to peak applications.”
CF President and CEO Tony Will added that CF’s in-market premium is heightened as logistics costs and delays in timing have gone up across the board, citing barge traffic impacted by higher water levels and a national shortage of over-the-road drivers.
Frost said the US is now the highest priced market in the world, and the company thinks that is going to extend through to the second quarter. As a result, he said inventories will be drained, positioning well for the third quarter.
“Despite downward pressure in the global nitrogen market compared to the unprecedented pricing environment in 2022, industry fundamentals remain positive and forward global energy curves suggest attractive margin opportunities for our cost-advantaged network for the foreseeable future,” said Will. “As a result, we expect to continue to drive strong cash generation, enabling us to create long-term shareholder value through disciplined investments in clean energy, inorganic growth opportunities and returning substantial capital to shareholders.”
CF added that it will take at least two years of harvests at trend yield to fully replenish global grain stocks, supporting strong grains plantings and incentivizing nitrogen fertilizer application over this time period. It noted that the USDA is projecting 92 million acres of corn and nearly 50 million acres of wheat to be planted in the US in 2023.
Quizzed about lower corn prices, Frost said $5.25 per bushel corn is still “incredibly profitable,” with the company estimating 2023 to be the third most profitable year for corn after 2022 and 2021.
Going forward, Will does not see Europe returning to higher operating rates. “We think it is going to be spotty,” he said, adding that he expects Europe to continue to evaluate and look at bringing in more urea and UAN as an alternative to locally produced nitrates.
“Today, I would say that the cost of ammonia is probably $550-$600/mt, where you can import for substantially less, so it makes sense, and that then supports the global price of ammonia,” said Frost, referring to European ammonia production. “So, I think that these trends only continue and get worse as we hit winter.” In the meantime, CF noted that US natural gas prices have continued to go down, which bodes well for second-quarter results.
As for Chinese urea exports, Frost does not see a significant amount of exports, estimating that that the country only has 3-5 million mt that could be exported beyond what it needs for its domestic market.
In other news, CF touted its first-quarter announcement that it plans to purchase the Waggaman, La., ammonia plant from Incitec Pivot Ltd. (GM March 24, p. 1), and its growing list of blue and green ammonia projects (GM April 28, p. 1).
| Production (000 st) | 1Q-23 | 1Q-22 |
| Ammonia | 2,359 | 2,613 |
| Gran Urea | 1,211 | 1,074 |
| UAN 32 | 1,598 | 1,865 |
| AN | 388 | 405 |
| Ammonia | 1Q-23 | 1Q-22 |
| Net Sales ($/M) | 424 | 640 |
| Gross Margin ($/M) | 144 | 360 |
| Sales Volumes (000 st) | 652 | 727 |
| Avg Selling Price ($/st) | 650 | 880 |
| Gas Costs ($/mmBtu) | 6.62 | 6.48 |
| Gran Urea | 1Q-23 | 1Q-22 |
| Net Sales ($/M) | 611 | 765 |
| Gross Margin ($/M) | 284 | 495 |
| Sales Volumes (000 st) | 1,323 | 1,096 |
| Avg Selling Price ($/st) | 462 | 698 |
| UAN | 1Q-23 | 1Q-22 |
| Net Sales ($/M) | 667 | 1,015 |
| Gross Margin ($/M) | 321 | 670 |
| Sales Volumes (000 st) | 1,662 | 1,828 |
| Avg Selling Price ($/st) | 401 | 555 |
| AN | 1Q-23 | 1Q-22 |
| Net Sales ($/M) | 159 | 223 |
| Gross Margin ($/M) | 55 | 52 |
| Sales Volumes (000 st) | 374 | 428 |
| Avg Selling Price ($/st) | 425 | 521 |
| Other | 1Q-23 | 1Q-22 |
| Net Sales ($/M) | 151 | 225 |
| Gross Margin ($/M) | 59 | 121 |
| Sales Volumes (000 st) | 524 | 545 |
| Avg Selling Price ($/st) | 288 | 413 |