LSB Industries Inc. is looking for a potential partner that will commit to take all of the 325,000 st/y of UAN from its Pryor, Okla., nitrogen facility. LSB is seeking permits to bring the long-idled plant back up (GM April 7, p. 11). However, it has yet to make a final decision as to whether to proceed with the Pryor startup. It recently told analysts that it would prefer to find one major buyer with a good distribution network that would commit to take all the product on a year-round basis, rather than having to go out in the market to try to solicit small sales.
“We want to make sure we can sell out the plant,” Tony Shelby, LSB CFO and executive vice president, finance, told analysts.
In preparation for the potential startup, LSB says it will likely hold off on any near-term repurchases of its own stock. LSB expects the startup to cost $15-$20 million and take about a year. About half of the cost will be capitalized, while the other half would be expensed as incurred. LSB said it is also looking at other chemical expansion opportunities besides Pryor.
In the meantime, LSB said its chemical business – which includes fertilizer, industrial, and mining related nitrogen products – was the standout performer for the company in the first quarter ending March 31, 2008, with a 57 percent increase in operating profits. Chemical operating income was $12.1 million on sales of $91.3 million for the quarter, up from the year-ago $7.7 million and $73.7 million, respectively.
The company said that the improved chemical results were driven by substantially higher sales prices for fertilizer products, increased UAN tons shipped, and slightly better pricing for mining products and industrial acids. During the first quarter UAN tonnage shipped was 22 percent higher than the year-ago period, while revenues from these sales increased 109 percent. LSB gave the average published sales price per ton for the quarter as $361/st, up 58 percent from the year-ago $228/st. In the meantime, the cost of natural gas, the primary feedstock for the Cherokee, Ala., nitrogen plant, was $7.04-$9.80/mmBtu, versus the year-ago $5.30-$10.59/mmBtu.
LSB said there was depressed early demand for fertilizer in the first quarter, primarily for ammonium nitrate from the El Dorado, Ark., facility. As a result, the company sold 35 percent fewer tons of the product than the year-ago quarter. However, revenues for the product were only down 21 percent, reflecting higher prices per ton. Ammonia, the primary feedstock for El Dorado, went from the mid-$400s/mt in January to a current price of about $550/mt. However, the company noted that the majority of El Dorado’s sales are to customers who accept the cost of ammonia as a pass through. LSB hopes to grow its non-seasonal industrial business with an emphasis on customers who accept the risk inherent with raw material cost fluctuations. This is currently 60-65 percent of chemical sales.
LSB says it maintains a strong presence in the seasonal agriculture sector, which is 35-40 percent of its sales. The real growth in the chemical business is the ag side – everything else is steady.
LSB said the distribution system to the north of its facility was full, waiting to be taken down. He said LSB does not have much UAN inventory, but it will produce pretty much full out in the second quarter. At El Dorado, the movement of ammonium nitrate is a little bit slower and the company has a lot of inventory, but it expected demand to pick up in May.
LSB-wide, net income was $10.9 million ($.46 per diluted share) on sales of $160.4 million, versus the year-ago $10.8 million ($.28 per share) and $147.4 million, respectively. Net income was nearly level due to a $6.7 million provision for income taxes taken in the current quarter. LSB operating income was $19.3 million versus the year-ago $13.5 million.
LSB’s climate control business also saw increased operating profits to $9.3 million, up from $8.5 million, though sales were off. Despite national concerns over the current housing crisis, the company said its own market share in this segment continues to lead the industry. The first quarter was its highest on record for bookings. However, another concern is higher prices for copper, steel, and aluminum, which are up 25 percent since the beginning of the year.