The list of fertilizer plant curtailments grows almost daily as the industry responds to the global economic slowdown. Agrium Inc. last week confirmed additional nitrogen curtailments. It also added phosphate to the list and warned its potash workers of possible layoffs.
Agrium said Dec. 9 that it has shut-in production at its Fort Saskatchewan, Alberta, nitrogen facility (465,000 mt/y ammonia and 430,000 mt/y urea), and has further curtailed production at other major nitrogen and phosphate plants in North America. Agrium said the temporary curtailments are necessary due to a significant buildup in North American fertilizer inventories and declining available storage capacity.
Agrium had already idled its Redwater #1 ammonia plant (280,000 mt/y). Besides this unit and Fort Saskatchewan, it said production is down to approximately 75 percent at other nitrogen and phosphate production facilities. The company said the phosphate curtailment at Pocatello, Idaho, would be less than 75 percent and that Redwater, Alberta, would be more, but that both together would equate to approximately 75 percent.
Also last week, Agrium notified some 380 unionized potash workers at its Vanscoy, Sask., mine that it may have layoffs within the next eight weeks. The company said an eight-week notice is customary; however, it does not necessarily mean that layoffs or a curtailment will occur. Vanscoy General Manager Tom Diment told Green Markets that these notices have been given a couple of times in the past ten years, and that so far there had been no layoffs. The notice is a contingency should the company opt to proceed. There are some 500 workers at Vanscoy, and Diment said work continues on expansion plans at the mine as the company remains focused on long-term positive fundamentals for potash.
Agrium said global nutrient and crop prices have weakened since early November, when second-half guidance was issued, and that deferral of wholesale nutrient purchases has been significant. This has resulted in further sales volume reductions and production curtailments that will affect earnings contributions from the wholesale business unit. Retail nutrient sales volumes have also been impacted by purchase deferrals by farmers in the fourth quarter, but have been offset by higher per mt margins. An inventory valuation adjustment for retail is not anticipated at current nutrient prices. Agrium said seed and crop protection businesses have not been impacted by the current situation, as the fourth quarter is a seasonally slower period for seed and crop protection sales.
“The late North American harvest, coupled with credit restrictions from international buyers and continued market uncertainties arising from reductions in global crop and nutrient prices, has impacted fall nutrient applications” said Mike Wilson, Agrium President and CEO. “We believe grain fundamentals are stronger than current prices would indicate and that global food demand is unlikely to be significantly affected by a slower global economic environment. Unprecedented reductions in fertilizer use this fall in both North America and globally has resulted in significant production curtailments and shutdowns and is expected to place extreme pressure on an already strained distribution system next spring. It is unclear whether distribution systems, particularly in North America, will be sufficient to meet spring demand; however, we anticipate that this will highlight the benefits of Agrium’s extensive distribution network. Additionally, any reductions in crop inputs or seeded acreage will only put more upward pressure on crop prices and crop input demand in the future.”
Agrium reaffirmed that it expects earnings for the second half of 2008 to be within its guidance range of $3.30-$4.00 per share. Reduced wholesale volumes and pricing and expected inventory valuation adjustments in wholesale purchase for resale business could reduce results from operations by as much as 15 percent below the low end of the guidance range. This reduction is anticipated to be offset by non-cash gains relating to foreign currency denominated working capital positions.
PotashCorp announced Dec. 9 that, consistent with the company’s long-held practice of matching supply to market demand, it is planning to reduce 2009 potash output by two million mt beginning in January. PotashCorp stated it will produce less potash in the first part of the coming year due to a short-term deferral of demand around the world.
“We anticipate slow potash demand through the first quarter of 2009,” said PotashCorp President and CEO Bill Doyle. “Beyond this, we see demand accelerating through the balance of the year as farmers deplete existing stocks and work to rebuild global grain inventories from extremely low levels. With our Lanigan and Patience Lake expansion projects completed, we will have the capability to ramp-up production in 2009 as necessary to meet demand.”
Terra Industries Inc. announced Dec. 5 that beginning Dec. 9 it would idle its 500,000 st/y Donaldsonville, La., ammonia manufacturing plant for repairs. Terra management has determined that this is an opportune time to make the repairs, since the current nitrogen market environment allows the company to economically import ammonia from Trinidad to fulfill ongoing sales commitments that would normally be met with Donaldsonville output. Terra expects to resume production at the Donaldsonville plant after repairs are completed. However, last week it did not give a timeline on how long that would take.
On Dec. 8, Terra Nitrogen Inc. and Yara International ASA announced that their UK joint venture, GrowHow UK Ltd., has temporarily stopped ammonia production in Billingham, UK. The plant has an annual capacity of 550,000 mt/y ammonia. The decision to stop production temporarily is related to the current situation in international ammonia markets with lower activity and price levels, as well as lower industrial ammonia demand in UK. The ammonia plant will restart when market conditions warrant resuming production.
Yara has already closed down several plants, and reiterated to investors last week that the company will deliver strong results in 2008. “The long-term fundamentals for our business remain strong, but no industry can expect to be unaffected by the ongoing slow-down in the global economy,” said President and CEO Jørgen Ole Haslestad. “Yara’s fertilizer deliveries in October and November are down from last year. Although a large part of the fertilizer slow-down could be temporary delays of deliveries created by wait-and-see attitude and difficult financing for the customers, Yara is taking actions to mitigate this situation. Yara’s flexible business model, combining a unique global distribution system and own production with third-party purchasing, enable us to handle demand volatility in an optimal way.”
Haslestad said the substantial production curtailments increase concerns about global food supply going forward. “Based on strong long-term fertilizer fundamentals, Yara’s growth ambition remains firm to achieve a 10 percent global market share, up from close to 8 percent today. However, long-term financing at acceptable terms must be available before Yara is ready for major growth beyond the already announced project pipeline.”
J.R. Simplot Co. confirmed last week that it has curtailed some production at its phosphate production units at Pocatello, Idaho, and Rock Springs, Wyo. The exact amount was not immediately available. The company said employees would be kept busy with maintenance and no layoffs were expected. No timeline for full production was given.
Koch Nitrogen Co., Rentech Inc., and CVR Energy had not returned calls at presstime. Several in the industry reported that Koch’s Enid, Okla., urea plant has been down. There were also unconfirmed reports of a possible production cutback at Rentech’s East Dubuque, Ill., nitrogen plant.
CF Industries Holdings Inc. said it has not curtailed production at its giant Donaldsonville, La., nitrogen plant. However, industry speculation is intense that should conditions not change, CF might have to cut UAN production due to limited storage and movement.
LSB Industries Inc., which owns El Dorado Chemical Co., says it is still full steam ahead with its plans to restart the long-idled Pryor, Okla., nitrogen plant in second quarter 2009 (GM Nov. 10, p. 13). The company said it expects current conditions to change by the time it brings its plant up.
Germany’s K+S Group reported that potash cuts in the fourth quarter will be extended into the first half of 2009. K+S cut fourth quarter production by 400,000 mt. K+S said the Hattorf (Hesse) and Unterbreizbach (Thuringia) sites will initially be affected by downtime until mid-February 2009, as well as the Bergmannssegen-Hugo (Lower Saxony) plant week by week until mid-April. All other sites are aiming their production management at a reduced throughput. Further short-time phases in the first six months, which from today’s perspective probably cannot be avoided, will be agreed separately for the individual sites. K+S takes the view that the fertilizer stocks still available on the market will have been used up by agriculture by the middle of 2009, so that for the second half of the year the demand for potash products should again pick up perceptibly.
In other news, the Romanian press reported last week that InterAgro will lay off 90 percent of its workers, closing down six plants that produce fertilizers.
Also last week, mining giant Rio Tinto announced plans to reduce net debt by $10 billion and cut some 14,000 jobs. The company, which has been involved in potash mine development in Argentina and Saskatchewan, is also in a divestment mode.