While over 30 some nitrogen expansion projects have been floated for North America, according to the Green Markets Global Nitrogen Supply & Demand Model, CF Industries Holdings Inc. Chairman and CEO Stephen Wilson said last week that not enough will be built to wipe away imports.
“It’s our view that come the end of 2017 when the current wave of expansions is largely complete, that the U.S. and North America will still be substantial importers of nitrogen,” he said, addressing the Credit Suisse Chemical and Ag Science Conference Sept. 17.
Wilson said due to the high level of imports it almost doesn’t matter what the U.S. corn acreage is each year, as U.S. producers can produce at 100 percent capacity.
CF was one of the early players to commit to a nitrogen expansion, and it did last November – a combined $3.8 billion for existing plants at Port Neal, Iowa, and Donaldsonville, La. “I think there is a preemption value in projects like this, and we’ve achieved it. That doesn’t mean that nobody else is going to build plants. There are other facilities – one other complex that’s already under construction as ours is.” However, he stressed CF’s timing and locations.
Recent months have seen both pullbacks in projects – Yara International ASA and Agrium Inc. – and new ones proposed – EuroChem in Louisiana and Invista in Texas (GM Sept. 16, p. 1). There is still a big question mark as to whether many of the others will get financing.
Wilson noted the evolution of the shale gas phenomenon and how it has put North American companies among the low cost producers. As a result, he said like other commodities, nitrogen floor prices are set by the marginal producers’ production costs.
He noted that the marginal producer in the world right now is China, and once its seasonal export window is over in October, that prices should rise to the level of the other marginal producers in Eastern Europe and the former Soviet Union. CF estimates China’s landed cost of urea at $290/st U.S. Gulf Coast, and Eastern Europe/FSU’s at around $350/st. By coincidence, he said the current NOLA urea price is near China’s landed cost. He said this is about the third time that this floor model has been tested in the past two years. Based on CF’s floor margin analysis, North American producer cost would only be about $140/st, allowing margins of $150/st even at a price of $290/st.
Speaking about gas, Wilson said CF is very comfortable operating essentially in the spot market, which is one of the reasons that it’s putting an additional $3.8 billion into the nitrogen business in North America – because it likes being exposed to North American natural gas. He believes gas prices will remain within the $3.00-$5.00/mmBtu range for a sustainable basis.