Phosphate Holdings Inc., the owner of Mississippi Phosphates, told analysts Sept. 10 that it is optimistic about the return to profitability in 2010, though it is not ready to give earnings guidance. PHI was adding color to its near break-even second quarter results ($100,000 net income), which were recently released (GM Sept. 7, p. 1).
PHI CEO Robert Jones said that though it may be a cliché, the basic fundamentals for the industry are still in place, noting that improving diets and a growing world population demand more food and fertilizer.
“I feel better today than I did a year ago,” said Jones, “as that was when the roof fell in.” He said that fall 2008 was a “complete bust,” and that spring 2009 was “very disappointing.” Jones said the industry has gone through the largest contraction in fertilizer usage in 75 years, and that each time there has been a contraction, there has been a demand response. “That is going to happen,” he added. “Poor applications are not sustainable.” He said he agrees with the consensus that 2010 will improve.
While PHI gave a laundry list of pros and cons for the fall season this year, Jones said he did not want to falsely give the impression that the company had given up on this year’s fall season. PHI said the barge market is currently slow, with not much fall season to date; however, it added there is a good export line-up in September and October to relieve some of that pressure. He said there has been good demand for product to India, Pakistan, and Latin America, with a new 300,000 mt tender from Ethiopia later in the month. In addition, a big corn crop is expected to have depleted phosphates from the soil, which will need to be replaced. That said, the company acknowledged concerns over a late harvest, low corn prices, and buyers who are risk adverse and who now only want to buy on a prompt basis rather than stocking up. Jones noted that years ago, buyers would fill up just after the Southwestern Fertilizer Conference, but now they wanted to wait until the last minute. As a result, buying has been pushed back to September/October. The company noted that its barges would need to get on the water early before upriver closes between Oct. 15-Nov. 15.
When asked about PHI’s liquidity, Jones volunteered that it has actively been in discussions about a possible monetization of a fixed asset. This could also be a lease and not a sale. “This is a potential transaction, however, it is unlikely it will be sold,” said Jones. “We have not decided to pull the trigger.” PHI believes its existing credit facility is adequate. The company has $5.5 million available under its facility. Jones said PHI is reluctant to sell more stock in the company as it would dilute the value of existing shares. PHI did not identify any assets that are under consideration; however, in the past, it has discussed the potential to build a 40,000 st UAN storage facility (GM Sept. 1, 2008), opening the area up as a terminal. The company had also been reviewing a new $125-$150 million sulfuric acid plant prior to the onset of the global financial crisis.
Jones touted PHI’s recent investment in a $3 million, 15,000 st sulfuric acid tank, which became operational in the second quarter. It was opportune as the company had been having trouble with its own sulfuric acid plants. Jones said the tank is providing solid returns as it has allowed the company to take advantage of distressed situations and carry substantial quantities to maintain good production levels.
While DAP capacity was at 95 percent, or 173,000 st, in the second quarter ending June 30, 2009, sulfuric acid capacity was off at only 84 percent, or 214,000 st. Problems in the acid plant necessitated down time for repairs in August, which will impact the third quarter. The number three acid plant was down for 16 days, and number two for five days. In addition, the phosphoric acid and DAP production were 34,000 st and 37,000 st, respectively, in August.
On the raw materials front, PHI said one major reason for optimism is its recently-signed phosphate rock agreement with Morocco’s OCP. The company expects the import ammonia price at Tampa to begin declining in November and December. As for sulfur, while Tampa is $10/lt, PHI is still in negative numbers at Pascagoula.