All Posts from September 1, 2016

Potash downturn weighs on Uralkali, company lowers production guidance

News, Russia

While Uralkali posted a 68 percent rise in first-half net profit to $935 million, up from the year-ago $556 million, it reported big declines in revenue and EBITDA. Profits were buoyed by foreign exchange gain and fair value of swaps’ revaluation amounting to $729 million, but revenue fell 31 percent to $1,075 million, down from $1,562 million. Six-month EBITDA came in 35 percent lower at $611 million, compared with the year-ago $933 million.

“Changes in market conditions and subdued potash demand across global markets weighed heavily on the first-half company results,” said Dmitry Osipov, Uralkali CEO. “We continue to work on internal efficiency to neutralize the influence of negative market progression and the strengthening of the Russian rouble, but considering the current level of our cost price, the potential of these measures is limited.”

Uralkali saw first-half production fall 10 percent, to 5.1 million mt from the year-ago 5.7 million mt. Sales volumes were down 13 percent, to 4.9 million mt from 5.6 million mt. The sales decline was partially offset by a 7 percent year-on-year increase in domestic sales to 1.1 million mt. Six-month exports fell 17 percent, to 3.8 million mt from 4.6 million mt a year-ago.

The average first-half FCA export price decreased by 22 percent year-on-year, to $188/mt from the year-ago $242/mt.

“Prolonged negotiations with Chinese and Indian buyers, global destockings during the first quarter, and intense competition put pressure on potash volumes and prices. And significant demand improvements in Brazil and North America haven’t fully offset challenges in Asian markets,” said Alexander Terletskiy, Uralkali Trading’s recently appointed CEO.

With the Chinese and Indian potash contracts finally settled, Uralkali expects potash demand to gradually stabilize in the second half of 2016. Clarity regarding China is expected to encourage customers to step into the market more actively, and the company estimates global demand will be around 30 million in the second half of this year compared with an estimated 28-29 million mt in the first six months.

“The current quite stable level of demand in Latin America, EMEA, and North America may not fully offset the challenges in Asia for this year,” said Terletskiy. “That’s why we expect global potash demand to be down to 59 million mt this year from 61 million mt in 2015.”

Shipments to both China and India are expected to accelerate through the remainder of the year to fill existing supply contracts. Uralkali was one of the last suppliers to settle new supply contracts in these markets (see Markets, Potash).

“Shipments to China have started under the new contracts, and usually the last quarter of the year is the start of the major consumption in the region. We don’t expect any significant increase in inventories by the end of the year,” said Terletskiy. The company expects China’s potash imports this year will be 32-37 percent lower than in 2015, with total deliveries anticipated to reach around 14.0 million mt, down from 16.7 million tons in 2015.

While the good monsoon season could lead to incremental demand in India in the second half of 2016, overall import volumes may end up lower in calendar year 2016 compared to 2015, given the extremely weak potash imports in the first seven months, Terletskiy said. Indian customs data show India imported 1.5 million mt of potash between January and end-July, a 37 percent year-on-year decrease. The company anticipates imports will be around 3.5 million in calendar 2016, down from last year’s 3.9 million mt.

In Southeast Asian markets, after slower first-half year-on-year imports, Uralkali expects full-year demand to fall below that of 2015 due to adverse weather conditions in the first six months, and the delayed China contract.

Uralkali said Latin American potash shipments have remained stable since the second quarter with potash shipments to Brazil remaining at “an acceptable level.” Brazil’s first-half potash imports were up 5 percent year-on-year at 3.9 million mt.

“We don’t expect any significant changes in consumption and pricing through quarters three or four,” Terletskiy said. The company expects full-year demand in the Latin American region to be around 11.6 million mt.

Potash deliveries in the North American market are expected to remain even, at least through the autumn season. Full-year demand is expected to increase to 8.5 million mt.

Uralkali now expects to produce 10.6 million to 10.8 million mt of potash in 2016 due to the lower-than-expected first-half output. In June, the company put its production guidance for the year at 10.8 million to 11.2 million mt (GM June 24, p .14).

CPS acquires Texas retail operation

News, News Briefs

Brownfield, Texas—Crop Production Services (CPS) has acquired the assets of Larry’s Chemical and Spray Inc., a retail operation based in Brownfield, Texas, that offers cottonseed, fertilizer, chemicals, and equipment for the farm supply and service industry. The business was established in 1968, and has expanded to include three buildings totaling 20,000 feet, with eight nonunion employees with an average length of service of 16 years. Current owners Larry and Sharon Yowell became partners in the business in 1992 and assumed full control in 2007. The purchase price was not disclosed, but reportedly falls within the upper end of the EBITDA multiple range that CPS targets for its acquisitions.

Fertilizer hub planned for China

News, News Briefs

Chongqing, China—ASX-listed mineral exploration company Kazakhstan Potash Corp. Ltd. (KPC) and China’s Chongqing Material of Agricultural Production (Group) Co. Ltd. (CMAG) have signed a joint venture agreement to develop a fertilizer production and distribution hub in southwest China’s Chongqing municipality. According to China Daily, the parties are targeting production of around 3 million mt/y of compound fertilizer. Under the terms of the agreement, KPC will assist in sourcing financing and over time provide potash from its projects in Kazakhstan, according to a company statement. CMAG, in turn, will provide the land and infrastructure for the hub creation and operation, as well as its existing terminal and fertilizer warehouse on the Yangtze River. The terminal includes an established rail link to China’s rail network and the Chongqing-Xinjiang-Europe Railway system, which runs through Kazakhstan. “The newly formed joint venture will begin its operation through fertilizer trading and logistics with a view to becoming one of China’s leading fertilizer logistics and trading companies operating out of southwestern China,” KPC said. The fertilizer products will be sold in southwest China and also exported to Japan and Southeast Asian countries, according to Wan Zhongcheng, CMAG chairman. The jv is aiming to realize an annual revenue of more than 20 billion yuan (around $3 billion) in three to five years, China Daily reported. KPC owns the rights to three potash deposits that it is developing via a framework cooperation agreement the company signed in December 2014 with China’s CITIC Construction Co. Ltd., the Industrial & Commercial Bank of China Ltd., and Kazahstan’s Ministry of Investment and Development. KPC aims to build a potash production base in Kazakhstan within 10 years.

 

SQM invests in Congo project

News, News Briefs

Santiago—Sociedad Quimica y Minera de Chile SA (SQM) has announced that it will invest approximately US$20 million in Elemental Minerals Ltd. (ELM), an Australian-based company with potash deposits in the Republic of Congo. In return, SQM will receive 17 percent of the company and a right of first refusal for approximately 20 percent of the total potash production of ELM. SQM confirmed in April that it had been evaluating a project in Congo (GM April 22, p. 12). The State General Reserve Fund of Oman and Summit Private Equity will also subscribe US$20 million and US$10 million, respectively. SQM noted that preliminary studies suggest ELM has high-grade deposits with potentially low-cost production. It said the deposits are within 18-35 kilometers of the port, which offers convenient access to Brazil. It said initial capacity could be around 2 million mt/y growing to 4 million mt/y. It said a definitive feasibility study could be delivered within two years, fully financed with the US$50 million capital increase.

Growmark FY’16 income, revenues off

News, News Briefs

Bloomington, Ill.—Growmark is projecting pretax income of $103 million on unaudited, estimated sales of $7.1 billion for the year ending Aug. 31, 2016, down from the year-ago $134 million and $8.7 billion, respectively. Estimated patronage refunds are $52 million, down from the year-ago $61 million (GM Sept. 7, 2015). “The ag economy is in a challenging cycle,” said CEO Jim Spradlin. “Many of our farmer-members and customers are feeling economic, regulatory, and environmental pressures. While we do believe the economic cycle will end with a soft landing, it could certainly be a few years before stronger demand reappears. We remain very optimistic in the long-term outlook for food demand and production.” Among crop input highlights, Growmark said the Crop Nutrients Division estimates sales volume similar to last year, and is on the cusp of a sixth consecutive year of record volume. Net income is expected to be lower than last year. Crop Protection Division sales were down 3 percent from last year, but had the third best volume and net income year in Growmark crop protection history. The Seed Division reported seed corn sales down 3 percent, offset by 4 percent growth in soybean sales. Net income is estimated to be down slightly from 2015’s record year. Growmark said its Retail Divisions internal income was up over last year. Seedway, headquartered in Hall, N.Y., saw a 15 percent increase in vegetable sales, and as a result, a record net income year.

Senators seek investigation of AN explosion

Ammonium Nitrate, News, News Briefs

Quemado, Texas—U.S. Senators Richard Blumenthal (D-Conn.) and Ed Markey (D-Mass.) on Aug. 31 called on the National Transportation Safety Board to investigate an Aug. 22 incident in Quemado, Texas, when one person died and four were injured when a truck carrying Takata airbag inflators and ammonium nitrate-based propellant crashed and exploded. Lucila Robles, 69, died when her house, which was near the truck crash, was destroyed. She could not be located for two days and could only be identified via dental records. Two truck drivers and two other motorists fled the accident prior to the explosion and were injured. The material was reportedly enroute from Takata’s propellant factory in Moses Lake, Wash., to Takata’s airbag factory in Monclavo, Mexico. Takata, which was using a subcontractor for the transport, said it has strict safety procedures relating to the transportation of its products that meet or exceed all regulatory requirements. Takata is in the midst of multiple litigation over its airbags, and several automakers have recalled more than 64 million airbag inflaters. Allegedly, the AN-based propellant can break down over time and become unstable, combusting violently when triggered. Takata has not responded to inquiries as to where it procures its AN, and it does not appear to date that AN manufacturers have been pulled into the litigation. Major AN producer CF Industries Holdings Inc. last week told Green Markets it does not supply AN to Takata and it is not involved in the litigation. The New York Times reported that former company Mississippi Chemical Corp. once considered being Takata’s supplier, but backed away due to liability concerns. Takata has reported explosions at both the Moses Lake and Monclava plants.

Malfunctions lead to USN emission release

News, News Briefs

Mosheim, Tenn.—U.S. Nitrogen Co. LLC (USN) reports that malfunctions occurred in the midst of multiple startup attempts at its nitric acid plant here that led the company to exceed federal reporting requirements for the release of oxides of nitrogen within a 24-hour period. Federal, state, and local authorities were notified, and USN is assisting in their investigation. USN said it would ensure that all issues are resolved and equipment is tested before resuming operation of the nitric acid plant. Local residents reported and photographed an orange plume coming from the facility on Aug. 23. In two other recent matters, USN told authorities that it did not use selective catalytic restrictive equipment (SCR) when starting up an anhydrous ammonia plant and that storm water runoff levels exceeded the national cutoff limitations for magnesium, even though the company does not use magnesium in its production process. USN told Green Markets Aug. 29 that it continues to anticipate being fully operational within the next few weeks

 

Growmark plans new Ontario facility

News, News Briefs

Bloomington, Ill.—Growmark said Aug. 31 that it plans to build a new state-of-the-art fertilizer facility in Ayr, Ont. It will be managed by FS Partners. The 15,000 mt facility will have nine bins to give flexibility for retail blending needs. It will also have a blending system capable of mixing up to 2,000 mt of crop nutrient products per day, more than doubling the old capacity of 800 mt per day. The facility will be capable of receiving products by rail and truck. “This is a tangible demonstration of our commitment to farmers and retailers in the Ontario marketplace,” said Frank Barron, FS Partners division manager. “Once construction is completed, it will give us increased capability to best serve our customers.” Construction is expected to start in October, with completion in about a year. The new plant is a shared asset between Growmark and FS Partners, with FS utilizing it to serve its farmer-customers, while Growmark will use it to it to distribute to area retailers

Geneva Nitrogen industrial grade AN plant to halt production in Utah

Featured, News

The board of directors of Geneva Nitrogen LLC announced on Aug. 29 that the company’s two joint venture stakeholders – Austin Powder Co. and Orica USA Inc. – have decided to halt the production of industrial grade ammonium nitrate and nitric acid at Geneva’s plant in Vineyard, Utah, due to a “challenging mining market” and reduced demand for AN.

The plant has been operating as a 50/50 joint venture between Orica and Austin Powder since 2005, when Austin Powder purchased its 50 percent stake from Dyno Nobel Inc. Capacity levels at that time were estimated at 110,000 st/y of AN and 92,000 st/y of nitric acid.

“The reduced output and future production demand continues to have a negative effect on our facility,” said Steve Thompson, Geneva Nitrogen vice president and general manager. “We will be converting the site to a transload facility in early October, which will continue to provide bulk products shipped in by rail for distribution to local customers.”

Current staffing levels for approximately 32 employees will be reduced as a result of the decision, the company said. A small number of employees will be retained to assist with the decommissioning of the plant and to operate the transload facility.

“We are working closely with our employees to assist them during this transition,” Thompson said. “As always, the safety of our employees and the community remains the most important aspect of our operations.”

Geneva Nitrogen’s announcement comes in the wake of other recent indicators of the depressed industrial AN market. LSB Industries Inc. earlier in August (GM Aug. 12, p. 1) reported that it plans to expand its presence in the ag-grade AN market while projecting lower volumes for AN, AN solution, and nitric acid in the company’s Industrial/Mining segment.

PotashCorp, Agrium in merger talks

Featured, News

Potash Corp. of Saskatchewan Inc. and Agrium Inc. both confirmed Aug. 30 that they are in preliminary discussions regarding a potential merger of equals. They said no decision has been made as to whether to proceed with such a combination, no agreement has been reached, and there can be no assurance that any transaction will result from these discussions.

The announcement quickly followed a report by Bloomberg that the two were in merger talks, with a possible announcement as early as next week.

PotashCorp. shares popped up 11 percent to close at $17.79 Aug. 30 on the New York Stock Exchange, while Agrium’s were up 7 percent, closing at $95.76. While many industry observers were surprised by the news, they were skeptical, noting that other mergers announced in the past few years have not proceeded for various reasons.

“The combined company would be unlikely to be able to influence pricing from a supply-side standpoint, as excess capacity is still the story across the N-P-K spectrum,” said Neil Fleishman, Green Markets Director of Research. “In potash in particular, the existing frame of Canpotex suggests no change to pricing power. An already consolidated potash market also points to antitrust concerns. Synergies would likely have to come from combining production assets with integration into Agrium’s extensive retail distribution.”

PotashCorp’s annual nameplate capacities are potash 16 million mt, ammonia 4.1 million mt (including Trinidad and Tobago assets), urea 1.9 million mt, AN 1.3 million mt, UAN 2.5 million mt, DAP/MAP ~1.75 million mt, and phosphate rock ~9.6 million mt, according to Green Markets estimates.

Agrium’s annual nameplate capacities include potash 3 million mt, ammonia 2.9 million mt, urea 3.42 million mt (including the Borger increase), AN 0.25 million mt, UAN 0.72 million mt, MAP at 1 million mt, and phosphate rock at about 1.3 million mt. Agrium also owns 50 percent in Profertil in Argentina, with ammonia 0.9 million mt and urea 1.3 million mt. Agrium owns 26 percent of MOPCO in Egypt, with ammonia 1.2 million mt and urea 1.9 million mt. It also sources rock from OCP in Morocco for its Canadian phosphate plant.

PotashCorp has shown resolve in closing down higher-cost production. Fleishman noted that it could do likewise with Agrium’s Vanscoy potash mine.

While some financial analysts last week were not too concerned about antitrust issues, citing international overhangs in commodity fertilizer production, farmer and dealer groups may see things differently with one less supplier. Manitoba-based Keystone Agricultural Producers told Green Markets Sept. 1 that it normally contacts the Canadian Competition Bureau whenever a merger affects the agriculture industry. For this one, it said it is awaiting the details.

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