All Posts from December 15, 2008

Major producers add to growing list of curtailments; Agrium cuts N, P, and warns union about K

Featured, News

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.

Federal investigators call for inspection of three other tanks in Nov. 12 collapse

News

In the aftermath of the collapse of a 2-million-gallon liquid fertilizer storage tank at its Chesapeake, Va., facility (GM Dec. 1, p. 10, Nov. 24, p. 13, Nov. 17, p. 12), Allied Terminals now faces the task of having to drain and inspect, both internally and externally, three similar tanks for the same faulty welds found by federal investigators to be the cause of the Nov. 12 catastrophic incident.

The U.S. Chemical Safety Board (CSB) issued the “urgent recommendation” for Allied to take immediate action after concluding that the failure of Tank 201, which contained an aqueous solution of urea and ammonium nitrate fertilizer, likely resulted from defective welds on the tank wall performed in 2006 to strengthen four fertilizer tanks constructed around 1929 by replacing vertical riveted seams. “This action is designed to protect the safety of workers, the public and the environment,” said CSB Chairman John Bresland. He also disclosed that CSB is advising Allied to reduce the hazard from the remaining tanks immediately by lowering the maximum safe fill height, and to retain a qualified tank engineering firm to assess the tanks’ safety. He indicated the CSB request is in response to concerns of nervous residents and local officials, and that the immediate analysis should be completed within 30 days, with the results provided promptly to the city.

Allied is also being requested to develop and implement a corrective action plan for any identified deficiencies in the tanks. The tank collapse seriously injured two contract workers, who were hospitalized. Two members of the public who tried to aid the injured men required treatment likely related to exposure to ammonia vapor from the released fertilizer. The fertilizer overtopped a containment dike and flooded sections of a nearby residential neighborhood, requiring ongoing remediation of the soil. At least 200,000 gallons of spilled fertilizer could not be accounted for, and some reached the nearby Elizabeth River, which flows into the Chesapeake Bay.

“We found a number of welding defects where the modifications were made, including incomplete penetration of the welding metal into the joints,” said CSB Lead Investigator Robert Hall, P.E. “These welding defects likely weakened Tank 201 and led to its failure when the liquid was raised to a level slightly below the tank’s recommended safe fill height.” In the course of investigating the collapse of Tank 201, CSB investigators determined that three other large fertilizer tanks that were welded during the same time period likely have welding defects similar to Tank 201, including insufficient reinforcement, porosity, and weld undercut, which could cause the tanks to fail. The closest of the three large tanks is located 250 feet from homes.

Investigators said that the level of risk could not be quantified based on their external visual examination of the welds, and that a thorough, independent engineering analysis should be conducted, including testing to check for the internal defects in the welds.

According to a tank inspection authority whose business is located in Norfolk only 15 minutes away, Allied faces a tricky job shifting product from tank to tank so that a thorough inspection and verification of the panel welds to be completed. Gary Boley, who founded, owns, and operates InterSpec LLC, said the tasks will have to be done tank-by-tank so that product can be safely and efficiently transferred. Boley, who has not been on the Allied scene and has not been invited, said he suspected faulty welds even before CSB made its evaluation. “The welds will have to be inspected inside and out,” Boley told Green Markets. “The only way an X-ray can do a thorough job is from the inside.” He said he would be surprised if the other tanks didn’t show the same problems as the one that collapsed.

According to information provided by CSB, after the welding of the four fertilizer tanks and before the collapse of Tank 201, Allied Terminals hired HMT Inspection, a Texas-based tank engineering firm with offices worldwide, to examine each tank in accordance with existing industry safety guidelines for petroleum tanks. While HMT’s report did not identify the welding defects that led to this failure, it did recommend a “safe fill height” for each tank. However, the Nov. 12 collapse of Tank 201 occurred while the tank was being filled to a level about three inches below the 27-foot safe fill height recommended by HMT.

Bresland said the remainder of the investigation would focus on understanding why the welding defects occurred, why the tank deficiencies were not detected and corrected, and whether improvements are needed in the oversight of above-ground storage tank safety. “At this stage in the investigation, it appears that no federal, state, or local agency has clear regulatory and enforcement responsibility for the safety of non-petroleum aboveground storage tanks,” he said. “Because of the hazard such tanks can pose, the CSB will examine whether additional safeguards are necessary at the national and state levels.”

GSLM gets 37,000 acres with high-value potash in lease exchange with Utah

News Briefs, Potash, Southwest

Great Salt Lake Minerals Corp.’s trade of existing undeveloped leases on the Great Salt Lake with the state of Utah for leases in highly saline regions is being viewed as a win-win for both sides, according to officials with parent company Compass Minerals. That is, except for a few unhappy environmentalists.

The exchange involves 37,000 acres of the lake considered preferable for production of sulfate of potash specialty fertilizer, giving GSLM the ability to meet growing potash demands in future years. The state gets approximately 30,000 acres with lower mineral concentrations, which GSLM has had under lease since 1967. But more importantly, Utah gets an area of existing wildlife habitat that could one day be cordoned off from future development and protected for continued use by birds and mammals. “The leases relinquished by the company around Promontory Point have higher value for wildlife,” explained Compass Minerals spokesman Dave Hyams. “The leases picked up by the company have a lower value for wildlife because of the higher salinity, which means they will be more productive for solar evaporation ponds. That’s why it’s a win-win situation.”

Friends of Great Salt Lake is not certain the trade, which is out for public comment, will keep the lake healthy in the long run. “The bitter pill is smaller than the more than 50,000 acres the company originally sought from the state,” Lynn de Freitas, director, told the local press. Site Manager Corey Milne reassured detractors that GSLM “will continue to respect the environment and the ecosystems of the lake as we expand to become an even greater contributor to the local economy and community, and to meet the vital needs of farmers.”

Compass Minerals at Overland Park, Kan., described the agreement as part of a multi-phase GSLM expansion announced in 2007 to meet future demand for sulfate of potash. The first phase is to increase the amount of sulfate of potash the company can produce utilizing its existing 43,000 acres of evaporation ponds at the Great Salt Lake by investing in infrastructure and efficiencies. The second phase of the long-range plan to add new solar evaporation ponds on 33,000 acres is undergoing a federal environmental impact study by the U.S. Army Corps of Engineers in Salt Lake City. The acreage acquired in the lease exchange is also subject to environmental review before any new ponds are built; it was unclear if the permit will be amended to include this addition.

Hyams told Green Markets he didn’t know at this point if the new acres would be included in the application currently under review. He did say there is the possibility that the two could be tied together, but these discussions haven’t taken place yet. Compass has said, however, that the final scope of these combined 70,000-acre projects – including the timing, cost, additional pond harvest, and need for additional processing capacity – will be determined when grower demand dictates. But the leased acreage is unlikely to yield increased SOP production for at least five years due to the time requirements of the permitting process, pond construction, and the three-year solar evaporation cycle. Jason Gibson, Army Corps’ chief of Utah development regulation, said that changing the application could mean having to start all over again. Gibson said the current EIS process, which began in November 2007, is expected to reach the draft stage in late spring or early summer.

Yara to expand rock production

News Briefs, Phosphate Rock

Oslo-Yara International ASA said Dec. 8 it will strengthen its phosphate rock base by investing in new capacity at its mine in Siilinjärvi in Finland. The EUR 60 million investment will increase capacity from 850,000 mt to 1 million mt/y. “The project strengthens the scale and competitiveness of our rock mining operations in Finland and increases sourcing flexibility for our NPK production, especially for the Norwegian plants. It is a good illustration of the value that the Kemira GrowHow acquisition has added to the Yara system,” says Hallgeir Storvik, Head of Strategy, Supply and Trade. The increase in capacity is achieved mainly through the de-bottlenecking of existing production equipment and infrastructure. The project will also upgrade infrastructure for transport and storage of rock for export out of Uusikaupunki. The project, which is also profitable under more challenging market conditions than seen recently, is expected to be completed during fourth quarter 2009.

FAA cited potash strike for deicer shortage

News Briefs, Northeast, Potash

Washington-The Federal Aviation Administration cited the strike at three PotashCorp mines in Saskatchewan as a reason for a shortage in airport deicer this winter. FAA said in an October 10 memo to airport executives that a leading maker of potassium acetate runway deicers, Cryotech Deicing Technology, Fort Madison, Iowa, said that the availability of its E36 (trade name) will be significantly limited for the 2008-09 winter season. The memo said the situation was a direct result of the lack of raw materials used in making the product, and cited a short supply of raw materials due to an ongoing mine strike in Canada. The strike has since been settled. However, in the memo FAA said that if the mine strike had ended Oct. 10 it would still take a few months to alleviate the situation. FAA reported that CDT said it produced 9 million gallons of E36 in 2007-08, but will only produce up to 3 million gallons this upcoming winter. FAA said it confirmed that all major North American potassium acetate makers are having similar difficulties, including CDT, Old World Industries Inc., Clariant Corp., Octagon Process Inc., and Jarchem Industries Inc. FFA advised that airports develop contingency plans to deal with winter conditions without the use of potassium-based deicers.

PhosCan production will not begin in 2012

Eastern Canada, News Briefs

Toronto-PhosCan Chemical Corp., citing the global financial crisis, says it will be prudent and disciplined with respect to how it advances the Martison Phosphate Project, north of Hearst, Ont., so as to find the right balance between advancing the project and preserving cash. As a result, PhosCan does not expect production to begin at Martison in 2012. The company will continue to provide project development updates and will announce a new schedule to achieve production once it has been established. PhosCan says it has opted to defer several tasks related to the development of the project, including construction of the balance of the permanent road to access the proposed mine site and detailed project engineering. Among major achievements in 2008, PhosCan says it did purchase a portion of the land required for the proposed MAP granulation plant in Brandon, Manitoba, and has completed preliminary site layout for the plant. In 2009, it hopes to buy the balance of the land required for the plant as well as achieve rezoning, among other goals. In other news, PhosCan has set a shareholders meeting for Feb. 11, 2009. On the agenda is a shareholders’ rights plan previously adopted by the board of directors. Shareholders will also be asked to approve a reduction in the stated capital of the company’s common shares in order to enable the company to undertake a normal course issuer bid. “We have seen unprecedented change in financial markets and the fertilizer industry in the last several months,” said Stephen Case, PhosCan president and CEO. “However, PhosCan is well positioned with over $70 million of uncommitted cash, and therefore we view this as an opportunity to review a broad range of options that have the potential to enhance shareholder value.”

Agrium debuts advanced tech production facility

Alberta, News Briefs

Calgary-Agrium Advanced Technologies (AAT), a unit of Agrium Inc., has opened a new fertilizer production facility in Courtright, Ont. The state-of-the-art manufacturing operation is producing the AAT specialized, controlled-release fertilizers, many of which involve the company’s patented coating technology. This plant opening coincides with the launch of AAT’s newest product, XCUT slow-release fertilizer, which is now available for sale in both the U.S. and Canada. On Sept. 30, 2008, the Canadian Food Inspection Agency (CFIA) approved XCU for sale in Canada “With production capabilities in the North and South, we can meet the increased customer demand and diversify our geography,” said Rod Oglesby, AAT director of operations. “Now we can better serve our customers across North America and globally with the assurance of product availability, and at a lower freight cost.” The new Courtright facility is a multi-million-dollar addition to an existing AAT operation, but it represents a complete transformation of the site’s manufacturing capabilities. As a result of the dramatic expansion, AAT now has a second location for making its new XCU, which is polymer-coated, sulfur-coated fertilizer. Its ultra-thin, highly-durable coating requires a sophisticated, proprietary manufacturing process. Until now, that capability had existed only at AAT’s production facilities in Sylacauga, Ala. “This is exciting because it’s new, innovative technology,” said Oglesby, “but it’s already been proven. We perfected the processes and quality-control assurances that we have in place in Sylacauga, and now we’re applying them at the Courtright facility.” The new operation, which also features improved laboratory, warehousing, and distribution capabilities, has an annual production capacity of 60,000 mt of slow- and controlled-release fertilizers. In addition to the XCU, the Courtright facility is able to manufacture AAT’s Polyon ® controlled-release fertilizer. “We’re in the value-added business,” said Oglesby, “and we’re investing in products to help our customers solve the economic and environmental situations they’re facing. And we’re not just talking about innovation, we’re going out and spending the money to get better products to the market quickly. This new facility is the latest example.” For more info, see AAT’s new website www.agriumat.com.

Scam costs ConAgra nearly $650k in fertilizer

News Briefs, Northern Plains

Fargo, N.D.-An ex-farm input sales manager faces a maximum of 10 years in prison and a $250,000 fine for an elaborate scheme, carried out over 10 years, in which he stole $642,818 in fertilizer while working at the former ConAgra facility in Moorhead, Minn., and sold it to two other places in North Dakota and Minnesota, according to federal prosecutors. The 70-year-old West Fargo resident, identified as Larry James Schrader, changed his plea to guilty Dec. 4 in federal court here to one of six felony counts; if convicted on all six felony counts, he could have faced up to 60 years, with fines of $1.5 million. Sentencing will be in early February. Assistant U.S. Attorney Jennifer Puhl told Green Markets that Schrader, described as a likeable family man, used his authority with ConAgra to have the fertilizer delivered by trucking companies to Ada Feed & Seed of Ada, Minn., and Larson Grain Co., located in LaMoure, N.D., and used phony documents to show it came from NC Marketing. Schrader would instruct ConAgra employees not to log the fertilizer he had them drain from ConAgra’s tanks on many occasions from 1996 until June 2005. On occasion, Puhl reported, he would have the “missing” fertilizer replaced by water, but it was not known whether any other customers got watered-down product. Puhl said the two dealers receiving the fertilizer were not charged because “there was not enough evidence to indicate otherwise.” Eventually, she reported, the employees got wise to the scam and reported Schrader to ConAgra security. She said the feds got involved because it was interstate transportation of stolen goods, and that the penalties would have been less severe had state lines not been crossed. ConAgra Foods Inc. spokeswoman Stephanie Childs said company security confronted Schrader in 2005, and he was fired. Earlier this year, ConAgra sold the Moorhead location as part of its trade group to Gavilon, owned by a group of investors led by Ospraie Management. Sources reiterated that this was an issue that occurred under ConAgra, not Gavilon.

Atacama downsizes, defers capital expenditures

News Briefs, Vancouver

Vancouver-Atacama Minerals Corp. reports that in light of the recent global financial crisis, it has decided to temporarily defer major capital expenditures for the development of a new specialty nitrate fertilizer plant. The plant, to be built in northern Chile, was estimated to cost $60 million, produce 70,000 mt/y, and take 27 months to build. Atacama said it will restart the project as soon as conditions allow. In addition, Atacama said economic conditions could also impact its drill program for potash exploration on the northeastern coast of Brazil. Groundwork, however, is underway in the form of geophysical and geological work for the selection and permitting of drill targets covering an area of approximately 1,700 square kilometers. For now, Atacama says it will focus on its iodine business, noting that the price of this commodity is so far unaffected by the financial crisis. Atacama said it is taking comprehensive cost-saving measures in an effort to reduce production and administrative costs, including the downsizing of non-essential personnel and staff. It also reports that Brian Kennedy, vice president, operations, has left to pursue other opportunities.

Minor sulfur fire at Wilbur Ellis in Pasco

News Briefs, Pacific N.W., Sulfur

Pasco, Wash.-Wilbur Ellis officials described a sulfur fire Dec. 9 at their facility here as minor, causing only minimal damage and sending home most of the employees until the next day. “We didn’t allow any people back in there until the building aired out completely over night,” Jerry Voss, Wilbur Ellis regulatory technician, told Green Markets. Voss reported the cause as sparks from the metal bucket of a front-end loader scraping against a concrete wall, which produced enough friction to spark the sulfur dust. He explained that dust abatement can’t be used with the sulfur 90, which in this case is a micronutrient for making organic fertilizer. There were reports of nearby businesses being evacuated, but Voss said wind kept the fumes to the north and he didn’t believe anyone was at risk. Still, the Pasco firefighters put on bunker gear along with respirators as a precaution. “When we first got here and found out what it was we knew it was a strong irritant, and so everybody that got on scene as soon as they got out of the apparatus they were putting on masks,” Fire Capt. Pat Henrickson told the local press. Voss said this material produces a blue flame, similar to the way propane gas burns, that is difficult to detect. “It’s not toxic, just irritating,” he described, “but anytime you have smoke off any product it’s not something you want to be inhaling.” He said the damage was limited to the surface part of the product and the bin.

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