All Posts from February 19, 2007

Price stampede continues in Dallas

Featured, News

It was already a wild bull fertilizer market going into the TFI Fertilizer Business Meeting in Dallas last week, and by the end of the meeting it was still not tamed, as prices for all major fertilizer products continued to gallop. DAP, already at record prices, continued unbridled. New prices posted on Monday, Feb. 12, were ancient history by the end of the week, as prices continue to buck up with each new trade.

Most industry veterans could not recall such a year. Long-timers could harken back to the 1973-1975 time period, when prices soared, but noted that that came after national price controls were lifted and there was a brief grain shortage. That bull market was to crash, but there are few naysayers this time around. This time sellers are optimistic that the growing ethanol boom will underpin an expected surge in corn acreage this spring, and this year’s demand will continue or grow for years to come.

Most industry players continued to express surprise that the DAP market has taken center stage away from urea, though both were up last week. Not to be totally outdone, domestic potash prices were also reported to be moving up.

TFI said attendance at this year’s meeting was about the same as last year’s in sunny San Diego (GM Feb. 13, p. 1). Dallas brought with it wet weather for the golf tournament and cold weather on departure. Many stayed behind through Thursday to trade or due to weather delays.

Conductors go on strike at CN Railway; fertilizer, chemical industries weigh in on impact

Featured, News

Fertilizer industry sources were gauging the effect of the strike by 2,800 unionized workers at the Canadian National Railway Co. that took effect Feb. 10 (GM Feb. 12, p. 10). While the recent cold weather was cited as having the greatest impact on rail shipments in Canada at mid-month, several sources said the strike will undoubtedly affect rail movement going forward, and the more pressing issue now is how long the strike will last.

“CN management is running some of the trains, but obviously rail movement is reduced,” said Tom Pasztor, spokesman for Potash Corp. of Saskatchewan Inc. According to Richard Downey of Agrium Inc., CN was operating at about 75 percent of normal capacity as a result of the strike. “We are hopeful that CN will be back to normal operations in March,” Pasztor told Green Markets. He said PotashCorp is “in daily contact with CN and [we] are prioritizing the movement of product.” Pasztor noted as well that PotashCorp had record railcar movement in October through January. “This has positioned us nicely,” he said.

Some industry sources pointed to the strike as one factor contributing to higher warehouse postings for potash last week (see market text pp. 8-9), along with fears about the brine inflow problem at the Esterhazy potash mine in Saskatchewan (GM Jan. 29, p. 1). Pasztor, however, downplayed the connection. “The uptick in potash prices is due to the many factors that influence demand and price,” he said. “I would not want to reference any one or two factors as the cause for an uptick.” For the record, The Mosaic Co. says the new inflow problem has not impacted Esterhazy production.

The United Transportation Union-Canada, which is based in Montreal, represents about 2,800 conductors and yard service personnel at CN in Canada. The union is asking for a 4.5 percent wage increase in the first two years of a three-year contract with CN, with a 4 percent increase in the final year. CN has challenged the legality of the strike, however, arguing that the Canadian union has not received the necessary authorization from the UTU-International, which is based in Cleveland, Ohio.

A ruling on the legality of the strike from the Canada Industrial Relations Board (CIRB) was originally scheduled for Feb. 13, but the CIRB postponed its hearing until Feb. 19. Agriculture Minister Chuck Strahl said the federal government will not intervene, as requested by the Canadian Wheat Board, while the CIRB is hearing the case. At issue for the Wheat Board are 11 ships at Vancouver that are waiting for grain, and another six at Prince Rupert, B.C.

“‘We are looking at paying demurrage every day at Prince Rupert in the neighborhood of $130,000 to $180,000 U.S. That is on top of a daily charge in the neighborhood of $150,000 U.S. at the Port of Vancouver,” Maureen Fitzhenry, spokesperson for the wheat board, was quoted as saying. Fitzhenry added that “the CN strike did not cause this situation, but it is certainly impeding our efforts to get it resolved.”

Several chemical industry representatives in Canada weighed in on the strike last week. “A continued strike by CN workers will have a devastating effect on the industry,” said Larry MacDonald, chairman of Canadian Chemical Producers Association and CFO of NOVA Chemicals. Jeff Johnston, president of Dow Canada, said the strike is “already having a severe impact on our ability to ship products, which is affecting our customers across the value chain.”

CN President and CEO Hunter Harrison said when the strike was first announced that CN would continue freight operations across Canada using management personnel to perform UTU-represented jobs. Several derailments last week, however – including four cars in Fort Saskatchewan on Feb. 13, another four at the Symington rail yard in Manitoba that same day, and a locomotive derailment in Prince George, B.C. – were cited by striking UTU members as evidence of inexperience and safety issues in their absence.

CN Spokesman Jim Feeny was quoted in the local press as saying the Fort Saskatchewan incident was unrelated to the strike, and the Symington derailment remained under investigation.

Senate considers Ag Security Tax Credit bill; comments submitted on DHS security regs

News

Legislation was reintroduced in the U.S. Senate on Feb. 12 to help agricultural retailers, distributors, and other eligible agricultural businesses partially offset increased security costs due to new federal, state, and local security regulations for agricultural chemicals and fertilizer storage facilities.

The Agricultural Business Security Tax Credit Act (S. 551) is sponsored by Sens. Pat Roberts (R-Kan.) and Ben Nelson (D-Neb.), and has enthusiastic industry support from the Agricultural Retailers Association, The Fertilizer Institute, CropLife America, and the Chemical Producers and Distributors Association. The organizations sent a letter on Feb. 9 to House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) and ranking member Jim McCrery (R-La.) urging their support for the measure.

ARA called the Roberts/Nelson legislation “a fiscally responsible proposal” that would provide a tax credit equivalent to 30 percent of the total amount paid on implementing qualified security measures such as fencing, alarms, lights, and security guards. The legislation provides for up to $100,000 in security tax credits per facility, with an overall company cap of $2 million per year.

“A security tax credit would go a long way in helping the industry to properly safeguard ag pesticides and fertilizers from the threat of terrorists, drug dealers and other criminals,” said Jack Eberspacher, ARA president and CEO.

ARA asked its members last fall to complete a survey for the House Ways and Means Committee detailing the economic pressures and security-related expenses that retailers and distributors are currently facing (GM Oct. 30, p. 11). “Agricultural retailers and distributors are faced with numerous security regulations that add to the daily costs of doing business,” Eberspacher said last week. “They also are being negatively impacted by high fuel, fertilizer and transportation costs, which ties up significant amounts of working capital.”

ARA also recently submitted comments to the Department of Homeland Security in response to an Advance Notice of Rulemaking on Chemical Facility Anti-Terrorism Standards issued by DHS on Dec. 28 (GM Jan. 1, p. 11). ARA said it addressed a range of issues concerning the DHS security regulations, including the proposed definition of a chemical facility; the use and approval of alternative security vulnerability assessments and alternative security programs; federal preemption; which facilities are to be considered “high risk”; background checks; ammonium nitrate security requirements; protection of confidential information; and third party litigants.

ARA said it submitted Asmark Insitute’s Security Vulnerability (SVA) program to DHS for “confidential review and consideration” under provisions in the proposed regulations related to alternative vulnerability assessments and alternative security programs. ARA said it is unclear how many retail and distribution facilities, particularly those storing anhydrous ammonia and ammonium nitrate, will be affected by these “high risk” chemical facility security regulations.

“A guiding principle for any proposal, even those related to security matters, is that facility safety should come first,” ARA said. “It is our understanding that DHS officials share this principle.” According to ARA, Sen. Joe Lieberman (I-Conn.) and Rep. Bennie Thompson (D-Miss.) issued separate comment letters to DHS that were “highly critical” of the proposed regulations related to preemption, judicial review, and the use of inherently safer technologies.

The deadline for public comments on the new DHS security regulations was Feb. 7. The new rules are set to go into effect in April.

Yara boosted by Asia, Latin America in 4Q

News

Increased sales in Asia and Latin America helped offset delayed fertilizer deliveries to Europe and North America in the fourth quarter ending Dec. 31, 2006, according to Yara International. Production improvements and industrial growth also contributed. Fourth-quarter net income after minority interest was US$140 million ($.47 per share) on sales of $1.94 billion, versus the year-ago $89 million ($.29 per share) and $1.88 billion. EBITDA was up to $212 million from $208 million.

Fourth-quarter fertilizer volumes were up, at 5 million mt versus the year-ago 4.7 million mt. Fertilizer tons to Europe were off 11 percent. Industrial tonnage was up, at 635,000 mt from 575,000 mt.

For the year ending Dec. 31, net income was $656.4 million ($2.17 per share) on sales of $7.56 billion, versus 2005’s $498.9 million ($1.59 per share) and $7.26 billion. Annual EBITDA was off slightly, at $1.014 billion from 2005’s $1.033 billion.

Fertilizer tons sold in 2006 were up slightly, at 19.25 million mt from last year’s 19.23 million mt. For the year, tonnage to Europe was off 1.5 percent. Industrial tons were up, at 2.38 million mt versus 2.18 million mt.

Yara noted India’s increasing appetite for urea in particular, with an estimated import of 4 million mt in 2006, compared to 2.3 million mt in 2005 and .8 million in 2004.

Yara noted that it completed its public offer to acquire all non-voting shares in Fertibras in January 2007. As a result, Fertibras has been delisted from the Brazilian stock exchange and is 100 percent owned by Yara. It will be merged into Yara Brazil during the first half.

Yara said it restructured its ownership of SQM during the fourth quarter, leaving overall ownership unchanged, but recording a $10 million gain on the sale of shares.

Also in the fourth quarter, Yara took a $12 million charge for the closure of a UAN plant in France (owned together with Grande Paroisse). The closure is scheduled to take place in mid-2008.

Dyno Nobel to proceed with AN plant

Ammonium Nitrate, News Briefs

Sydney, Australia-Dyno Nobel Ltd. said Feb. 12 that its DNM Ammonium Nitrate plant at Moranbah, Queensland, (formerly referred to as QNB) will proceed, as long-term commitments with Anglo Coal, Rio Tinto, and Xstrata have been finalized. The company said foundation customer contracts, accounting for 100 percent of total production, have been procured. Contracts are for ten years, with annual escalation based on cost drivers. The plant will have capacity of 330,000 mt/y and a total project cost of AUD520 million. The company currently operates six AN plants in Canada and the U.S., as well as a joint venture plant in Queensland. Dyno Nobel is evaluating funding options, including the addition of equity partners. Funding is expected to be complete in first half 2007, with production ramp-up expected in the first quarter 2009. United Group Ltd. will be the construction contractor. Final clearance by the Queensland government is expected in the next few weeks.

Energy bill introduced to increase transparency

News Briefs

Washington, D.C.-U.S. Sens. Dianne Feinstein (D-Calif.), Olympia Snowe (R-Maine), Carl Levin (D-Mich.), and Maria Cantwell (D-Wash.) on Feb. 13 joined with a bipartisan coalition to introduce legislation to increase transparency and oversight for the electronic over-the-counter trading of energy commodities such as oil, natural gas, coal, and electricity. Specifically, the bill would require U.S. energy traders who electronically trade futures in the U.S. to keep records and report large positions carried by their market participants in energy commodities for five years or longer, and to provide these records to the Commodity Futures Trading Commission (CFTC) or the Justice Department upon request. These are the same requirements that apply to traders who do business on the New York Mercantile Exchange (NYMEX). The bill would also require persons in the U.S. who trade U.S. energy commodities delivered in the U.S. on foreign futures exchanges to keep similar records and report large trades.

Berry seeks to remove urea and AN duties

Ammonium Nitrate, News Briefs, Urea

Washington-Congressman Marion Berry (D-Ark.) is once again seeking to remove duties from imports of urea and ammonium nitrate. He filed two bills in January similar to legislation he filed last summer (GM July 31, p. 10-11). Of the new bills, HR 443 would remove antidumping orders on imports of solid urea from Russia and the Ukraine. HR 445 would terminate limitations on imports of ammonium nitrate from the Russian Federation. Both bills are now before the House Ways and Means Committee.

Mosaic says Esterhazy inflow rate cut in half

News Briefs

Plymouth, Minn.-The Mosaic Co. reported Feb. 16 that data collected from hydrogeologic testing performed this week indicates that the salt saturated brine inflow at its Esterhazy, Sask., mines has declined to an estimated rate of approximately 12,000 gallons per minute. This compares to the estimated initial inflow rate of approximately 20,000 to 25,000 gallons per minute. Inflow rate measurements reflect an estimate as of a particular point in time, and depending on when tests are conducted, rates can fluctuate up or down. Mosaic says the new measurement suggests that efforts to inject calcium chloride near the identified inflow area are beginning to impact the inflow as anticipated.

Mosaic seeks to prevent Bunge, Fosfertil merger

News Briefs

Plymouth, Minn.-The Mosaic Co. has filed a lawsuit against Bunge Fertilizantes S.A. and Fosfertil in Brazil to prevent the merger of the two (GM Jan. 1, p. 12). Mosaic says it is challenging, among other things, the validity of corporate actions taken by Fosfertil and its parent holding company and the valuation placed on Fosfertil. Mosaic said that it has obtained an injunction that enjoins the general meeting of Fosfertil’s shareholders to vote on the proposed merger from occurring until the merits of the lawsuit have been adjudicated. Mosaic said that if it is not successful in the matters being litigated and the merger is consummated, Mosaic’s resulting ownership interest in the combined enterprise would be diluted based on the relative valuations ascribed to each entity in any such merger.

Mosaic gets more time to review proposed permit

News Briefs

Bartow, Fla.-The Mosaic Co. has asked for and received additional time from the Florida Department of Environmental Protection (FDEP) to review a proposed permit for a water reservoir planned in DeSoto County. The six-billion-gallon reservoir would be located adjacent to a water treatment plant owned by the Peace River/Manasota Regional Water Supply Authority, which supplies drinking water to residents in Southwest Florida. Mosaic spokesman David Townsend said the company received notice of the proposed approval of the permit on Jan. 25, and was required to respond by Feb. 2, “which was simply not enough time to review” the several hundred pages of the permit. Townsend said the summary of the proposed permit “lacked specificity on wetlands mitigation and enhancement,” and the company needed the additional time to conduct the review. At the same time, the company said that if the request for additional time for the review was not granted, the company said it would seek a hearing before the Florida Division of Administrative Hearings. The company was given until Feb. 26 to review the proposed permit and seek the hearing, if it so chooses. Townsend said no decision had been made late last week. However, an editorial in the Sarasota Herald-Tribune chastised the company for the move and charged that it was seeking revenge for objections and hearings forced by counties in the region for the mining permits the company has sought in the past. Townsend said the newspaper had “misrepresented the facts,” and noted that Mosaic was simply attempting to determine whether environmental damage would result in the region, where it owns approximately 24,000 acres.

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