Rentech to cut Pasadena production, workforce
Rentech Nitrogen Partners LP said Oct. 2 that it has begun to restructure operations at its Pasadena, Texas facility, in order to improve profitability in currently unfavorable market conditions.
Rentech Nitrogen expects to complete the restructuring by the end of this year. Annualized cash savings at the Pasadena facility in 2015 are projected to be approximately $10 million. The LP expects the restructuring to reduce operating and SG&A expenses by approximately $6 million, and annual maintenance capital expenditures by approximately $4 million, compared to the 2014 forecast. This should enable the Pasadena facility’s operations, including power generation, to generate positive EBITDA in 2015, based on the LP’s current outlook for input costs and prices of ammonium sulfate (AS).
The restructuring includes a reduction of approximately 20 percent in full-time equivalents, including contractors and employees. Severance and other one-time employee-related expenses of roughly $0.5 million are expected in 2014, in connection with the reductions.
As part of the restructuring, the Pasadena facility will reduce annual production of AS by approximately 25 percent, to 500,000 tons. Approximately 70 percent of the 500,000 tons will be targeted for the domestic market, with the remaining tons to be sold primarily in New Zealand and Australia, the international markets with the highest net prices. The plan eliminates typically low-margin sales to Brazil, other than modest amounts expected during peak seasons when higher margins may be achievable. The plan provides the option to increase AS production above the 500,000 ton rate for limited periods.
The LP expects positive Adjusted EBITDA for the Pasadena facility for 2015, assuming average index prices for ammonia and sulfur of $550 per metric ton and $126 per long ton, along with a weighted average price for ammonium sulfate of approximately $218 per short ton.
Rentech says tight global ammonia supplies due to production issues in the Middle East, as well as political issues in Libya and Ukraine, are contributing to higher ammonia prices compared to prices of other nitrogen products. Strength in ammonia prices is expected to continue through early 2015, but dissipate as the year progresses. This is expected to cause Adjusted EBITDA for the Pasadena facility to be near break-even for the first half of 2015, with seasonal factors contributing to negative Adjusted EBITDA expected in the first quarter. Rentech said expected lower ammonia prices later in 2015 should lead to positive Adjusted EBITDA for the second half of 2015 and for the full year.
Rentech Nitrogen reaffirmed its Adjusted EBITDA guidance for 2014 of approximately $90 million for the East Dubuque and Pasadena facilities combined, and approximately $80 million including LP-level expenses. The recent increase in ammonia prices has improved the forecast for the East Dubuque facility; higher ammonia and sulfur input costs, partially offset by higher prices for AS, have reduced the forecast for the Pasadena facility. The LP expects strong fall ammonia application and tight ammonia inventories, along with good overall nitrogen demand in 2015 for the core trade zones of the East Dubuque facility.