All Posts from May 25, 2009

TFI steps up efforts to sway debate over climate change legislation

The Fertilizer Institute last week stepped up its pressure on Congress to enact industry-friendly climate change legislation, first by participating in a briefing about climate change policy held by the House Agriculture Committee Legislative Assistants on May 18, and following that with a letter to House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) outlining the industry’s concerns with certain climate change proposals currently under consideration.

The May 18 panel discussion was organized as a follow-up to an information gathering questionnaire conducted by House Agriculture Committee Chairman Collin Peterson (D-Minn.). Speaking on behalf of TFI members, William Herz, TFI’s vice president of scientific programs, said Congress should carefully assess the design of a carbon reduction program and take into consideration fertilizer’s role in food production.

“Fertilizer is an energy intensive industry and segments of the fertilizer industry are both greenhouse gas (GHG) or energy intensive and trade intensive,” Hertz said. “As a result, our farmer customers – the nation’s agricultural producers – must be an integrated part of the offset market.” Herz said the fertilizer industry has achieved great energy efficiency reductions over the last 20 years and is committed to reducing its environmental footprint, but is currently approaching a theoretical maximum in energy conservation that is limited not by ingenuity or technology, but by the laws of chemistry.

“Low cost opportunities to produce nitrogen fertilizer exist in nations with inexpensive natural gas, reduced labor and environmental costs, and most importantly relaxed or no climate change policies in place or on the horizon,” he said. “As such, moving more fertilizer production overseas to less efficient producers would actually have a negative effect on global GHG emissions and climate change. This represents the worst possible scenario: a net increase in GHG emissions and the loss of thousands of high-paying domestic jobs.”

Herz highlighted industry successes in reducing emissions, including low-till or no-till farming techniques and best management practices that reduce nitrous oxide emissions from the field. “TFI believes that any future climate change policies should reward farmers for the use of these science-based practices utilizing the 4R nutrient stewardship system,” Herz said. “This site-specific, science-based system has received the support of the American Society of Agronomy’s Certified Crop Advisor program and, in addition to protecting the environment, ensures that farmers achieve profitability, while providing a sustainable food supply.”

On May 19, TFI President Ford West sent a letter to Rep. Waxman criticizing a proposed climate change allowance allocation program, which is designed to provide transition assistance to energy-intensive industries by helping to cover increased costs related to climate change programs. West said the program’s allowances to the fertilizer industry would not be sufficient to ensure global competiveness for U.S. fertilizer producers.

“Absent dramatic changes, the current allocation program will render the U.S. nitrogen industry uncompetitive, and threatens to force fertilizer production overseas to countries that do not regulate emissions, resulting in a loss both for the economy and for the cause of reducing CO2 emissions,” he said.

West highlighted fertilizer’s role in food production, stressing that fertilizers are responsible for 40-60 percent of the world’s food supply and that global food security cannot be attained without the use of commercial fertilizers. Noting that natural gas accounts for 70-90 percent of the cost of producing nitrogen fertilizer, West said natural gas pricing and volatility since the late 1990s has resulted in the U.S. fertilizer industry permanently closing 26 nitrogen plants, with U.S. farmers now relying on imports for 55 percent of their nitrogen fertilizer needs.

West said that between 1983 and 2006, the U.S. fertilizer industry reduced the amount of natural gas used to produce a ton of ammonia by 11 percent, with EPA estimating that U.S. nitrogen producers reduced GHG emissions by 4.5 million tons of CO2 equivalent from 1990 to 2006. “Unfortunately, the U.S. fertilizer industry is given no credit under the Waxman bill for the impressive early action it took to reduce its carbon footprint,” the letter states.

West warned that once aggressive GHG emissions policies are enacted domestically, the U.S. fertilizer industry “will be placed in a severe competitive disadvantage” to producers from countries with no carbon reduction policies or countries where governments have adopted or drafted policies that aim to fully protect their energy-intensive/trade-intensive industries, including fertilizer. “U.S. producers will face a stark choice of losing market share to imports or moving production overseas – neither choice is good for the U.S. economy, the environment or U.S. food security,” he said.

“The U.S. fertilizer industry provides high paying jobs to hardworking Americans in manufacturing plants, retail and wholesale businesses and in a host of related industries such as rail, barge and truck transportation,” the letter concludes. “It is therefore critical that any climate change policy does not jeopardize the domestic fertilizer industry that is such a vital link in food production, food security and the U.S. economy.”

PotashCorp extends curtailment program; buyers/sellers in standoff before IFA

PotashCorp on May 20 indicated its intention to curtail 2009 potash production by an additional 400,000 mt, bringing the total reductions in production to 3.9 million mt year-to-date and 4.8 million mt for the 2008/09 fertilizer year.

“Our commitment to our long-held potash strategy remains rock solid,” said PotashCorp President and CEO Bill Doyle. “While short-term demand deferrals are uncomfortable, we always manage with a long-term view. Demand will inevitably return, and – regardless of when that happens – we will be patient and preserve our assets until they are needed.”

PotashCorp makes this announcement as major global potash buyers and sellers are expected to meet at the IFA meeting in Shanghai. Doyle expects major agreements with China and India to come before the end of the second quarter. He told analysts last week that the Chinese are expected to buy product once their inventory levels drop to 2 million mt. Assessments are they may be around 3 million mt now.

Doyle also expects China to rebound next year, saying they may double their take or go as high as 13.7 million mt. He expects China to take about 5 million mt this year, or about the same as last year, which would be another year below their trend line.

Harry Wang, Sinofert Holdings senior vice president and executive director, speaking at the BMO Capital Markets Agriculture, Protein and Fertilizer Conference on May 14, said that China’s normal usage is about 10 million mt, and that it took 9.5 million mt in imports in 2007 and 5.5 million mt in 2008. He said that about 3.5 to 3.8 million comes from domestic Chinese production, with the remainder coming from imports. He said China realizes that it will need to import some 70 percent of its potash for years to come. While it hopes to become self sufficient in the product, as it is in nitrogen and phosphate, he said the goal is about a 10 percent increase in domestic production per year. While current use is 10 million mt, he said that Chinese farmers need to use more potash and use 22-23 million mt per year.

Like U.S. farmer psychology, Wang said the Chinese also expect potash prices to drop as they have with nitrogen and phosphate. He noted that a Chinese potash producer recently dropped its prices about $100/mt, to $485/mt. He said such a drop has a definite impact on negotiations as it makes it difficult to increase prices.

Doyle said India is in a more dire situation regarding potash than China, which might prompt it to conclude its contracts first. Still, he predicts Indian imports may be down in 2009, to 5 million from 2008’s 6.3 million mt. He expects India to rebound again to 6.3 million mt in 2010.

Doyle, like other producers, is adamant that prices must remain firm or higher so that the industry can build brownfield and greenfield projects that are going to be needed for future demand.

The U.S. retail potash pipeline should be about 95 percent empty by June 30, according to Doyle, speaking to an analysts meeting May 20. He said refill should begin in July-August, and that there will be no price cuts to encourage it. Doyle said with about a 35 percent drop in consumption this fertilizer year, corn acreage and potash use should be up in the next fertilizer year. He added that corn acreage could hit 90 million acres, up from an expected 82-84 million this year.

PHI reports $11.6 M 1Q loss, spring season did not develop, says CEO

Phosphate Holdings Inc. (PHI), the owner of Mississippi Phosphates Inc., reported a loss of $11.6 million ($1.51 per diluted share) on sales of $54.2 million for the first quarter ending March 31, 2009, compared to year-ago net income of $10.9 million ($.86 per share) and $67 million, respectively. Of sales, actual DAP sales were $52.9 million, versus the year-ago $61.6 million.

PHI said the first quarter was materially impacted by inventory write-downs of $9.3 million and recording unrealized losses on firm raw material purchase commitments of $6 million.

PHI had an operating loss of $18.3 million, down from the year-ago operating income of $10.9 million.

“The first quarter of 2009 was another difficult period for the company,” said PHI CEO Robert Jones. “Uncertainties regarding the overall economy, the availability of credit, the direction of grain prices, spring weather conditions and the high-cost fertilizer inventory in the supply chain all impacted both the movement and price of DAP. While we saw some product demand reappear mid-quarter, it was substantially limited to the export market, particularly, India.

“During the first quarter of 2009, approximately 83 percent of our DAP sales were into the international market,” continued Jones. “During the quarter, we operated our facilities at approximately 50 percent of capacity, with our principal goal of converting existing phosphate rock inventories into DAP in order to meet liquidity needs. We utilized borrowings under our credit facilities, income tax refunds and proceeds from a major sales transaction to sustain our operations. As of the date of this release (May 19, 2009), we have approximately $1.0 million in cash and no borrowings under our credit facility.

“During the first quarter of 2009, the company benefited from lower sulfur costs. However, these reduced costs were offset by rising ammonia cost. Sulfur costs settled (C&F Tampa) at zero in the first quarter of 2009, while ammonia prices increased from $125 per metric ton to $318 per metric ton. Since the end of the first quarter, DAP prices continue to decline from a level of approximately $375 per metric ton to $312 per metric ton (FOB U.S. Gulf).

“DAP prices and demand remain depressed and the U.S. spring season simply did not develop, and it appears that phosphate fertilizer applications will be down approximately 25 percent in the 2008/2009 fertilizer year, compared to prior-year applications,” said Jones. “Such a cutback in application rates will likely deplete soil nutrient levels requiring above-normal application rates in the 2009/2010 fertilizer year. We are continually evaluating opportunities to improve our liquidity position to ensure that we position ourselves for the inevitable rebound in phosphate demand and pricing. While near-term challenges persist, the long-term fundamentals for global phosphate demand remain positive.”

ICL Fertilizer sees big income, sales drop; income remains in plus column

Israel Chemicals Ltd.’s ICL Fertilizers saw a huge drop in operating income and sales during the first quarter ending March 31, 2009. Operating income was $138.8 million on sales of $371.1 million, compared to the year-ago $407.4 million and $952.9 million.

ICL cited a sharp decline in quantities sold as well as lower phosphate prices, which were somewhat offset by higher potash prices, decreases in shipping and energy costs, and the depreciation of the shekel in terms of the dollar. Efficiency measures also helped reduce the impact of lower sales.

Toward the end of the first quarter, ICL said global demand for fertilizers increased somewhat, reflecting a renewal of activity in Brazil and some other markets. It said fertilizer inventories were reduced in the country and demand was picking up due to higher soy prices and the devaluation of the local currency. ICL added that said potash demand in Southeast Asia, particularly in Indonesia and Malaysia, was up due to higher palm oil prices.

Going forward, despite the current global economic crisis and continued relative weakness of the short-term market demand, the company said long-term fertilizer fundamentals remain positive. ICL says it has intensified its cost savings and efficiency programs, and that it is taking advantage of its virtually-unlimited outdoor storage capacity at the Dead Sea to stockpile potash for future sales. It also continues to manufacture at normal levels.

Company-wide, Israel Chemicals had first-quarter net income available to shareholders of $158.8 million on sales of $898.5 million, versus the year-ago $346.7 million and $1.53 billion, respectively. Operating income was $205.6 million, down from the year-ago $465 million. EBITDA was $259.3 million, down from $507.9 million. As with ICL Fertilizer, volumes were off at the company’s other segments ?Çô ICL Industrial Products and ICL Performance Products.

On May 4, the company paid a dividend totaling $175 million in respect of its 2008 results. The company on May 20 declared that a dividend of $100 million will be paid on June 17, 2009, with respect to the first quarter results.