All Posts from July 28, 2023

Vancouver Dockworkers to Vote on Labor Agreement; Union Leadership Recommends Approval

Canada, Featured, News, Potash

Members of the International Longshore and Warehouse Union (ILWU) Canada on July 28 will be voting on a tentative labor contract with the British Columbia Maritime Employers Association (BCMEA), just a week after union leadership rejected the contract and strike activity temporarily resumed at the Port of Vancouver (GM July 24, p. 1).

There was no announcement on when the voting results would be made public, but dockworkers are back on the job at the ports Vancouver and Prince Rupert after ILWU leadership issued and then rescinded a strike notice on July 18 as negotiations resumed.

According to media reports, the terms of the labor contract are unchanged from the tentative agreement reached with the help of a federal mediator on July 13 between the BMCEA and ILWU (GM July 14, p. 1), nearly two weeks after roughly 7,400 dockworkers walked off the job on July 1 (GM July 7, p. 1).

What exactly changed at the negotiating table is unclear, but ILWU leadership announced that it was conducting a Stop Work meeting on July 25 to familiarize union employees of the terms of the agreement and recommend that they vote to accept.

In a tweet, Federal Labor Minister Seamus O’Regan thanked the union for sending the latest terms to its membership. “Thank you to the ILWU Canada Longshore Caucus for sending the Terms of Settlement to a membership vote, with their recommendation for ratification,” O’Regan said. “Right now, BC ports are operating, but we need long-term stability.”

Details of the tentative agreement were not made public, but the striking ILWU members were reportedly seeking an 11% wage increase in the first year, a 6% increase in the second year, a C$8,000 signing bonus, and protections against contracting out work and automation, the Globe and Mail reported.

The 13-day strike caused significant disruptions to port activity, prompting calls from industry groups for the federal government to enact back-to-work legislation if a quick resolution was not reached. The Greater Vancouver Board of Trade last week estimated the strike’s cost at C$10 billion, with backlogs that could take months to clear.

The strike hit the fertilizer industry hard, with Canpotex withdrawing all offers for new potash sales on July 19 and Nutrien Ltd. curtailing production at both its Rocanville and Cory mines in Saskatchewan. Canadian Pacific Kansas City Ltd. (CPKC) and Canadian National Railway Co. both announced that they had reduced movement of railcars to West Coast ports.

On July 27, CPKC Chief Financial Officer John Brooks told analysts that the strike had an estimated negative impact of about C$80 million on the railroad’s revenue, “much of which we will work hard to claw back over the remainder of Q3 and Q4.”

CF to Permanently Close Billingham NH3 Plant

Ammonia, Europe, Featured, News, Nitrogen, United Kingdom

CF Fertilisers UK Ltd., a subsidiary of CF Industries Holdings Inc., on July 25 announced a proposal to permanently close the ammonia plant at its Billingham complex in northeast England. The company intends to continue to produce ammonium nitrate and nitric acid at the Billingham site using imported ammonia, as it has for the past 10 months following its decision to temporarily idle the plant in August 2022 (GM Aug. 26, 2022).

CF said the decision to shutter the plant stemmed from forecasts that producing ammonia at Billingham would not be cost-competitive for the long term compared to importing ammonia, primarily due to the impact of carbon costs and projected high natural gas prices in the UK relative to other regions.

In addition, CF said shutdowns in recent years of industrial customers in the UK that had consumed “significant” ammonia volumes for their businesses have created a supply-demand imbalance for ammonia production at the Billingham complex.

“We believe that ample global availability of ammonia for import, including from CF Industries North American production network, will enable more cost-competitive and efficient production and sales of ammonium nitrate fertilizer and nitric acid for our UK agriculture and chemicals customers moving forward,” the company said.

CF’s Billingham complex is the largest ammonia, ammonium nitrate, and CO2 production facility in the UK, with an ammonium nitrate production capacity of 0.58 million mt/y, according to the Green Markets global capacity database.

The site – unlike CF’s now shuttered Ince plant in northwest England – has additional operational flexibility from a 40,000 mt ammonia storage tank and the ability to import lower-cost ammonia if necessary.

The permanent closure of the Billingham ammonia plant could result in up to 38 redundancies at the site. CF said it will be entering into the required collective redundancy consultation process with the recognized union, Unite, and elected employee representatives, adding that some of the proposed redundancies might be avoided by redeployment opportunities.

The UK’s National Farmers Union (NFU) Deputy President Tom Bradshaw said the closure decision was “concerning.”

“Availability of fertilizer is a crucial element of domestic food security and relying on importing ammonia from global markets exposes British fertilizer production to possible long-term risks, and increases farmers’ exposure to global volatility,” Bradshaw said. “It’s important that the government now look closely at how this shift to a reliance of imported ammonia could impact our domestic food production and highlights the need to maintain access to all nitrogen fertilizer products, including urea.”

In June 2022, CF announced that its Ince fertilizer plant in Cheshire would close permanently as part of a restructure to make operations at Billingham “viable for the long term” (GM June 10, 2022). The Ince plant produced ammonia, nitric acid, ammonium nitrate, and NS and NPKs, and had been mothballed since September 2021 due to high natural gas prices.

Until the mothballing of its Billingham ammonia plant, CF was an important supplier of CO2 gas to industrial customers in the UK, including food processors, hospitals, and nuclear power plants. The Billingham complex is capable of producing 750 mt of CO2 per day for commercial use.

Billingham and Ince had the combined capability to produce an estimated 60% of the UK’s CO2. But users of CO2 in the UK said the permanent closure of the Billingham ammonia plant poses no immediate threat to CO2 supplies because the country’s industrial gas customers have been diversifying their supply away from CF. They added, however, that the closure reduces capacity and leaves the industry vulnerable, particularly if facilities undergo maintenance shutdowns.

The temporary closure of CF’s UK sites in 2021 due to soaring production costs caused significant disruption to sectors reliant on CO2, leading the UK government to step in and support CF’s operations for a three-week period (GM Sept. 24, 2021).

Indonesia’s Pupuk Kaltim Eyes IPL’s Fertilizer Business

Ammonia, Australia, Featured, Indonesia, News, Nitrogen, Urea

Indonesian state-owned fertilizer company PT Pupuk Kalimantan Timur is reported to be in talks to acquire the fertilizer business of ASX-listed Incitec Pivot Ltd. (IPL), according to a Reuters report, citing two unnamed sources familiar with the matter.

Pupuk Kaltim has engaged both Citi and Gilbert+Tobin as advisors on the potential acquisition, the Australian Financial Review reported on July 23, citing unnamed sources. The Indonesian company is “actively” looking for overseas acquisition opportunities, particularly phosphate and potash assets, to support Indonesia’s long-term food security, Pupuk Kaltim President Director Rahmad Pribadi said in a May interview with NikkeiAsia .

IPL, which commands a market value of A$5.4 billion (approximately US$3.65 billion at current exchange rates), declined to comment on the reports beyond an ASX statement issued on July 12, confirming that it had “received a number of approaches for the potential acquisition of its fertilizers business” (GM July 14, p. 1).

IPL declined to identify any interested parties, but the Australian Financial Review revealed on July 11 that at least one Asia-based state-owned enterprise – at the time speculated to be Pupuk Indonesia – has shown interest in buying Incitec Pivot Fertilisers.

In its July 12 statement, IPL also said its Board’s assessment of a potential sale is being considered along with the ongoing proposal to structurally separate Incitec Pivot Fertilisers and the Dyno Nobel explosives business.

But IPL is facing investor opposition to its plans to demerge, with multiple investors warning that rising interest rates and tougher business conditions would make survival harder for the two smaller businesses with higher capital costs, the Australian Financial Review reported.

Pupuk Kaltim’s reported talks with IPL come as the Kalimantan-based producer has committed at least $1.5 billion on expansion plans, after two straight years of record profits, to meet rising demand resulting both from the Ukraine war and lingering effects of the coronavirus pandemic.

Pupuk Kaltim, which is  99.99% of owned by PT Pupuk Indonesia, is already Indonesia’s largest ammonia and urea producer and one of the largest fertilizer producers in Southeast Asia. The company posted 14.5 trillion rupiah ($964 million) in net income last year, more than double the approximately 6 trillion rupiah reported in 2021, which was already higher than pre-pandemic levels, according to the NikkeiAsia report, citing Pribadi.

Currently, Pupuk Kaltim’s biggest expansion project is a new complex costing more than $1 billion in Fakfak regency in Indonesia’s West Papua province. Construction is slated to start in the third quarter of this year, with commercial operations targeted for 2027. The new facility will produce 1.1 million mt/y of urea and 825,000 mt/y of ammonia, with the Indonesian government describing the project as of “national strategic” importance.

Pupuk Kaltim currently has 13 plants located in a huge production complex in Bontang, East Kalimantan province. Current output is put at some 3.4 million mt/y of urea, 2.7 million mt/y of ammonia, and 300,000 mt/y of NPK, NikkeiAsia reported. The company’s exports have overtaken domestic sales as it entered several new markets, including Australia for urea, Japan for ammonia, and South America.

Pupuk Kaltim has yet to decide whether to launch a domestic initial public offering (IPO) this year or in 2024 due to global capital market situation and geopolitical uncertainties, according to NikkeiAsia, citing Pribadi. Local media reported in early January that the company was planning an IPO of between $500 million and $1 billion amid the Indonesian government’s push for some state-owned companies to privatize (GM Jan. 6, p. 29).

LSB Second-Quarter Result Off on Lower Prices

Ammonia, Asia, Europe, Featured, News, UAN, Uncategorized

LSB Industries Inc. reported second-quarter net income of $25 million on net sales of $166 million, down from the year-ago $103 million and $285 million, respectively. Adjusted EBITDA was $47 million, down from $158 million.

LSB reported adjusted EPS of $0.25 per share for the second quarter, down from last year’s $1.22 but a 6.84% positive surprise compared to Bloomberg’s Consensus Estimate.

Net sales declined during the quarter driven by lower pricing for all products, partially offset by higher sales volumes for ammonia, LSB reported. LSB said the year-over-year decline in operating income and adjusted EBITDA primarily resulted from lower selling prices, partially offset by higher sales volumes and lower natural gas prices.

“For the second consecutive quarter we experienced a significant year-over-year decline in selling prices, reflecting the impact of lower natural gas prices in Europe and weaker industrial activity in Asia,” said LSB President and CEO Mark Behrman. “Additionally, UAN demand was below expectations as farmers opted to apply more urea due to what had been comparatively attractive pricing early this year versus UAN.”

Behrman noted that prices for nitrogen products have begun to improve, however, and the company expects this trend to continue “at a measured pace through the second half of this year,” with further improvement likely building into the 2024 spring planting season.

In addition to improved pricing, LSB said it expects favorable US corn market dynamics to provide support for stronger fertilizer pricing later this year and into next year. Corn prices remain above 10-year averages, the company said, which should incentivize farmers to optimize fertilizer applications in the fourth quarter of 2023 and spring 2024.

The company has no turnarounds planned this year, but LSB said the NuStar pipeline will be down for six weeks during 3Q, so ammonia sales volumes are expected to soften.

Despite the second-quarter headwinds, LSB continued to generate solid free cash flow in the quarter. “As a result, we not only implemented and repurchased stock under our $150 million buyback plan, but we also bought back $125 million of our bonds at a discount to their issuance price,” Behrman said. “Even with this return of capital to our shareholders, we maintained a substantial cash balance that will support our growth initiatives in the coming years.”

Behrman said LSB continues to evaluate projects to increase production capacity and expand its product mix. LSB submitted a capacity expansion project at its El Dorado, Ark., plant to the USDA for funding under its Fertilizer Production Expansion Program. LSB said it was selected for consideration and the company expects the total project expense at $400 million, of which the USDA would fund up to 25%.

Behrman said LSB plans to commence more detailed engineering in the coming weeks, including FEED, on the projects that have the most attractive return profiles. “We would expect to move forward with financial investment decisions on one or more of those projects at some point in the second half of 2024,” he said.

Behrman also highlighted LSB’s recent MOU with Amogy Inc. (GM May 26, p. 29) for the development of ammonia marine fuel.

“Through these projects, and the other projects we are exploring, we are well positioned to benefit from attractive government incentives that are currently in place,” he said. “Additionally, we believe these projects will benefit from anticipated growth in end-market demand, particularly for clean ammonia for power generation and marine locomotion.”

Product (Gross Sales in $000s) 2Q-23 2Q-22 % Change
AN & Nitric Acid 69,561 96,142 (28)
UAN 40,905 76,986 (47)
Ammonia        39,612 89,444 (56)
Other 15,767 22,231 (29)
Total 165,845 284,803 (42)
Sales Volumes st 2Q-23 2Q-22 % Change
AN & Nitric Acid 161,987 162,014 (0)
UAN 126,010 130,561 (3)
Ammonia        102,047 75,526 35
Total 390,044 368,101 6
Avg Selling Price $/st 2Q-23 2Q-22 % Change
AN & Nitric Acid 381 525 (27)
UAN 285 553 (48)
Ammonia        367 1,164 (68)
Other Factors 2Q-23 2Q-22 % Change
Avg Nat Gas ($/mmBtu) 3.39 7.15 (53)
Tampa NH3 $/mt 370 1,257 (71)
NOLA UAN $/st 251 584 (57)

MOPCO Joins Green Hydrogen Plant Project

Ammonia, Featured, Green Ammonia, Green Hydrogen, News, Nitrogen, Urea

Egyptian nitrogen producer MOPCO has agreed to be part of a new company that will produce green hydrogen to be used in green ammonia production, according to a July 25 announcement from the company’s Board of Directors. MOPCO will be joining with the SCATEC out of Norway and the Egyptian Petrochemicals Holding Company.

The announcement did not specify percentages of contributions or ownership of the new company, nor when construction will begin. Sources said the MOPCO action is seen as the first step to backing more green production operations.

MOPCO currently operates three urea and ammonia plants with an annual production capacity of 2 million mt of urea. The Green Markets database lists total MOPCO capacity at 1.92 million mt/y for urea and 1.2 million mt/y for ammonia.

K+S Cuts EBITDA Estimate on Brazil Price Effects

Earnings, Germany, News, Potash

K+S Group on July 24 cut its EBITDA guidance again for full-year 2023. It now sees EBITDA at €600-€800 million, versus projections in excess of €800 million in June (GM June 16, p. 25), largely due to potassium chloride price effects in the second quarter, particularly in the Brazilian market.

The latest guidance missed the average analyst estimate of €876.2 million (Bloomberg Consensus). In June, K+S cut its full-year EBITDA guidance from its May forecast of €1.15-€1.35 billion due to depressed potash prices (GM May 12, p. 27).

In addition, K+S now sees adjusted free cash flow at €300-€450 million, down from the previous estimate of €650-€850 million. The group sees preliminary EBITDA for the second quarter at about €24 million due to price effects, which it noted underperforms market expectations.

“In the second quarter, the potassium chloride selling price in the Brazilian market faced a more significant drop than previously expected,” K+S said. “The price recovery, which is currently observed, has also started later than assumed.” For the rest of the year as a whole, the company said it will not be possible to compensate for the EBITDA shortfall of the second quarter.

K+S added that sales-related optimization of the product portfolio will have an impact on production volumes. Furthermore, as a result of the port strike in Canada, the group said negative effects from the still ongoing normalization of supply chains cannot be ruled out.

K+S believes that if the current positive demand impetus and price trends continue for the rest of the year, it would still be possible to achieve the market expectation of about €800 million at the upper end of the guidance range. At the same time, however, K+S warned that a renewed reluctance to buy in key sales regions could lead to negative volume and price effects, in which case full-year EBITDA would be at the lower end of the range at about €600 million.

K+S will publish its second-quarter earnings on Aug. 10.

International Chemical Co. – Management Brief

Management Briefs

Tulsa-based International Chemical Co. (Inter-Chem) has announced several senior leadership changes. Brad Thomas, who has been with the company for 35 years and served as President and CEO for the last 16 years, retired as of June 30. Aaron Choquette, former Senior Vice President, has stepped into the role of President and CEO.

Inter-Chem said Thomas was instrumental in guiding the company through its Employee Ownership structure and growing Inter-Chem and its associated subsidiaries through a variety of expansions and acquisitions. Choquette has been with Inter-Chem for 33 years, serving in a variety of roles including accounting, operations, commercial trading, and business development.

John Mayfield continues in his roles as Senior Vice President and Chief Financial Officer. Mayfield has 36 years of tenure with Inter-Chem having served in a variety of financial roles. Doug Wells, who has been with the company for 35 years, is serving as Senior Vice President in Fertilizer Dealer Sales.

Mark Coolidge, who has been with Inter-Chem for 19 years, is now serving as Vice President, Sulfur. Steven Groce has been named Vice President, Southeast Fertilizer Sales, and has 15 years of experience with the company.

PrairieFood – Management Brief

Management Briefs

PrairieFood, a Lawrence, Kan., developer of technology to convert waste biomass into micro-carbon products for agriculture and other sectors, announced the appointment of Jason Tatge as CEO, replacing Robert K. Herrington, the company’s co-founder, who will now assume the role of Chairman of the Board.

PrairieFood said Tatge has led his two startups, Farms Technology and Farm Mobile, to profitability and successful exits, and has extensive experience in commodity trading, technology and data solutions, and senior management positions in large ag-related public companies.

As Chairman of the Board, Herrington will continue to provide strategic guidance and contribute to PrairieFood’s mission of transforming agriculture through innovative solutions. The company said his leadership was instrumental in the company’s success thus far, and his continued involvement ensures a seamless transition and ongoing support.

Water Group Petitions EPA on New WOTUS Rule

News, News Briefs, U.S.

A coalition of 45 agriculture and industry trade groups, including The Fertilizer Institute (TFI), on July 24 sent a letter to the US Environmental Protection Agency (EPA) and Army Corps of Engineers demanding that the agencies include specific language in their rewrite of the Waters of the United States (WOTUS) rule, which is expected to be published on Sept. 1, 2023.

EPA and the Corps are planning to rewrite WOTUS in response to the US Supreme Court’s May 25 ruling in Sacket v. EPA (GM May 26, p. 1), which limited the agencies’ regulatory authority over wetlands under the Clean Water Act (CWA). The ruling countered the “significant nexus” standard that guided EPA’s latest WOTUS definition, which was published in late December (GM Jan. 6, 2023) and went into effect on March 20.

In its letter, the Waters Advocacy Coalition argued that the agencies’ “truncated” timeline for the new rule indicates that public comments will likely not be solicited and the agencies will instead simply strike the “significant nexus” language and the rule’s definition of “adjacent” waters, steps that the coalition said would not be a “defensible response to Sackett or an appropriate approach to this rulemaking.”

The letter further states that the agencies must adhere to the “core holdings” in Sackett as they complete the WOTUS rewrite, including eliminating the standalone interstate waters and interstate wetlands category; adopting an interpretation of “relatively permanent, standing, or continuously flowing bodies of water” that is consistent with Supreme Court precedent; excluding ditches; clarifying the rule’s definition of “adjacent” to clarify that wetlands are jurisdictional only when they are indistinguishably part of another WOTUS; and retaining the rule’s codified exclusions.

The coalition also urged the agencies to maintain that administrative jurisdictional decisions (AJDs) made under the Navigable Waters Protection Rule (NWPR), the Trump Administration’s version of the WOTUS rule, remain valid and cannot be reexamined retroactively.

A series of meetings to discuss amendments to the WOTUS rule are scheduled in the coming days between the Office of Management and Budget (OMB) and interested parties, including the Waters Advocacy Coalition, the American Road and Transport Builders Association, the Responsible Industry for a Sound Environment, the National Mining Association, Edison Electric Institute, the National Association of Homebuilders, the National Stone and Gravel Association, and the American Farm Bureau Federation.

BHP Reports Jansen Stage 1 26% Complete

Canada, News, News Briefs, Potash

BHP Ltd. reported that its Jansen potash project, under development 140 kilometers east of Saskatoon, Sask., is “tracking to the accelerated plan” with first production still targeted for the end of the 2026 calendar year.

All piling activities for the processing mill and storage facilities were completed in the quarter ended June 30, BHP said in its operational review for the year ended June 30, 2023.

BHP said Stage 1 of Jansen is now 26% complete, up from 20% at the end of the quarter ended March 31, 2023 (GM April 28, p. 30). Once fully operational, Stage 1 will have capacity to produce 4.35 million mt/y of potassium chloride.

During FY2024, BHP plans to transition from civil works at Jansen into steel and equipment installation on the surface and underground, as well as continuing with equipment procurement. It said port construction will continue. BHP is investing a total of US$5.723 billion in the Jansen Stage 1 project.

BHP said the feasibility study for Jansen Stage 2 continues to progress and is on track to be completed during FY2024. The company in February announced that it had accelerated the Stage 2 feasibility study (GM Feb. 24, p. 1), a year earlier than previously expected (GM Sept. 9, 2022). Stage 2 could add another 4 million mt/y of capacity.

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