All Posts from March 7, 2016

Writedown, market conditions impact SQM

Sociedad Quimica y Minera de Chile SA (SQM) reported 2015 full-year net income of $213.2 million ($0.81 per share) on revenues of $1.73 billion, down from 2014’s $296.4 million ($1.13 per share) and $2 billion, respectively. Results from 2015 include a one-time write-off of $57.7 million related to stopping the operations of the Pedro de Valdiva mines (GM Nov. 23, 2015).

“During 2015, we faced many challenges, including lower prices and lower volumes impacting some of our business lines,’ said SQM CEO Patricio de Solminihac. “As mentioned previously, our sales volumes in both the Specialty Plant Nutrition and Potassium segments were lower as a result of delays during the first half of 2015. We were not able to fully compensate for those delays during the second half of the year. In addition, prices have fallen significantly in the past 12 months in the potassium chloride and iodine markets.” He said the restructuring of nitrate and iodine assets in 2015 will improve SQM’s competitive position. Lithium prices, up over 10 percent, partially offset the lower prices for other commodities.

Specialty Plant Nutrition revenues for 2015 were $651.2 million, down from 2014’s $708 million. While sales volumes of field fertilizers decreased, SQM said water-soluble fertilizer sales were up 5 percent. Overall, SPN average prices were lower at $784/mt. The company expects the prices will likely be lower in 2016. Within the segment, potassium nitrate and sodium potassium nitrate volumes were down 7 percent, to 493,600 mt from 531,600 mt and specialty blends to 203,900 mt from 228,000 mt. Other SPNs, which includes trading of other specialty fertilizers, was up at 107,500 mt from 102,500 st, while sodium nitrate was up at 26,000 mt from 15,800 mt.

In the Potassium Chloride/Potassium Sulfate segment, revenues were down 26 percent, to $430.2 million from $584.3 million, and volumes 20 percent to 1.24 million mt from 1.56 million mt. The combined average price for the unit was
$346/mt, down 7.7 percent from the 2014 price, with fourth-quarter prices some 27 percent lower than year-ago levels. SQM expects 2016 sales volumes for potassium levels to increase back to 2014 levels, with prices lower than those for 2015.

SQM fourth-quarter net income was $44.6 million ($0.17 per share) on revenues of $411.3 million, down from the year-ago $78 million ($0.30 per share) and $491.4 million, respectively.

Third West Fertilizer trial delayed until May; judge denies request to change venue

A request by defendants in the West Fertilizer case to move the next trial to another county has been denied by the presiding judge. The upcoming trial, currently set for May 16, is the third scheduled in the case. Out-of-court settlements were reached in the first West trial last October (GM Oct. 19, 2015), and again in the second trial in late January 2016.

On March 1, 170th State District Judge Jim Meyer declined a motion to transfer the May 16 trial to a location other than McClennan County, where the City of West and the former West Fertilizer Co. are located. The request was made at a Tuesday hearing by defendants CF Industries Holdings Inc. and El Dorado Chemical Co.

According to the Waco Tribune-Herald, defense attorneys argued that local media coverage of the April 2013 West Fertilizer explosion and “intense feelings” generated by the case had made it difficult to select an impartial jury in McLennan County. Plaintiffs’ attorneys successfully countered that at least 43 potential jurors in the county had indicated no opinion or personal feelings about the case in a questionnaire.

Meyer recently pushed the third trial date back from March 21 to May 16 while negotiations continue between the parties. The final list of plaintiffs for the third trial is still under consideration, but reportedly includes the wrongful death claims of three West Volunteer Fire Department members killed in the blast, the West Rest Haven nursing home, and a number of West residents claiming personal injury and property damage.

The total list of plaintiffs in the complex litigation originally numbered about 200. Defendants include West Fertilizer owner Adair Grain Inc. and several fertilizer companies that either manufactured or sold ammonium nitrate to West Fertilizer in the months prior to the explosion, including CF Industries Holdings Inc. and related CF companies, International Chemical Co. (Inter-Chem), and LSB Industries Inc. and its subsidiaries El Dorado Chemical Co. and Thermaclime Inc.

The first lawsuits were filed within days of the blast against Adair Grain (GM April 29, 2013), but plaintiffs’ attorneys began casting a wider net when it was revealed that Adair carried just $1 million in liability insurance coverage. CF was first named as a defendant in June 2013 (GM July 1, 2013) in a lawsuit filed by the City of West. Inter-Chem was added as a co-defendant in January 2014 (GM Jan. 27, 2014), and LSB, El Dorado, and Thermaclime were added in February 2014 (GM Feb. 17, 2014).

Adair Grain has since filed a countersuit against the fertilizer companies (GM May 19, 2014), and CF, El Dorado, and Inter-Chem have filed court motions (GM Aug. 4, 2014) naming the City of West, Adair Grain, and others as “responsible third parties.”

In December 2015, the Waco Tribune-Herald reported that defense attorneys had asked Judge Meyer to include Adair as a plaintiff in either the second or third trial groups, but plaintiffs’ attorneys argued that doing so would be confusing and unfair to the other plaintiffs still awaiting their day in court. Meyer reportedly denied the defense motion, but instructed plaintiffs to include Adair in the fourth trial, which currently has no date set.

The first trial, which was settled in October for an undisclosed amount, included the families of three first-responders killed in the blast. Plaintiffs in the second trial, which was scheduled for Feb. 1 but canceled on Jan. 28 after the parties reached undisclosed or partial settlements, included the wrongful death claims of two volunteer firefighters and a number of West residents who filed personal injury and property damage claims, as well as subrogation claims filed by insurance companies to recoup claims they have already paid.

The Waco Tribune-Herald reported that at a settlement conference in November 2015, defense lawyers stressed that any resolutions reached in the case involved no admission of liability on the parts of defendants.

Plant problems, market conditions put LSB in loss column

Plant problems and market conditions conspired to put LSB Industries Inc.’s Chemical segment’s operating income in the loss column for the fourth quarter and full year ending Dec. 31, 2015. The unit had a fourth-quarter loss of $10.3 million on net sales of $87.4 million, compared to year-ago income of $4.5 million and $115.1 million, respectively. The full-year loss was $41.8 million on sales of $428.1 million, compared to 2014 income of $51.3 million and $483.6 million.

Company-wide, LSB reported a fourth-quarter loss of $11 million ($0.48 per diluted share) on net sales of $157 million, compared to a year-ago income of $657,000 ($0.03 per share) and $187.2 million, respectively. It reported a full-year loss of $38 million ($1.67 per share) on sales of $711.8 million, compared to 2014’s net income of $19.3 million ($0.83 per share) and $761.2 million, respectively.

“Our fourth quarter fell short of our expectations,” said Dan Greenwell, LSB president and CEO. “Results for our Chemical business were weaker than the fourth quarter of 2014 due to unplanned downtime at our Pryor facility, lower sales of ammonium nitrate to the mining sector, and lower selling prices for agricultural chemicals, which were down approximately 16 percent compared to the prior-year period. Looking at the current year, fertilizer prices appear to have stabilized, and we believe that due to the contracted fall fertilizer application season, demand for fertilizers will be stronger this spring and pricing will firm up from current levels.

“Additionally, we were disappointed with the unplanned outage at our Cherokee facility,” Greenwell added. “Cherokee operated efficiently and consistently during 2015 with the exception of two weeks in December, and its ammonia plant operated at an on-stream rate of 94 percent for the full year of 2015. We are continuing to take positive steps with equipment replacement and upgrades at both the Pryor and Cherokee plants to increase on-stream rates in 2016.”

Both Pryor and Cherokee are now producing at normal rates. The company took a $3.5 million writedown on Pryor ammonia assets in the fourth quarter. LSB anticipates that Pryor will go down for a turnaround in late summer/early fall and Cherokee in late summer.

As earlier reported, LSB expects its new El Dorado ammonia plant to come up in the second quarter and be within budget (GM Feb. 19, p. 12). Greenwell told analysts that he expects the plant to actually begin production in April, and ramp up for full production during the rest of the quarter. The company is upbeat on plant economics once the ammonia plant comes up. LSB reiterated that it will continue to review strategic alternatives, including asset sales or the separation of its two businesses. In the past, LSB has listed the completion of the ammonia plant as an important milestone prior to moving ahead with these alternatives.

To date, El Dorado has been pressured by the high cost of purchased ammonia and the loss of the Orica contract for explosives grade ammonium nitrate, as well as lower ammonium nitrate prices. Also during the quarter, LSB bought forward natural gas in a falling gas market, having an average of $3.05/mmBtu for the quarter, though down from the year-ago $3.89/mmBtu. As of March 1, LSB said it has booked about 40 percent of its forward gas at $2.75/mmBtu. Purchased ammonia costs were down at $415/st from the year-ago $593/st.

For the Chemical unit, fourth-quarter Agricultural sales were down 20 percent, to $39.6 million from the year-ago $49.3 million, while Industrial/Mining/Other (IMO) were off 27 percent, to $47.8 million from $65.8 million. In the Ag sector, total tons sold were about level, though pricing was off.

For 2016, LSB expects sales to be up for both the Ag and IMO sectors, mainly due to the El Dorado expansion coming online. Within the Ag sector, it projects UAN sales of 365,000-390,000 st, AN 185,000-210,000 st, and ammonia 110,000-130,000 st. In the IMO sector, nitric acid sales are expected to be 540,000-570,000 st, AN 110,000-135,000 st, AN solution 55,000-65,000 st, and ammonia 150,000-175,000 st.

Prosecutors charge K+S CEO, board over wastewater disposal

Fourteen people at K+S AG, including CEO Norbert Steiner and other members of the management board, are reported on March 4 to have been charged with illegally disposing of saline waste water and polluting waters. It is understood the former CEO and two former public officials were also been charged. The charges have been brought by prosecutors in the town of Meiningen in Germany’s Thuringia state, according to Bloomberg, which broke the news.

The charges relate to the injection of waste water into the Gerstungen trough between 1999 and 2007. It is understood K+S officials and local authorities are accused of colluding to illegally produce licenses for the disposals.

In a statement March 3 before the prosecutors’ announcement, K+S said it remains convinced that it lawfully obtained the permit for the injection of saline waste water into the Gerstungen trough for the years in question. The permit relates to the Werra plant, which comprises the Unterbreizbach, Hattorf, and Wintershall sites. The company says that a continuing audit by an external law firm on its behalf in recent months has revealed “no evidence of criminal conduct.” In its statement, K+S added that against this background, it sees no need to implement any precautionary financial measures, including in the form of provisions.

K+S has said previously that it was cooperating fully with the investigators. Thuringia state prosecutors searched the company offices in September following long-standing complaints from environmental groups about the producer’s wastewater being disposed of into the Werra river (GM Sept. 11, 2015). K+S declined to comment further on the proceedings.

HECA pulls out of fertilizer project

The Hydrogen Energy California (HECA) project, which had hoped to build a large coal/petroleum coke-based nitrogen and electricity project in Kern County, Calif., withdrew its motion to reinstate its application for certification (AFC) with the California Energy Commission on March 3. HECA had filed the motion late last year (GM Dec. 7, 2015) and a hearing was set for March 7, 2016.

“Recent developments, such as the U.S. Supreme Court’s Feb. 9, 2016, decision to stay implementation of the Obama Administration’s Clean Power Plan, which was rendered subsequent to applicant’s pending request to reinstate the revised AFC proceedings, have cast additional uncertainty over the timing of such projects,” HECA said in its withdrawal filing. “Given the current uncertainty related to timing, the time that has passed since some of the analysis related to the project was completed, and the likely need for substantially revised analysis to reflect anticipated changes to the project, applicant has decided to withdraw the revised AFC.”

The CEC quickly terminated the AFC proceeding and cancelled the hearing.

HECA conceded that the timeframe for deploying the project had been much longer than was originally anticipated.

HECA said it continues to believe that the site, which it will retain control over, is well suited for carbon sequestration. It said it will continue to monitor relevant policy, regulatory, legal, and economic developments, and work with agencies and other entities likely to play a role in the future deployment of the project. It said the information and analysis collected to date would be a substantial base upon which to develop a new application.

HECA arose out of the American Recovery and Reinvestment Act of 2009, when the DOE’s Office of Fossil Energy received $3.4 billion to focus on clean coal technology projects. In 2011, after DOE and HECA had spent $75 million on the project, HECA was transferred from original owners BP and Rio Tinto to SCS Energy California. As of late 2011, the cost of building the project was put at $4 billion and DOE’s share at $408 million. As of 2012, plans were for it to generate a total net output of up to a nominal 300 megawatts, make up to 1 million st/y of nitrogen-based products, capture a stream comprised primarily of CO₂, and transport it by pipeline to a neighboring oilfield for enhanced oil recovery and sequestration (GM Dec. 31, 2012).

HECA requested and received a six-month suspension of the AFC last summer while it readied the project for a more detailed review (GM July 13, 2015). When it filed its motion to reinstate the AFC, it said it had resolved the C0₂ off-taker and carbon sequestration issue, as well as Kern County concerns that it might produce non-fertilizer nitrogen products. HECA had argued that it could permanently sequester the C0₂ beneath the project site, with this approach eliminating the need to contract a C0₂ off-take agreement. HECA was originally going to sell the C0₂ to oil companies, but was never able to reach a deal.

Opponents were not happy with this plan and continued opposition was expected. HECA had opposition from neighbors, environmental groups, and Kern County officials.

Another coal-based nitrogen project was still in the proposal stage in January (GM Jan. 8, p. 1). The Summit Power Group’s Texas Clean Energy Project (TCEP) near Odessa, Texas, would produce 714,000 st/y of urea. TCEP had been anticipating a financial close in the spring of 2016. Did the Supreme Court decision also alter their thinking? The company had not responded to inquiries at press time.