CF earnings decline on lower ammonia, UAN prices

Market: Fertilizers
06/08/14

CF Industries' second-quarter profits declined 37pc year-over-year to $313mn as lower ammonia and UAN prices and higher natural gas costs more than offset increased ammonia sales. The company remains on track with its two capacity expansion projects that will increase nitrogen production by roughly 25pc.

Quarterly ammonia sales volume increased 33pc year-over-year to 1.1mn st because of a relatively long agricultural application window made possible by favorable weather. CF also saw higher industrial offtake, in part because of the supply agreement with Mosaic for phosphate production. Increased second-quarter volumes contributed to record first-half 2014 sales volume of 1.7mn st, up 45pc from the same period last year.

Ammonia average selling price for the second quarter declined 23pc year-over-year to $544/st because of high global supply and the ongoing impact of elevated US inventory after dismal fall applications.

CF noted a strong urea pricing environment in North America relative to international benchmarks during the first half of 2014, but second-quarter sales volume of the product fell 4pc year-over-year to 677,000st owing to lower available inventory. Average selling price for the quarter increased 3pc from a year ago to $396/st.

Second-quarter UAN sales volume declined 6pc year-over-year to 1.5mn st because of customer preference for relatively attractively priced ammonia and lower production, likely a function of the prolonged outage at the Woodward, Oklahoma, nitrogen facility. With customer preference for ammonia, UAN average selling price declined 12pc year-over-year to $299/st.

Despite ongoing regulatory concerns surrounding the product, CF ammonium nitrate sales of 266,000st were up 14pc year-over-year. Average selling price of $278/st was down 1pc, which the company attributed to price declines in other internationally traded nitrogen products.

The weaker sales price environment with the exception of urea contributed to a 5pc year-over-year in decline in nitrogen segment revenue to $1.4bn.

Prices for natural gas, the feedstock for nitrogen fertilizer production, were higher than last year because of the impact of the coldest winter in 30 years, CF said. The company's effective gas cost for the quarter was $4.19/mmBtu, up 11pc from last year.

The combination of lower realized prices and higher costs compressed the nitrogen segment's gross margin from 56pc last year to 41pc during the second quarter of 2014.

CF's expansion projects at Port Neal, Iowa, and Donaldsonville, Louisiana, remain on schedule and on budget. The company estimates 2014 expansion capital expenditures of $1.7bn, with spending increasing in the back half of the year as key components are delivered.

CF expects over 90mn acres of corn to be planted in 2015, and noted strong initial demand for fall ammonia and a robust order book for second half 2014 UAN deliveries. The company expects US urea prices to converge with international delivered prices as fall imports ramp up.

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