CF Industries Sees Strong Demand, Prices in Second-Quarter 2012, Expects $400 Million in CapEx for Full Year

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Researched by Industrial Info Resources (Sugar Land, Texas)--CF Industries Holdings Incorporated (NYSE:CF) (Deerfield, Illinois), the holding company for CF Industries Incorporated, which is a worldwide leader in nitrogen and phosphate fertilizer manufacturing and distribution, saw solid overall gains in the second quarter of 2012. Improved average price realizations for most nitrogen products and a strong demand for crop nutrients offset a drop in sales volumes. The company saw records for revenues and shipments for the first half-year. Net earnings were reported to be $606.3 million, a 24.39% increase from second-quarter 2011.

Total sales stood at $1.74 billion, a 3.67% decrease from the same period last year. Strong spring demand and tight North American inventory levels significantly boosted nitrogen product prices, while lower global demand weakened phosphate prices. The strong demand for nitrogen was spurred by favorable field conditions, which were driven by mild spring weather and an improvement in planted acres. Still, nitrogen prices saw a normal decline at the end of spring. Overall, nitrogen volumes were down, as weaker sales in the northern U.S. lowered granular urea sales volumes, and weaker agricultural sales negatively affected ammonium nitrate volumes.

The company also benefited from $77.6 million in pre-tax, non-cash mark-to-market gains on natural gas derivatives, whereas it saw $14.2 million in non-cash mark-to-market losses in second-quarter 2011. Sales costs declined 29%, partly due to lower realized natural gas costs.

Industrial Info is tracking about $2.8 billion in projects involving CF that are in the planning, engineering or construction stages, including the planned $500 million addition of an ammonia unit at a nitrogen complex in Donaldsonville, Louisiana. Plans involve evaluating the construction of a natural gas-fired Uhde steam reformer for the production of syngas and a Udhe dual-pressure technology ammonia unit with approximately 2,200-metric-ton-per-day anhydrous ammonia capacity. The project is expected to kick off in July 2013 and be completed in January 2015. At the same complex, Industrial Info is tracking the planned $230 million addition of a 3,500-metric-ton-per-day urea unit, which is expected to begin in August 2013 and be completed in December 2014.

"With the early start to the planting season, strong corn demand and attractive farm-level economics, over 96 million acres of corn were planted, a post-World War II record," said Stephen Wilson, the chairman and chief executive officer of CF, in a conference call. "The high corn acreage, along with ideal spring weather conditions, created strong nitrogen demand that continued through the planting season. As a result, for the first six months of the year, we sold a record volume of nitrogen products, driven by ammonia and urea."

Net sales and gross margins improved in both of CF's major segments for the quarter and the year, although they were stronger in the Nitrogen segment, which was boosted by the Terra acquisition:

• The Nitrogen segment saw net sales of $1.5 billion, basically unchanged from second-quarter 2011, and a gross margin of $992.9 million, a 26.87% increase:
• Ammonia sales stood at 793,000 tons, a 19.16% decrease from the same period last year, and the average selling price was $635 per ton, a 6.54% increase.
• Urea sales stood at 694,000 tons, a 4.54% decrease from second-quarter 2011, and the average selling price was $522 per ton, a 34.19% increase.
• Urea ammonia nitrate solution sales stood at 1.63 million tons, a 1.33% decrease from the same period last year, and the average selling price was $324 per ton, a 0.31% increase.
• Ammonium nitrate sales stood at 249,000, a 7.09% decrease from second-quarter 2011, and the average selling price was $257 per ton, a 1.15% decrease.
• Total sales for other nitrogen products stood at 169,000 tons, a 13.42% increase from the same period last year.
• The Phosphate segment reported net sales of $231.5 million, a 21.95% decrease from second-quarter 2011, and the gross margin stood at $50.4 million, a 40.57% decrease:
• Diammonium phosphate sales stood at 368,000 tons, a 3.66% decrease from the same period last year, and the average selling price was $472 per ton, a 14.95% decrease.
• Monoammonium phosphate sales stood at 125,000 tons, a 19.87% decrease from second-quarter 2011, and the average selling price was $464 per ton, a 14.71% decrease.

For the rest of 2012 and early 2013, CF executives expect the domestic nitrogen supply to remain tight and natural gas costs to be favorable. These factors, along with strong global demand and strong corn-planting expectations for the next year, are expected to benefit CF. Capital expenditures are expected to be about $400 million for full-year 2012.

"Long-term trends in population growth, higher protein diets, and the use of crops for renewable fuels, continue to drive demand for plant nutrients," Wilson said in the conference call. "Light global grain and oilseed supplies have driven crop prices higher and created the incentives for farmers to plant a large crop again next year. Natural gas prices are in a favorable range for us, and have contributed to a strong earnings profile for the company."

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