CF Industries Q3 Earnings – UK production shutdowns leaves heavy mark

CF Industries reported net earnings of $212 million for the first nine months of the year, EBITDA of $984 million and adjusted EBITDA of $1,485 million late yesterday. It also reported a Q3 net loss of $185 million and an EBITDA loss of $10 million, which include the impact of preliminary pre-tax non-cash impairment charges of $495 million related to the company’s UK operations.

Tony Will, president and chief executive officer, said: “Strong global nitrogen demand, favorable energy spreads and continued excellent performance by the CF team helped us deliver a nearly 50 percent increase in adjusted EBITDA through the first nine months of 2021 compared to 2020.”

On the outlook for the market, he said “We expect positive nitrogen industry fundamentals will persist at least into 2023, underpinned by the need to replenish global grains stocks and by rising economic activity. We are well-positioned to capitalize on these positive industry dynamics, enabling us to invest in our clean energy initiatives, return substantial capital to shareholders and achieve our goal of $3 billion of gross debt by 2023.”

With regard to the forward outlook, CF also anticipates that global nitrogen supply remains constrained with production in key regions affected by high energy prices. Strong demand is anticipated in India, North America, Brazil and Europe (due to ammonia production curtailments), while exports from China are expected to be limited through much of FH 2022.

Production – Gross ammonia production for Q3 2021 was approximately 2.2m. tonnes and was approximately 6.9m. tonnes for the first nine months of 2021. The company expects gross ammonia production for the full year 2021 will be approximately 9m. tonnes. This reflects the impact of the highest level of maintenance activity in CF’s history, including turnarounds at seven of CF’s 17 ammonia plants.

Production volumes were also affected by plant outages and subsequent maintenance due to natural gas availability issues caused by Winter Storm Uri in February 2021, and maintenance related to Hurricane Ida in August 2021.

Commenting on the halt of UK operations at the Billingham and Ince facilities due to high gas prices, CF noted that the Billingham facility is expected to continue to operate through to at least January 2022, reflecting the impact of new CO2 pricing and offtake agreements reached with its industrial gas customers. Operations remain halted at CF’s Ince facility, and the company is continuing to monitor market conditions.

The cost of sales for first nine months of 2021 were higher compared to the previous year due to higher gas and maintenance costs. In the first nine months of 2021, the average cost of natural gas reflected in CF’s cost of sales was $3.51 per MMBtu compared to the average cost of natural gas in cost of sales of $2.11 per MMBtu in the first nine months of 2020.

Q3 2021 granular urea production was 987,000t, down 162,000t on Q3 2020. 860,000t of urea were sold in Q3 2021, down from 1.107m. tonnes in Q3 2020. For the first nine months of the year, urea sales were just 3.272m. tonnes compared to 3.802m. tonnes. This figure is partially offset by the sale of 201,000t of purchased urea.

Q3 UAN production was down 261,000t on Q3 2020 at 1.311m. tonnes. Sales were 1.283m. tonnes, down from 1.725m. tonnes in Q3 2020.

UAN – ITC/DOC investigation – The Q3 earnings report reiterated earlier comments from CF regarding the ongoing Commerce and ITC investigations into UAN imports from Russia and Trinidad. It noted that Commerce is scheduled to issue its preliminary countervailing duty determinations in November 2021, followed by preliminary antidumping determinations. The company expects that Commerce will then issue final determinations in 2022.

If Commerce’s final determinations are affirmative, then the ITC would make a final injury determination. If both agencies make affirmative final determinations, a process that typically takes approximately one year, then Commerce would issue antidumping and countervailing duty orders on UAN from Russia and Trinidad, which would remain in place for at least five years.