Q3 2020 CF Industries Holdings Inc Earnings Call
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Ladies and gentlemen, and welcome to the CF Industries Holdings nine month, and third quarter 2020 results Conference call. My name is Joanna and I will be your coordinator for today at this time, all because if I take it you know he said only mode, meaning that you might be a question and answer session toward the end of the presentation.
What's the question at any time, please press star one on your Touchtone telephone keypad if at any.
Any time during this call. Your question. Please press star zero enough, where you need to we'll be happy to speak to you. Thank you I would now like to turn the presentation over to your host for today Mr. Martin Joe's here, let's see of Investor Relations. Sir. Please proceed.
Good morning, Nice rejoining the CF industries year to date 2020 earnings Conference call I'm, Martin drastic Vice President Investor Relations for CEO.
With me today are Tony will CEO, Chris Bohn, CFO, and Bert Frost Senior Vice President of sales market development and supply chain.
CF industries reported year to date 2020 results yesterday afternoon on this call. We'll review the CF industries year to date results in detail discuss our outlook and then host a question and answer session.
Statements made on this call and in the presentation on our website that are not historical facts are forward looking statements. These statements are not guarantees of future performance and involve involve risks uncertainties and assumptions that are difficult to predict therefore actual outcomes and results may differ materially from what is expressed or implied in any statements more do you.
Filled information about factors that may affect our performance may be found in our filings with the FCC, which are available on our website.
So you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website.
Now, let me introduce Tony will our president and CEO.
Thanks, Martin and good morning, everyone, yes.
Yesterday, we posted our financial results for the first nine months of 220 20 in which we generated adjusted EBITDA of just over $1 billion.
We feel good about our position as we near the end of the year.
As we review our results on this call I'd like to remind you that we evaluate our performance based on half years, and four years, rather than a single quarter.
Because there can be significant shifts across quarters due to weather or other events.
Rubber that spikiness tends to smooth out over time.
So a longer time period provides a better picture of actual performance then focusing on an individual quarter.
As of today with two months to go and most of the fall ammonia season still ahead of US. We continue to expect that are full year 2020 results, we'll end up within plus or minus a few percentage points of our 2018 performance for adjusted EBITDA.
Our outlook hasn't changed since back in February when we first gave our expectations for the full year.
Overall to see of team continues to execute exceptionally well.
So utilization remains high and our sales volumes through nine months or a new company record.
Hydrogen.
Because <unk> is the world's largest producer of ammonia, we are uniquely positioned with our unparalleled asset base in technical knowledge to serve this developing demand.
As we Decarbonize, our network and aggressively scale, our ability to produce green and low carbon ammonia. We believe we will be able to realize the clean fuel value for ammonia rather than its nutrient value.
In doing so we expect to realize the substantial premium compared to the value of ammonia as a fertilizer or a feedstock.
Last Thursday, we announced our first steps in season Miss growth opportunity with the Green ammonia projected Donaldson Bill is the centerpiece of initial investments.
We look forward to sharing our progress in our follow on steps in the months ahead.
With that let me turn it over to Bert who will discuss the global nitrogen market than Chris will follow to talk about our financial position of capital allocation before I return for some closing comments Burt. Thanks.
Thanks, Tony.
To date, the global nitrogen market has been incredibly resilient in light of the pandemic.
Demand for agricultural applications has grown in 2020 and industrial demand continues to recover from the disruptions in April and May.
Looking ahead to 2021, we expect solid global demand led by North America, India, and Brazil, We also project improving price dynamics as the global Costco Steepens with rising energy prices and why does your energy spreads compared to North America.
As we noted in the press release, we are projecting a healthy level of corn planting as well as increases in wheat and canola plantings in North America supporting good demand in the region.
We are forecasting approximately 90 million planted corn acres in the United States in 2021 this.
This is in line with levels of the last 10 years and supported by improved farm economics, due to higher corn futures government payments and lower input prices if.
As weather conditions allow we would expect to have a strong fall ammonia season due to the farm economics I, just described and the attractiveness of ammonia prices today compared to the other nitrogen products.
We expect that industrial demand will continue to recover in line with economic activity. We believe industrial demand for ammonia has been mostly tie.
Tied to the state of the economy due to the pandemic.
In contrast demand for feed grade urea and diesel exhaust fluid has been relatively resilient.
A year to date sales volumes are up 6% compared to 2019, which would have been difficult to foresee in April when economic activity and miles driven declined so dramatically.
Outside of North America, we continue to expect positive demand and most growing regions, particularly India and Brazil.
We believe India is likely to exceed 9 million metric tons of urea imports through tenders in 2020.
We also expect demand for your imports into Brazil of approximately six 5 million metric tonnes will continue to be supported by improved farm incomes and no active domestic urea production.
As you look at our cost curve projection for the next year on slide 12, we see opportunities for greater price realizations during 2021 compared to this year.
In 2020, the convergence of global natural gas prices and the first half led to a largely flat global cost curve.
Formerly high cost producers pursued this temporary margin opportunity available to them, increasing operating rates and pressuring product prices.
In recent months energy prices have risen across the globe, but on a much higher rate in Europe and Asia than in North America.
These higher gas costs and the steeper global cost curve that results increases opportunities for low cost producers like CF to achieve greater price realizations.
Indeed, some of our most profitable years has been when our own natural gas costs were higher that energy spreads were wider.
We are well prepared as the nitrogen market dynamics adjust over the coming year in the direction of the global response to the pandemic becomes clear with that let me turn the call over to Chris Thanks for.
For the first nine months of 2020, the company reported net earnings attributable to common stockholders of $230 million or $1 seven per diluted share <unk>.
<unk> was $982 million and adjusted EBITDA was $1 billion for.
For the third quarter of 2020.
We reported a net loss attributable to comment stockholders of $28 million or 13 cents per diluted share <unk>.
<unk> was $196 million and adjusted EBITDA was $204 million.
As you know.
The third quarter typically has our lowest realized prices lowest volumes and highest level of maintenance and turnaround activity. This quarter was no different however.
However, both are year to date and quarterly results reflect the same overall factors.
Lower year over year global nitrogen prices, partially offset by lower natural gas and SG&A cause.
Hundred to 450 million dollar annual range.
We are excited to invest in the growth of the company given the expected profile expected return profile.
And we see a lot of opportunities ahead to do just that so.
So after the repayment of the $250 million in 2021 notes, we would expect that our primary use of cash in the coming years will be in support of our strategic focus on queen hydrogen and ammonia projects.
With that Tonio provide some closing remarks before we open the call to Q&A.
Thanks, Chris before we move on to your questions I want to thank everyone would see us for their continued outstanding execution.
Our team continues to demonstrate their focus operational excellence and the strength of our business during the most unusual of years.
I also want to recognize the winner of our annual Wilson Award for excellence in safety.
This year's winners are court right nitrogen facility in Ontario for their deployment of wireless technology to better predict and prevent equipment failures.
This award is a great reflection of our safety culture at work and I encourage everyone to view the impressive ideas from this year's finalists, which can be found on our website.
As the World focuses on D. Carbonization hydrogen will be a key clean energy source and ammonia is a critical enabler for the storage and transport of hydrogen.
See if industry is is the world's largest producer of ammonia and we will leverage our significant competitive advantages which include the strength of our team are operational excellence technical.
Technical knowledge and unparalleled asset base it.
Advantages that will enable us to delivered green and low carbon ammonia at scale years' faster and billions of dollars less capital intensive than many others looking at this opportunity.
This will propel us to the forefront of hydrogen supply being a leader in producing clean fuels for sustainable world and providing a growth platform to create shareholder value.
With that operator, we will now open the call to your questions.
How much ladies and gentlemen, if you have a question at this time. Please press despite and then the number one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. You me. Please <unk>.
Your first question comes from the line of please frankincense I'm Credit Suisse. Your night open.
Great. Thank you very much just regarding to focus on it.
Yeah as a fuel source.
Intermediate as long term just just what appears to be there.
This ultimately appears to be a reflection of the Japanese efforts can you speak to the potential intermediate term growth of blue and each three in the context of the current.
Merchant ammonia market. So generally just out of the 20 million or so tonnes what percent of these will actually could be utilized for heels, just given the required retrofits and technology infrastructure et cetera. It seems like the Saudis and ultimately you guys in North America are well positioned but what about others. So just how should we be thinking about that thank you.
Yes, Chris.
I'll I'll handle listening also ask Burton and Chris to chime in as we go here, but.
As you said initially I think the first sources of demand that we're seeing right now are really coming from some of the Japanese utility providers is you know in the wake of the the terrible tragedy at Fukushima the nuclear.
Fleet was decommissioned in Japan, and that necessitated a movement back to coal based electricity production.
Obviously, that's going in the wrong direction from a greenhouse gas emissions perspective, and so they are very focused in moving aggressively toward alternative queen sources of of energy to help offset the.
The coal based production of electricity and injected pneumonia is one of those ways that they're going to improve their their footprint from a country perspective, but we see a number of other applications that are.
Rapidly developing as well, including marine transport, where ammonia can be used directly as a fuel.
As well as disassociated into hydrogen to be used as a fuel.
And there's a number of other.
Off road in and.
Industrial applications that that are being.
Pretty rapidly.
Explored along with.
Vehicle traffic and so our view is that this is actually going to hit a tipping point.
Pretty soon and the mortar infrastructure that gets developed the faster that'll happen and then you'll you'll see really rapid evolution, but obviously that can't occur until you start developing the supply bass and so we're on the front edge of this.
To be able to develop the supply bass and and help facilitate really getting to the infrastructure and the tipping point faster. So we're really excited about this opportunity I think it's the only way the world is going to make a dramatic down in the overall greenhouse gas emissions profile and we're excited.
To be leading the efforts.
Byrd, Chris I think you.
No. That's that's helpful. In just a very quick follow up just very simple.
Given the it's been a year since you a and trade flows of its readjusted out of Europe.
Can you just give us a quick update on your project and projections for you Ain parity pricing do you still expect a discount or in the U S and 21 or do you expect that to normalize ultimately.
Yeah, all you've seen through 2020 is again that.
That price discount relative to other nitrogen opportunities.
Especially in North America, we've seen a substantial increase or kind of as north American production is ramped up we've seen a continued.
Import level that is probably in excess of what is needed that pressure prices lower it was just about a year ago. When the essentials went into full effect in that play out is was played out for that price reflection was.
More of the impact in 2020, so I think with growth and what we're seeing with acres in 2021 and depending on how the fall application for ammonia goes.
Expect to see greater increases of you an consumption, which should improve the pricing profile.
Thank you so much you're next next Johnson comes from the line of steep banks and Bank of America nineties open.
Hi, Good morning. This is actually look washer on for Steve.
You talked about average selling price is being pressured over the course of the year do we're due to lower energy prices spurred increased production rates was that meaningfully skewed towards one nation product in particular, like urea or ammonia and with nature natural gas costs now coming back up have you started to see that global supply start to normalize and.
What regions are you seeing that normalized.
Yes.
Give a little bit of an answer than asper to chime in as well, but but.
The places where you see it.
Manifest in terms of lower prices are particularly in the highly traded in.
Commodities for which there is a lot of.
Additional supply so that particularly in ammonia in urea obviously.
Per the previous question that bird talked about with.
With the UAS rebalancing, there's still some downward pressure on UA on as well, but I think in response, what you've seen as some of the higher cost producers or production facilities globally have actually curtailed their shut down there has been at least three significant plants in Trinidad.
Have.
Curtailed for extended period of time and the benefit that we see going forward as as you see energy spreads.
Expand between North America and.
Europe and Asia in particular, even if the.
The overall energy complex is going up it's the spread that actually matters a lot because that will push the kind of high cost second tier second quartile third quartile people into the fourth and.
Dramatically pressure margins to the point that during parts of the year, where it was pretty sloppy. This year from excess supply you won't see that excess supply next year and that's why we think there'll be.
Pretty significant improvement opportunities in terms of pricing.
And so we're excited about getting kind of the normal energy spread differential back to where it should be.
I think.
Two things the energy issue is the probably the cost side, where we fell to as low as $1.50 in North America, but also.
Glee cheap in Europe, and the UK, which brought on their continued high cost capacity to operate but the pandemic was a big impact and in April and May We went from 270 $280 a short tunnel NOLA and by May and June were down to 190 to $200. So substantial.
Fall or decrease in pricing and then some inventory carryover and so you just had an imbalance and then a perception of where value lied and what type of risk would be taken on by either the retailer wholesaler group.
And the one positive or two positive sort of really pushed the market back into a normal operating right have been India, and Brazil, and so we see.
Positive factors going into 2021 or the economic position hopefully we get through his pandemic good acre plantings and good international support with a higher cost curve that should improve prices.
Thank you we have our next question comes from the line I'll see J <unk>, Yeah 90 Johnson.
Hey, Good morning. This is kind of my father on for P. J said, just sticking with prices obviously, you're you at your prices are at a pretty big discount.
International prices right now so how high do you think it could go to meet international parody in the first quarter next year.
And I guess in order to meet that parody do you see any decline in internet national prices or is it mostly just growth in U S prices to get back up to Paradise.
So when you look at the area discount today you are correct. We are operating in a 30 to $40 differential negatively to the world market.
And again, those or goes to the issues that I just mentioned for the last caller.
What is where we are today in the most recent India tender and the $270 a metric ton delivered.
To China story, and China's operating rates today or around 55 million tons of supply with four to 5 million tons exported and what does that price level with RMB at currently six seven and coal costs, where they are the marginal producer is going to be pressured and probably will not be participating.
<unk> and the international tenders that coupled with increasing Chinese demand for urea in crop production.
As well as production of and Pks, we don't see China being as big of a force probably post November and the international market again, coupled with good demand globally, where we see the key markets driving in Europe's yet to buy we see healthy demand going into spring that should tighten up the market where it.
I think through September 600000 tons of imports into the United States, that's probably below where it should be and so at some point, we need to start catching up and bidding in those tons from either North Africa, or the middle east or Russia, and so that should drive pricing.
As we get closer to spring and again corn plantings could be higher than what we're projecting with a four dollar corn physician out there today.
Thank you we have on my next question from the lineup Joan Roberts from UBS. Your line is open.
Hi, guys. This is Lucas bimodal, John Uhm I, just wanted to follow up on the energy costs.
So in terms of the normalizing differentials TSA any risks around the normalization either from lack of availability of supply in North America as demand picks back up and get some supplies shut in or on the demand side from Europe with the deteriorating kind of conditions out of the day. The last four to six weeks is this.
Increasing covered related shutdowns.
Yeah I think.
Rising energy costs in North America is actually a good thing for us because what that means is the LNG cargoes.
From a replacement economic perspective starts becoming incrementally more expensive and that's really what's going to end up driving the energy price.
Differentials or that spread what happened this last year was in the.
<unk> talked about in the aftermath of.
Economic slowdown driven by Covid, you had very cheap natural gas costs in the US and you have a lot of excess cargoes of LNG floating around it.
For which there was really no home and that led to massive oversupply in the result of that was.
Extraordinarily low low cost gas into Europe, there was a big chunk of the year, we're paying less for natural gas in our UK facilities than we were in North America.
Completely upside down from normal so that led to the abnormally high operating rates and the rest of the world in excess supply which kept.
Pricing for nitrogen and I think in a rising price for natural gas environment.
Where the demand is.
Is really trying to spur back on again.
We would expect there to be.
Given the reduction in LNG exports.
A return to normal differentials and that provides a much better price environment, even if our cost structure is higher I think bird mentioned us and it is prepared remarks, but.
Some of our best years from the standpoint of profitability actually where with a relatively higher natural gas cost in North America <unk>.
Compared to a real low cost and so we think that this actually portends well for us looking forward.
Thank you. Your next question comes from the line of Joe Johnson from the N O. Two nine is open.
Hi, good morning.
With your.
Newer focus are now on green pneumonia.
Blue ammonia.
Think about down the road and kind of emanate opportunities, which you could start to be very cautious on maybe some smaller deals but with this imply that you.
Really wouldn't do any smaller nitrogen opposition.
Ah cats that are obviously kicking gasses deep talking about you thought you could have some secret station to those assets like how do you think about how neurofocus knife back to your M&A strategy.
<unk>.
Yeah I think.
Joel It really comes down to the particular assets in question and then ask.
Access to.
Renewable energy access to sequestration.
And also access to end markets from a logistics standpoint, and I think at.
At the end of the day. This all really is a price value and what would the investment have to be compared to making those investments and and modifications thrown existing asset base and as you know.
We put a bunch of money into.
The.
That will tear assets when we finished up that acquisition and now all of those assets are running it extraordinarily high utilization rates and on stream factor I don't know that there is another set of assets out there that are close to ours. So one of the one of the embedded costs of M&A is.
You have to first start off with assets that are probably not as well maintained and get them up to our standard before then you make additional investments on top to convert into.
Low carbon and green ammonia, so while it's certainly a possibility and and again it comes down to price value.
I really like our asset base and we're excited about the opportunity to continue to reinvest in it.
Thank you.
Thank you. Your next question comes from the line of Ben <unk>. Some Scotiabank Q nine is open.
Thank you very much.
Any in the past when the fall ammonia window was narrow cs's talked about demand being made up in the spring. So I guess my question is is the reverse true when you have a strong or white fall window.
Are we going to start to see some sales in the spring get cannibalized.
And does that matter bye bye byproduct mix and then second can you just touch quickly on the kinda has been on Australian called imports does that pumping up the nitrogen Costco up right now and is that at risk of going down if that dispute get salt. Thank you so much.
Yet.
You bet van so I'll.
Start off a little bit here, and then and then pass it over to Bert but in general.
If you're a grower you needed a certain amount of nitrogen load and if you're able to apply some of that in the fall that requires less nitrogen in the spring.
But we really like ammonia going down whether it's in the fall or the spring because we have a.
Differential asset base that allows us to realize terrific values for ammonia and if you end up with poor ammonia application that we ended up having to export ammonia in the price realisation for that tends to be lower and in general we we sell everything that we make and we run our plants full on and so.
So.
The the benefit that that we have is.
Given the North America as an import.
Region.
We're not really worried about are you quote unquote cannibalizing sales out of next year.
To be able to to move on this year.
We run our planted capacity, we sell everything that we make over the course of a year and so we either get it in the fall or we get it in the spring, but basically it's the same number of tons ultimately to go down and.
There is.
This sort of love hate relationship we have with ammonia on the one hand again, we've got this differential asset base that allows us to.
Exploit and realized terrific values, but on the other side, the less and hydrous ammonia that goes down means the more upgraded product that goes down and basically you're putting on two tons of urea for every ton of ammonia that didn't go down or about three tons of Yue on for every ton of ammonia that didn't go.
Down in the margins on a per unit of nitrogen basis tend to be better on upgraded product. So.
In a strong ammonia market, we're going to do really well, because we get great value and ammonia market that doesn't move a lot we're going to do really well because of the volume of upgraded products that we make so.
It's a really good kind of a natural hedge position that we have based on our product mix.
You Wanna.
Yeah, just say we've had some difficult ammonia seasons, where it was either too wet too cold and that moved to spring and we've had some difficult springs, where you had river floods and excess moisture an inability to apply and did well in both of those markets because of our ability adaptability to transition.
Put the right product into the market at the right time, you also have to remember with precision AG.
The impact of fall ammonia is less than it was 20 years ago, where you're actually probably applying less on that one.
Pass through and doing multiple.
Applications, whether that would be some ammonia in fall or spring and then urea or are you in on top and so the impact of a negative fall is less and again, what Tony said, our ability to to manage through it is pretty pretty solid.
Thank you. So much. Your next question comes from the line of Angela from I B C capital your nineties open.
Hi, good morning.
Going back to Green and Blue ammonia is there a market for that product in the AG fertilizer space.
Could there be some future drive to decarbonize farming that results in demand for low carbon nitrogen.
Hi, Andrew Thanks.
<unk>.
We see that that's a possibility I would say, it's not real strong right now, although there's a number of growers and actually other entities that are beginning to look at the ability to do carbon sequestration within the soil and end up.
Regime, that's got a cap and trade system or so forth that can be a fairly valuable.
Source of income for farmers and so potentially in that environment, if you're using lower carbon inputs you can get even additional benefits associated with.
In soil sequestration, and so I think that the possibility I'd say right now that.
That doesn't really exist, but particularly if we end up projecting forward around.
Set of carbon regs in legislation that may be developing here.
I could imagine that that might be something pretty attractive.
And Bert Bert had a number of conversations with customers of ours and others that are looking at modeling carbon sequestration at the farm level and the values that could provide.
Yeah, that's exactly right. So we're meeting with the leaders of that were as an input provider and a key part of that value chain.
There is a recognition obviously for what we bring to the table with the strength of our network and team, but that value of lie at the farm gate. So it's how you helped that farmer achieved through C technology crop protection nutrients farming practices, and then put together with.
Are married with.
Other opportunities, whether that's hedging or derivatives that are out there for weather and crop insurance and then tracking the level of production correlated with the potential for.
Percentage of carbon as being captured and I think thats measurable and that's the next step for this industry. If we're able to achieve that will play a critical role because of what.
We believe we can do with our network too to help that solution.
Okay that's interesting.
Just maybe just in regards to the rule out the Korean ammonia capacity across the network I guess just versus the 100 million Capex initial capex for detail is that typical of the cost you would need for future capacity and.
And just generally like how would you finance that if you have cash flow, but if you want to build that up a little bit more significantly. It seems like you might need a little bit more cash than than your general cash flow. So what will be beer prefer to approach per financing that.
Yeah Andrew.
No.
Terms of the initial investment for call at circa 20000 tons per year, It's 100 million I think because we talked about last week.
A lot of that investment then becomes scalable.
Subsequent improvement in capacity come at a discount as long as you're adding to the same plants.
And so.
In in subsequent chunks, we can get some capital efficiency, but every time you move over to either a new complex or a new plant within the same complex theirs.
There's going to be some.
Baseline that you're starting from however, we would expect on our second and third.
One to these that will end up with allow learnings and some efficiencies and improvements in so subsequent investments we would expect to come down but I think.
At least the initial one or two we are generating plenty of cash to be able to self fund those out of cash flow from operations and Chris you wanted to talk Yeah. I think I think also what we're going to see here is efficiencies and innovation that comes from the Electrolyze yours, and even the renewable energy side, where those costs are going to.
Come down as well so based on the initial project that we're looking at here, we feel confident of what we're seeing from a return profile, but I think that profiled just continues to get better as we expand and as Tony said based on scalable units with having soups already in place that's going to put US ahead of many other park pier.
Groups, but I also think.
Andrew as we look forward and expect.
There to be a significant premium associated with views tons you'd expect to see growth on the EBITDA front and that can certainly support.
Additional that I know are focused the last.
Four or five years here has been really did delever and we're we're back down once we finished the 250 next year that Chris talked about.
Back down to a very comfortable level of of that so few correspondingly see some growth an adjusted EBITDA line that can certainly support some incremental.
Borrowings that can be used basically self fund.
Some of this capex that we're looking at.
Thank you. So much. Your next question comes from the lineup eaten Adam Samuelson from Goldman Sachs. Your nineties open.
Yes. Thank you good morning, everyone pointing out of.
So our question is just on the re market and just wanted to make sure.
Clear and the expectations on supply and capacity expansions. There is a couple of big projects in Nigeria that are supposed to start up next year projects in Indiana are on it.
Late this year early next year that they are starting up so I just want to make sure I. When you talk about the global market for global nitrogen demand growth exceeding that capacity editions does that actually true in 2021.
And if so where do you see capacity.
Cassie closures in the next 12 months. Thanks.
Good morning at them and I agree with you on your list if you've got the Lord of implant that's coming on or has probably ready to come on the Dango T project in Nigeria, and then you have projects in India. All of these projects have been delayed and we expect continued delays and then it's.
Ancillary issues of connections feedstock startups and ability to export that being the case of dango through with fear imports and bloating.
And so there.
If that's the list there is not a great list of capacity coming on coupled with where we see growth and economic recovery on the industrial side for and being.
What we've already articulated so we see a tightening market and what we've seen in Trinidad with 1 million tons of ammonia coming off and rising energy market, where we are now at.
And looking at the J K M gas market close to $7, an MVP in Europe and the UK over five 550, that's a good spread and that does make higher.
A higher cost producers.
At the current pricing for ammonia on economic and so you would expect to see.
Trade flow start to adjust back to where they were.
Lower cost areas moving to higher cost areas and that would tighten up the market, but we've had very good demand in 2020, all things being considered and we expect that to continue in 2021 and the other thing I want to just.
Tack onto the birds comments is that there have been a number of plants in India that have come online in the last couple of years, but an aggregate Indian production is not actually increased so what you've seen is a number of the older less efficient plant of shut down and in fact I.
I think for this year for India was a record urea import we're saying above 9 million, but it's going to be closer to $10 million. So very good healthy demands yeah. So so despite the fact that you've seen the capacity additions.
There's been rationalization, that's been coincident with it so.
We're not looking at.
Those plant as being problematic from the standpoint of trade flows.
Alright, I appreciate that I appreciate that color. Thanks.
Okay. Your next question comes from the line Jonas Oxnard from 1990 something.
Hi, good morning.
Wondering one of the.
Industrial gas companies announced green hydrogen this week as well.
But sourcing biogas instead of electricity.
So I was wondering if that's an approach that you have considered and if you could talk a little bit about the pluses and minuses.
Yeah, I don't I don't know quite enough about what the consistency and regularity.
Gas production stream looks like and whether you can actually run a commercial operation off of it I know that for instance.
The matrix plant in India had all kinds of problems trying to get coal seam methane because of the.
The lack of.
Sort of consistent regular compressibility of of a gas stream into the plant, which created all kinds of web site and as you know Jonas that is never good for these kind of chemical plants to be up and down and see disruptive supply associated with it. So I don't really know enough about the.
What the source of gas looks like coming off of these bio.
Sources.
But it's interesting idea.
Okay. Thank you.
Thank you. Your next question comes from the line of Michael Thank them sounds neat letting me catch your nineties open.
Yeah, Hi, just wanted to delve in a little bit more on the U a N strategy. I mean are you guys sort of expecting more imports to come in as the your progressive and I guess, just wondering you know if we start to see urea prices move higher you kind of waiting for that or just any more.
That's in terms of how you're thinking about managing kind of your you it and pricing and the flow of imports.
Imports and exports over the next several months thanks.
Look at the UA and market in North America have about 15 million tons of demand.
Your breakout domestic production, we've been receiving around 2.5 to 3 million tonnes of imports principally from Trinidad in Russia.
And so one there's a side of demand with increased acres, possibly in 2021.
We think that demand will be stable to increasing but looking at.
Where the market is overall.
There hasn't been a lot of new capacity coming in you've had.
Ah cron producer in Russia drop of urea plant into decrease their production in that market, you've had growing demand in Argentina, and Brazil, which has helped support the market and then you've seen some of the moves that we have made with def's of nitric acid to take that existing stream into further higher valued products.
And so as we have repatriated are tons from Europe, we have not fully pushed those into the market and that is how the market. At this point has been balanced, but we see some very good opportunities for and market plants and continue to value you an as a key if not ducky product of the company.
Thank you we have our next question coming from the lineup Vincent Andrew from Morgan Stanley Your 90 Johnson.
Thank you and good morning, everyone. Just wanted to just sort of ask on our next year and make sure I understood Tony what you're sort of characterization of the market was going to look like with the with the movement within the cost curve cause I've see on your your slide you haven't kind of moving up.
$10. So I'm just wondering if when we think about the year or what are you trying to get across to us that we will see higher lows during the year as well as some higher highs, but the the when we think about your average realisation for the year.
It's going to be more because the low and the low end of the period is gonna come up and is gonna stay sort of in the middle range longer during the year, then might've been the case. This year is that said, how we should be thinking about it and we look at our quarterly models Vince.
Vincent that's a great explanation I'm going to throw it over to Chris here and let him talk about it but yeah I would agree with your characterization there.
Essentially what we're expecting to see his bertone I've talked about with these energy spreads beginning to widened $2 already.
Europe and $3 for J K that.
That the expectation is it's going to put pressure on margin and you should see lower operating rates by some of those mid to your call. It.
Sort of third and fourth quartile players.
And this year as you saw where at much the low end of the range for the cost curve and that is really predominantly because we were right on top of each other from a differential is Tony mentioned, we are paying less in the UK. Then we're we're here in the US. So I think what 2021 is going to provide us is not only a higher end of the cost.
But also during particular tons of the year more pricing opportunity than what we've seen specifically this year.
Okay, and just as a follow up to that does the shift into.
The the Green Arena.
We've been talking about sort of the desire to get back to investment grade does that sort of.
Make that even more of a desire or does it make it less of a desire dessert does it not change anything in terms of how you're thinking about your balance sheet overwhelming.
Yeah I think.
We still have a strong desire to get back to investment grade I think having a another source from our customer base that is fundamentally different helps get a little more diversification in terms of the the.
The end market with.
With higher margin associated with that face and because we can go ahead and fund. This first round of of investments out of operating cash. We can continue to delever at the same time. So I think all of those are are positives, yes, I think as we mentioned that this for.
Sort of wave is going to be within our $400 million to $450 million a capex those projects subsequent projects that we're reviewing here some of those specifically with carbon sequestration. There are incentives from like a 45, two tax credit and the thing to remember is we already have the capture and.
And the removal process and all of our plants right now because we use at 224.
Puts us at an advantage. So I think both when you look at the initial projects laid out the incentives coming in.
The early periods here, we feel pretty good about just funding the straight out of cash flow.
Thank you very much.
Your next question comes from the line of my commonly Thanksgiving Pier 90, helping.
Thank you.
I was hoping you could.
Give us your perspective on the on the proposed UK.
Ban until Julia.
It seems like it's sort of going in the wrong direction with what's happening with green and Blue and how would you respond to that.
Well I think part of.
The rationale mark is around the volatilization and decomposition of the Rio which then releases the C O two back in the atmosphere, even though it's been kind of temporarily sequestered in the Ria granule.
And so I think.
That that fundamentally gets to the issue of the UK being very serious about trying to reduce aggregate emissions.
And from.
From agriculture as well.
Relative to our North American production base, that's a little bit challenging but in the UK we make.
<unk> nitrate, which is the really the fertilizer of choice in the UK given the.
Soil okay.
Crime climate and the crops that are grown over there and so.
Reducing the substitute from away from.
But I am sexually terrible.
But I think we're we're prepared to support.
Support the UK farmers, regardless of which direction. They ended up going but I think again it just speaks to how serious certain countries have gotten around carbon reduction.
A reduction and we're excited about some opportunities that exist in the UK for us to be able to produce screen and low carbon pneumonia over there as well. So I think we're really well positioned when you start seeing movements like that.
That is a policy position doesn't this concern you direction wise I mean.
It's the UK and you're well positioned in there, but if this starts to spread it starts to hurt everybody.
I mean I think.
One of the questions that sort of it is going to raise ultimately mark is what's the price of food right because to the extent you take what is currently the most ubiquitous form of nitrogen fertilizer globally traded and start reducing demand <unk> got a substitute other.
Forms of nitrogen.
For it.
And and then start putting incremental demand with a relatively captive supply that doesn't expand readily and so.
You ultimately you're driving price of nutrients to the farmer that's going to.
Work its way through the supply chain into the price of food on the grocery store shelf and.
That's a question than that governments are going to have to rustle with I think it's probably easier to be managed it in some more affluent areas of the world than it is in others, but I guess, we'll see how it develops the good news is because we're moving early on Decarbonising.
Network will be in a position that whether it's.
Ammonia, that's low carbon whether it and it's low carbon whether it's a different form will be in a position to be able to supply whatever's needed. Both for an energy source at a nutrient content and I think it's a it's a movement that is actually very very.
Helpful for our business.
Great and just would follow up there was a lot of excitement earlier in the season for a big Brazil, corn crop and that's maybe the tempered a little bit late planting.
As you think about.
About about Brazil, do yours are you, assuming a steady increase in Brazil acres and steady increase in now.
Nitrogen and there.
It's exciting for what has been happening in Brazil over the last decades.
When you're gone from let's say in 2016 million tons of fertilizer demand to probably 38 million tons, this year and probably heading towards 50 million tonnes.
Not too distant future, it's been a steadily increasing demand.
Think one of the issues that we're dealing with with Tony's comments climatically.
Relate directly to Brazil, an opening new acres, and and what where they're opening those acres and how they're opening those acres and bulson auto has been pretty aggressive of opening up.
The outer reaches of the Savannah, and so that's been controversial globally, but there is a substantial land available. That's two cattle feeding today grass fed that could be opened up with not too much difficulty of Mato grosso, the sore or even glass and some of the outer reaches of.
But here.
And so the opportunity in Brazil, as they're they're taking advantage of it with the devaluation of the currency that we experienced this year down to let's say $5 70 to the dollar has been super attractive for the Brazilian producer and what have they done they've done exactly as they economically should which is increase.
Areas increase yields do further fertilization and the sophistication of the Brazilian farmer is on an equal basis with the American farmer on equipment on technology on the on the things that are happening so.
We're fairly bullish what can happen you've seen urea grow from 2 million tons 20 years ago of imports to six 5 million tons. This year and guess what you've seen a consummate increase in yield. They are further yield to go and corn, especially the late planting was more related to dryness than it was anything else. So I think you're going to see you.
C a yield impact again due to that dry.
Whether pattern as Hubbard, there and then the late plantings we'll.
We'll see what happens with <unk>, which is the second crop corn that gets planted because of soybeans implanted late that means the second crop former will be planted late so.
More to come work constructive were participating in the Brazilian market and and like to see what's happening down there.
Okay. Thank you.
Thank you so much for me do you can cancel and then that is all the time, we have a quick question. So I can eat I would like to turn to call back to Mister <unk> Mister Martin Your Hershey quick closing me Mike.
Thanks, everyone for joining us this morning, and we look forward to speaking with you on upcoming conference.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you also join me give me now disconnect.
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