Q4 2020 CF Industries Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the full year results Conference call. My name is Christel I will be your coordinator for today at this time all participants are in a listen only mode. We will facilitate a question and answer session towards the end of the presentation to pose a question at any time.
Please press star one on your Touchtone telephone keypad.
If at any time during the call you require assistance. Please press star zero and a coordinator will be happy to assist you.
I'd now like to turn the presentation over to the host for today, Mr. Martin Jurassic <unk> with CF Investor Relations. Sir. Please proceed.
Good morning, and thanks for joining the CF industries year end 2020 earnings conference call on Martin Jurassic Vice President Investor Relations for CF with me today are Tony will CEO, Chris Bohn, CFO, and Bert Frost Senior Vice President of sales market development and supply chain.
Industries reported at year end 2020 results yesterday afternoon on this call will review the CF industries 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 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.
Detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website.
Also you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation.
And on our website.
Now, let me introduce Tony will our president and CEO.
Thanks, Martin and good morning, everyone.
Before I jump into our financial results I want to highlight the entire CF team for amazing execution across all areas of our business.
We set all time company Best Records for safety ammonia production and sales volumes. Despite the challenges that 2020 hurl Dennis.
There was no playbook for how to manage through a global pandemic.
This team developed and implemented plans to keep our people safe along with everyone who came onto our sites two.
To date, we have no known transmission of COVID-19 within any of our facilities.
On the safety front, we ended the year with only four recordable injuries and zero lost time injuries across the entire network for the whole year.
As is typically the case safe operations are also more productive and we prove that again with an all time ammonia production record of $10 4 million tonnes.
Our sales on logistics team rose to the challenge and set all time sales and shipping records of over 20 million product tons.
Truly a remarkable performance by all thank you for the great work and keep it up.
Turning now to our 2020 financial results, which we posted yesterday afternoon, we generated adjusted EBITDA of $1.35 billion.
So terrific performance.
Looking ahead, we are very optimistic about 2021.
As Bert will describe in a moment the global nitrogen pricing outlook is much more positive than a year ago.
With strong commodity crop prices and significantly higher energy prices in Asia, and Europe, we are seeing a robust demand environment, coupled with a steeper global cost curve.
The current conditions in the southern Plains, and Midwest have thrown another crisis at us, but as usual the team has done a fantastic job responding to and navigating through these new challenges.
We have been able to quickly adjust our plant operations based on close communications with our gas suppliers.
Disruptions have been widespread across the U S nitrogen industry and this should result in further tightening of nitrogen supply for the spring planting season in North America additional support for an already strong 2021.
Longer term, we're pleased with the progress we're making on our commitment to the clean energy economy.
We continue to advance discussions with technology providers and partners and we are seeing new opportunities develop since our announcement.
These underscore how broad the demand for green and low carbon ammonia will be and also the value of our unique capabilities.
With that let me turn it over to Bert who will discuss the global nitrogen market then Chris will follow to talk about our financial position and capital allocation outlook before I return for some closing comments.
Bert.
As Tony.
Global nitrogen dynamics today with low cost producers like CF are the most positive they've been since 2014.
Strong demand driven by high commodity crop prices and a steeper global cost curve are creating a tighter nitrogen supply and demand balance.
As a result prices have risen significantly in recent months and are well above 2020 values.
Global demand is robust and broad based farmers in North America has seen nitrogen consuming CT screens reached multiyear highs for both near term and futures contracts.
Corn, we have seen lower than expected supply and high global demand led by China. As a result, the USDA is projecting that the corn stocks to use ratio for the marketing year over year will be at its lowest level since 2013.
This supports our projection of 90 to 92 million planting corn acres in the U S. This year with upside potential.
Through the balance of the year will continue to expect positive demand in most growing regions, particularly India and Brazil.
We expect urea tender volumes in India. This year will be well above the five year average and close to the 10 million metric tons of last year.
For Brazil, We project 2021 imports of urea to be approximately $6 five to 7 million metric tons similar to last year.
As demand was increasing the cost curves steepened significantly.
From July 2020 into July to December 2020, the Dutch TTS natural gas price and the Asian, JK and LNG price both increased about five times greater than the U S. Henry hub natural gas price.
This had a number of impacts first margin opportunities increased for low cost producers.
The significant increase in energy prices for producers in Europe, and Asia pressured their margins not only leading to lower operating rates, but creating demand for import ammonia into those regions.
This contributed an even tighter global market.
Over time, we expect the global nitrogen market has tightened further and faster driven by several factors in the near term the need to rebuild the stock of commodity crops will underpin demand growth.
Longer term, our key driver will be emerging demand for ammonia for clean energy applications.
We believe this level of global demand will require more production from the highest cost plants until prices rise enough to incent Greenfield construction and other parts of the world.
We are well positioned as we approach the spring application season, and have the flexibility necessary to address any challenges that arise.
We believe that the recent weather conditions in the U S or disruption that we built our system to overcome.
We're looking forward to working with our customers on leveraging our optionality to ensure that these requirements are met as they make as our customers make their final preparations for spring.
That let me turn the call over to Chris.
Thanks, Bert for 2020, the company reported net earnings attributable to common stockholders of $317 million or $1 47 per diluted share.
EBITDA was 1.32 billion and adjusted EBITDA was $1.35 billion net.
Net cash provided by operating activities was $1 2 billion and free cash flow was approximately $750 million.
These results reflect year over year global nitrogen lower slower year over year global nitrogen prices, partially offset by higher sales volume and lower natural gas and SG&A costs compared to the year before.
The results also demonstrate our continued efficient conversion of EBITDA into free cash as you can see on slide nine we converted more than 55% of our adjusted EBITDA into free cash in 2020, which is the highest rate among our peers.
Our free cash conversion continues to support our capital structure and allocation priorities.
We noted in the press release, we have decided to repay early the $250 million remaining.
On our senior secured notes that are due in December.
This will lower our gross debt to $375 billion as.
As we remain focused on investment grade and positioning the company to execute our clean energy growth strategy, we will continue to evaluate opportunities to further reduce gross debt over time.
We remain excited to invest in the clean energy growth opportunity given the expected return profile.
We will also continue to return cash to our shareholders through our quarterly dividend and opportunistic repurchases at attractive levels.
As we look ahead to 2021 I want to share some of our expectations for the year ahead.
We anticipate that our capital expenditures for 2021 will be in the range of $450 million.
This reflects a return to a normal level of planned maintenance and turnaround activities in the year ahead, and the first expenses associated with the Green ammonia project at Donaldson Bill.
We also expect SG&A levels to return to a level closer to 2019 net 2020 on.
Our annual cash interest expense will fall to $175 million with the repayment of the 2021 notes.
With our planned maintenance schedule and recent gas driven curtailments, we expect gross ammonia production to be around $9 five to 10 million tons.
This along with lower inventories to start the year will likely result in lower product tons sold than in 2020.
As we indicated in the press release, we believe overall sales volume will be between 19, and 19 and a half million product tons.
Additionally, based on forward curves, we project our natural gas costs will be somewhat higher in 2021 than in 2020. However, we expect margins to improve this year given the positive nitrogen pricing outlook that Bert described.
As you can see on slide 12 increases in our realized urea price have a much greater impact on EBITDA and higher realized natural gas costs.
With that Tony will provide some closing remarks before we open the call for Q&A.
Thanks, Chris before we move on to your questions I want to again, thank everyone at CF for a tremendous 2020.
Their commitment to our values and unwavering focus on safety and execution are truly the foundation of our success.
We feel very positive about the year ahead.
As Bert described nitrogen industry dynamics for producers in North America are the most favorable we have seen in nearly a decade.
And longer term debt.
Developing demand for ammonia in clean energy applications provides exciting growth prospects for us where we are uniquely positioned to be a global leader, providing clean energy for a better world.
Academies will continue to focus on de carbonization, and hydrogen will be a key solution with ammonia a critical enabler of hydrogen as a clean fuel.
We have seen tremendous interest in our strategic direction since our announcement last fall and see substantial opportunities ahead for clean and low carbon ammonia.
This will provide a growth platform for longer term shareholder value.
With that operator, we will now open the call to your questions.
As a courtesy to others on the call. We ask that you limit yourself to one question should you have additional questions.
Ask that you re enter the queue and we will answer additional questions as time allows.
Your first question comes from Chris Parkinson with credit Suisse.
Hey, guys, good morning, and I apologize for the shorter term oriented question, but over the past few seasons, especially in 16 to 19.
There is a tendency of meat producers, it's been a few extra cargoes to NOLA, which at times has been disruptive to U S prices even mid planting.
But this year it does seem like a lot of the suppliers are indicating to sold out through at least mid April on longer in some cases due to global demand elsewhere, which should present looking at debt.
The more stability, if not an opportunity.
For U S inland prices throughout spring. So just what are your broad thoughts on the different dynamics emerging in 'twenty one.
Let's say the past few seasons, thank you very much.
Hey, good morning, Chris as Bert.
Good question because that has been an issue in the past with overwhelming sometimes a positive market and then we see a correction in April may or June.
Some of those corrections can be pretty wicked like we saw last year, which I will say it was more COVID-19 related on a risk off.
Timing not necessarily as much of a supply situation, but that has been and has happened but today I think we're in a different market.
Don't see those extra cargoes coming you know our imports are running below last year's levels. You also have to look at supply there's been a number of turnarounds that have taken place in that region and others that have taken tons offline and then when you look at the gas costs that have increased.
Later too.
North America, and Europe, and Asia, and other places that incremental ton that may have come on line or may have been operating probably is not so those three factors plus increased demand in India, and Brazil with Brazil, taking additional cargos in January and February is soaked up a lot of that supply and we still have Turkey and <unk>.
<unk> on a few other countries that are short and will need supply as well as Europe. So as we approach spring planting, which we're only probably six weeks away the likelihood of getting that extra cargo inline offloaded and depending on river froze.
The rivers that are frozen today, falling and the snow that we're experiencing today on.
On the speed of that Thor and river levels and the ability to get those tons into the Midwest.
That window is closing very quickly that is why we are so focused right now with this situation on gas and production, but making sure we have adequate supply for our customers positioned in the right place at the right time.
To make sure that the supply is there.
That's helpful will be respectful and keep it to one thank you very much. Thanks.
Thanks, Chris.
Your next question comes from John Roberts with UBS.
Thanks, guys and the new hydrogen forward coalitions and share the only fertilizer participants do you have exclusive rights to anything ammonia related.
And with CF participate in any activities away from your existing facilities.
So.
The coalition is really about coming together in and trying to advance adoption of hydrogen as a clean energy source and.
In fact, we have no real interest in trying to limit.
Participation by other producers in fact, I think having adequate supply availability is going to be a critical enabler for demand to develop appropriately. So we're actually working with and trying to support and rally others to develop similar kinds of.
Programs and solutions, because I think it will benefit us in the long term and we're really focused on developing standard and trying to get.
Some movement across policy decisions that are being made all of which can support demand for hydrogen going forward in terms of our.
On.
Interest and willingness to participate in projects outside of kind of the four walls of what our current network is I think we're always evaluating opportunities for growing the business as long as the return profile looks attractive and as we mentioned in prepared remarks, there has been significant inter.
<unk> and outreach to us in the.
Wake of our announcements last October and so.
I would fully expect us to have a lot of opportunities to continue to expand the types of things that we're doing.
Your next question comes from the line of Michael Picken with Cleveland Research.
Yes, good morning.
Wanted to understand a little bit you guys took on your total.
Tonnage.
<unk> for 2021, how much of that was just that volume got pulled forward from two.
2021 into four Q on the strength of the fall season, and how much demand.
Demand do you think might be lost in the spring because of the big Paul.
Or are we going to see higher application rates.
Michael I'll try to jump in a little bit and then turn it over to Bert I think the much larger impact is that given the debt.
Covid situation last year, we were trying to minimize exposure to our folks by reducing the number of contractors that we had come on our sites.
And so anything that we could differ in the way of turnaround activity or scheduled maintenance, we tried to push and so we ended up with higher.
Utilization of our assets because we did have a couple of very significant turnarounds that we either dramatically reduced the scope of.
Or pushed entirely into 2021 and so.
That was part of what helps at an all time ammonia production record. So as we look at 2021, we not only have the normal slate of turnaround activity, but also the things that were deferred from last year. So that is by far the largest contributing factor to the reduction in tons available.
For sale this year as Youre aware, we run the plants.
$2700 65, and so if you are.
We over the course of the year pretty much produce what we sell what we produce and so on a year that has more turnaround activity theres just less production available there is a little bit of impact in terms of starting the year at a lower inventory position than we were last year, but thats. The small end of the stick not the large.
Regarding the <unk>.
Fall season, we did have a very good fall ammonia season, and overall, good Q4 with volume and movements of for each of the products and that was on purpose one the weather helped.
But when you look back to the last.
For several years, where you had good fall seasons, 12, 13, and 14, we also had extraordinary spring seasons and what we're projecting now are today for acreage amongst the nitrogen consuming crops, it's going to be high and I would say higher with probably additional application for yield just due to the price.
The attractive price structure that is available to farmers today.
So we're anticipating a very healthy spring I think also you have to remember we had been in a COVID-19 environment and our focus has been on the safety and wellbeing of our employees, but also making sure our customers received their product on time as well as making sure. We can move that product and so as we were looking to the spring into Q1 with us.
Projected polar vortex, which was projected to come we took the prudent action of moving additional tons out in December but as Tony said, we will be well prepared for spring and.
And have that supply available and anticipate a pretty healthy spring.
Your next question comes from Joel Jackson with BMO capital markets.
Hi, This is Brian Murphy on for Joel Thanks for taking my question.
From a capital allocation standpoint to be on paying down the 250 million day should we assume buybacks will be less prioritized.
As you pay on dry powder for Green ammonia projects later this decade.
Yeah, I think as in the past we've looked at investing it back in our business at higher return projects and as we look at our return of capital to shareholders.
One thing that we're looking at as being a little bit more opportunistic at what level. We would go back in and repurchase building a little more dry powder. Additionally, having probably a more measured approach book to debt reduction and capital allocation back to shareholders.
If you look at the past year, our share price has swung quite a bit from $19 to where it is now at $45. So the way we look at it as we see some pretty good opportunities on which we could go in if we have the capital on our balance sheet in order to do that.
Your next question comes from Adam Samuelson with Goldman Sachs.
Yes, thanks, good morning, everyone.
Good morning.
I was hoping maybe a little bit more color Bert Tony.
Tony Chris on the.
Kind of the market environment last week in particular with the Spike in gas in North America on just the impact that not only just on your own operations.
But what do you think has happened to the industry as a whole, especially.
Parts than the planes in <unk>.
In Texas that might not have gas and how much.
Product do you think might how much production domestically you might think be lost just with the lost days in gas prices, where they are.
So Adam I'm going to let Bert do most of the talking here, but because he is not going to do it I'm going to sing the praises of little bit.
Bert rugs.
Yes.
Procurement organization and they've made some great decisions in terms of basis hedging for us so that.
Wow.
Cost.
<unk> local markets blew out like crazy it really didn't affect us dramatically given that we had already hedged the basis off of Henry hub, but in terms of gas availability and ongoing kind of impacts and lost production on going to turn it over to Bert and let him talk about those things.
Thanks, Tony.
Regarding last week, it's been up on exciting I'd say six to eight weeks. When we saw the first week in January pricing go up for products and that was more of a demand driven surge and then you had the gas limitations in Asia and supply curtailments made it a supply driven market and then we got to this week where.
Our own gas situations and so we did gather as a group we did.
The benefit of our team I think is where small and we've been together for a number of years and we work very well together and we could ascertain and communicate very quickly what was going on and make some decisions around the plants and around what we were going to do with our gas positions, but it's still an evolving situation with what <unk>.
<unk> are down what plants are operating in when they will come up but I think you hit the nail on the head as the impact and so we've been trying to run those numbers, both internal and external and that's not too difficult to do and there have been a number of plants that have been on turnaround debt of extended those turnarounds unrelated to gas.
So the lost production tonnage on on pneumonia basis, there's probably several hundred thousand tons and then when you take that to upgrades youll, probably yet many several hundred thousand tons, but we're still in this situation. It is still very cold in Kansas, Oklahoma, and Texas and these plants if they were not shut down appropriately will.
Not come up appropriately.
And I think Thats, where you have can add some confidence with CF and our production team on a shout out to them of how we manage that process and communicated and do it safely, but we have been also purchased urea. So when all this came together.
There was again back to taking care of our customers and meeting our commitments.
<unk> been active in the market and buying an appropriate amount of tonnage to make sure. We're.
We're ready once things open up again, and I think the other piece around.
Purchasing urea is it gives us tremendous flexibility in terms of the product mix that we end up producing at Donaldson, because we've got an ability to basically take all of ammonia six into granular urea or run full on UA on we've got a huge kind of on.
Operational flexibility in the plants for us anyway that were impacted by this weather have been our Oklahoma plants, principally which are which tend to be more U S. Driven so the purchases of <unk>.
Urea that Bert talked about not only provide cover there but gives us a lot of flexibility to think about running diesel at a higher UA on mix.
Maybe than we have in the past in order to backfill for us anyway, any kind of disruptions, but I agree with Bert I think.
None of the plants in that area will have steam tracing or other kinds of cold weather.
On protections in place and you could see disruptions from some of those plants that could extend weeks.
Months so.
The tightening of North American supply.
Could be noticeable in terms of outages as a result of the weather.
Your next question comes from Steve Byrne with Bank of America.
Tony when you have talked about.
On the longer term opportunities for green ammonia.
There's there's been multiple legs to that stool and would be curious to hear your view on which.
Which of those various end markets would you see as likely having the most potential whether its ammonia is.
As a fuel blend for ships or as a fuel blend in power production.
I'm curious how those discussions with prospective customers are going and given your electrolyze. It won't be on stream for a couple more years do you see it as likely that you will have sales of either gray or blue ammonia to those to those customers in the interim.
Yes, Steve So I actually think that we will likely be producing you know, what we're calling blue ammonia, which is ammonia.
That we produced by conventional means where then the resultant cotwo is captured and sequestered before we produce our first ton of green ammonia because I think we're we're not that far away from being able to produce blue ammonia through carbon sequestration.
And I do think one of the things that we've talked a lot about both at the hydrogen Council and also within hydrogen forward is the notion of.
Transition and improvement.
So using.
Gray ammonia or conventional ammonia.
As a way to get.
Momentum toward.
<unk> overall carbon emissions is significant and then as you transition gray ammonia to Blue and Green you get further benefits. So I absolutely believe that some of these applications, including use in power plants.
I will begin with conventionally produced ammonia or gray ammonia transitioned quickly to Blue and then and then ultimately end up in Green.
But I don't really think that.
There is kind of one sector, where we're putting all of our chips.
I firmly believe that hydrogen is going to represent a significant portion of the energy deck.
Across many many industries, including some very hard to abate industries.
Like transportation and.
And heavy industry and in those applications in particular on ammonia plays a really I think a starring role but you've seen announcements just this week from Maersk and other.
Others. So.
Initial.
Applications are very much going to be I think utility and energy use.
Shipping and transportation fuel and we're also getting a lot of interest in terms of low carbon inputs into the farm.
Because we are a big believer as are many people that.
Carbon sequestration in the soil is going to be available to growers and if you have a lower carbon input there is significant value there for the farmers.
So when you know when we can produce blue ammonia for basically the same cost structure as conventional.
That provides real value to a to a farmer. So I think we're going to see demand for these products not only in industrial and transportation utility.
Areas, but also in our traditional core market of agriculture.
Your next question comes from Ben Isaacson with Scotiabank.
Thank you very much and good morning, Tony when you think about the growth of.
Really any new energy technology over the past decade, whether its E V or ethanol or wind or solar they've all required significant government support.
Either the federal or both the federal on the state level.
Are you getting support from the government right now in terms of green ammonia on whether it's through subsidies tax benefits accelerated depreciation can you just talk about where that is right now and how that will help accelerate the growth on this market. Yes. So currently there are the 45 Q Tam.
<unk> credits.
Our available there's also some dollars that are being freed up.
For R&D funds.
But a lot of the subsidies.
That existed for solar and wind are not in place to the same extent yet for hydrogen. So we would expect there to be further.
Support and helping.
Two.
To develop and augment this industry and frankly, the other piece that will really I think.
Be strong support for development and implementation of hydrogen as a fuel is going to be if we put in place a cap and trade or carbon tax more of the debt.
Stick side of the equation as opposed to the carrot side, because I think the minute you start providing.
Not only economic incentives for people to shift, but real pain. If they don't you will see a much quicker migration. So we're very hopeful with the new administration.
There can be a firm commitment around putting in place a real cost of carbon because I think that that just accelerates the adoption and movement towards.
Hydrogen in low carbon ammonia.
Your next question comes from Mark Connelly with Stephen.
Thanks, Tony we started to hear talk again about China export duties, which used to be sort of a regular thing but for quite a while I'm. Just curious what your people are saying about the probability of zone.
When you look at what's going on in China, producing between low <unk> to 70% operating rate and coming with $50 50, Let's say 50 556 million metric tons last year exporting around five.
Majority of that to India, and some of the South American countries.
What we see again with high cost gas.
Asia peaked probably in the low twenties has since fallen back to 6% to $7.
One theyre going if they're going to operate those gas and coal plants from coal is also would have a higher level.
Needs to be at these levels. So we have seen them position, but small amounts right now we don't see them aggressively pursuing.
Export tonnage, whereas if you go back.
Several years when they were overwhelmed the market. They were exporting over 1 million tons December January February thats going to be de Minimis This year and.
And so that further supports what we've been saying about the supply demand.
Balance, we're projecting that China will be in that similar range around 5 million tons and it'll be interesting for this India tender do we expect in the next few weeks to see what level of participation.
They will have but they are bidding for exports to day at a fairly aggressively high level.
Yeah.
Super Thank you.
Your next question comes from the line of Jonas Oxcart with Bernstein.
Good morning.
Yes.
Your.
Yes.
Your slide on your utilization versus competitors.
It's intriguing.
On a two part question if it will mind first could you just touch on what is the differentiator.
And I will just a follow up.
What is that.
So yes.
There is a value proposition for you guys to consolidate this industry not just for consolidation, but simply to run other plants better.
Yeah.
Good morning, Jonas So I think.
What I would attribute it to us.
There's a couple of things one of which is.
<unk> culture, so we have very much a culture.
Our facilities of not only as I talked about during my prepared remarks safe operations, but that also.
Translates into very productive and efficient operations and part of that means.
At the first sign of any issues. We go ahead and take plants down and do preventative maintenance or maintenance on them as opposed to run until they break and then tried to fix on which break fix is a poor operating model in these kind of plans you have.
Also deployed a lot of predictive technology and algorithms to help us identify issues well before they begin whether it's <unk>.
Bearing vibrations or.
Our small changes in heat profiles and so what will end up doing is for instance, taking the.
On the back end of a plant down calling it off a bit keeping the frame and hot and making some minor maintenance fixes and then getting back into the loop without losing significant production, but it allows us to.
Hit the kind of numbers that you see here on page six of our materials I think the other thing that plays into it as the scale given the number of ammonia plants that we have that are of similar vintage.
We're able to maintain a very.
Efficient spare parts pool that we can move back and forth very quickly between our facilities and get terrific leverage out of and I think honestly.
We can attract terrific talent and have some expertise whether it's in rotating equipment or in.
Other kinds of areas that debt.
It is pretty unique to us so.
I think it's a combination of all of those things that ultimately drive the significant difference in.
And capacity utilization and asset utilization you will see on page six and I think.
Now on those things absolutely our leverage will and can be transferable to other assets one of the things we've seen with the Terra plants that were acquired back in 2010.
Is that they did take a while to for us to invest in maintenance procedures change culture get the right approach from an operation standpoint, but they are producing.
Every bit as efficiently now is.
Historical.
Medicine hat in Dallas that will CF plants were so I think it absolutely is transferable scalable and a real value prop that we bring.
It's not overnight, there's a fair bit of investment in order to change culture, and so forth, but I do think that that's one of the things that we look at when we're evaluating synergy potential which is what kind of asset utilization could we ultimately expect to get out of some new equipment as opposed to.
How it has historically been running.
Your next question comes from Andrew Wong with RBC capital markets.
Hey, good morning.
But it is starting to enroll in a low carbon market aside from being a producer what other roles could CF play.
Kind of develops over the next 510 years.
Yes.
In addition to production our network of terminals and other assets, whether its railcars barges or.
Docks and shipping infrastructure allow us to play a pretty significant role I think in terms of.
Logistics and transportation and storage.
<unk>.
Right now, we don't view ourselves getting.
Too far downstream in terms of.
Actual.
Sales of hydrogen.
Or retail that type of thing, but I think.
The sort of the production.
Transportation wholesale which is the sweet spot of how we operate our business from an AG perspective, certainly fits within.
Within that framework and Wow.
I wouldn't.
On a priority take anything off the table, if it's something we can do and do well and bring value to we will consider it.
One of the first things that we're really focused on today is.
On helping to develop a set of standards worldwide that I think.
Allow for.
The adoption and migration into hydrogen and clean ammonia.
Because they have done poorly or in properly that could really be a day.
<unk> for the development of these technologies.
So we're working very hard with a number of different organizations to make sure that the right kind of standards and approaches are adopted.
Your next question comes from Duffy Fischer with Barclays.
Hi, This is Sean gilmartin non productive this morning, thanks for taking the question on.
Just wanted to get a sense on China grain demand has been historically strong kind of particularly on the corn side and has always been a bit difficult from our end rates are difficult to triangulate what is happening in China. So I just wanted to get a sense from your standpoint.
Is this level of demand out of China.
Sustainable slash will persist through 2021.
On kind of if so what in your view will drive that strength. Thanks for the color I appreciate it.
When you look at China.
They really haven't been that big of a participant in the feed grains market.
To the degree that they are they are they did last year.
And now we're seeing them stepping in and buying incremental ethanol, which just.
<unk> is helping the system at least our system operate more efficiently and move product around so with the rebuilding of the hog herd.
It needed to take place after the Asian swine flu.
Sweat.
Through China and decimated.
Production of pork.
Seeing a rebuilding take place and they drew down there.
And probably last several years drew down that stockpile that was there we weren't there for sure but we believe that that was drawn down to a very low level. So that those two coupled together accelerated demand.
For U S corn, which was just kind of fuel to the fire for the U S system.
And we do see debt.
Continuing on.
Doing through 2021 and beyond.
The corn yields in China are not as healthy as the United States or other places in the world.
And the.
The price level of being able to import corn from the U S or Brazil is still very profitable for the Chinese trading houses and processing groups.
On an economic basis. It will continue and then on on demand basis, I think also theyre going to need to.
Your next question comes from Vincent Andrews with Morgan Stanley.
Hi, Thanks will.
Hands on for Vincent Thanks for taking my question.
Wanted to come back to maybe your order book for the spring.
So the degree maybe itself forward on.
What prices.
Okay.
When you look at spring.
It's been on.
Obviously like I said earlier on some earlier comments, you've seen just an explosion of values in January and carrying through February and we expect that to continue through spring.
<unk>.
The CF.
Kind of how we manage our order book as we are selling forward do you have a logistical assets and plans to operate so you need to have a forward book on Thats adequate we think we manage it appropriately because we didn't believe that there are values out there.
That would be attractive for us to secure and safe to sell in the spring market and that has happened.
So I like where we're positioned we are now in the process of logistically moving.
Our tons by pipeline barge rail and truck into position on our terminals.
We have agreements with our customers in place and we have opened.
We have opened tonnage available to sell on will probably be active in the market.
On the next several months as we get through planting season.
Thank you.
Your next question comes from <unk> Patel with Exane.
Yes, hi, good morning on so.
Taking my question you mentioned I will give you that global demand.
What is more high cost production I'm, just curious in the long term what sources.
You will be a price do you think will incentivize new greenfield capacity in low cost locations like North America.
Well I.
I don't know that I would necessarily classified in North America as a low cost location I think its low cost from the standpoint of.
Variable our operating costs from a gas supply standpoint, but.
The.
There are significant capital cost.
Challenges with.
Constructing new facilities in North America, and at some levels of capital and it doesn't matter whether the gas is free you're better off building the plant someplace else. So that the place where new capacity is currently being added are the regions that I would expect kind of on the next round two.
To continue to see additions, so youre talking Nigeria, Iran, Russia.
Those are places both with.
Plenty of supply of natural gas, where you can do contracted LST K kind of construction and if you can bite off the political risks.
I think thats, where you will likely see.
On the new construction happening.
We would expect pricing needs to be.
Kind of a $300 plus for us.
For our full year, two to really provide that sort of incentive.
And.
Depending upon leverage rates and so forth may be a little bit lower than that but but at $300 ammonia based on what construction costs are in North America.
You just can't make that math work.
So again, I think youre going to see additions other places before you see it here I think there are additional steps to take its not just building a plant.
<unk> gas and what Tony mentioned, a secure political environment. When you look at South America Venezuela.
Brazil, Bolivia.
On the Mexico assets, even though they are older. None of those are operating and they probably won't.
They were built on the wrong place, where they don't have gas supply.
That coupled with what's happening in Trinidad and some other places in Asia.
Building a plan on operating at these are long lived assets and there should be able to like ours operate 30, 40, 50 years and many of these are less than 10 or 20 years old and are non operating so I think that is the challenges and investor.
Where are you going to build on how you're going to move it and how long will your asset have a payback.
Ladies and gentlemen that is all the time, we have for questions for today I would like to turn the call back to Martin Jurassic for closing remarks. Thank.
Thanks, everyone for joining us and we look forward to speaking with you at the various virtual conferences that are coming up over the next few weeks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Dan.
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Yes.
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We will do.
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Okay.
Okay.
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Moving on.
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Dan.
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