Q1 2021 CF Industries Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the first quarter 2021, CF Industries Holdings earnings Conference call. My name is Steve I will be a car day.
Nito 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 this call you require assistance. Please press star zero and a coordinator will be happy to assist you I would now like to turn the presentation over to your host for today, Mr. Martin Gyros, Inc. With CF Investor Relations. Sir. Please proceed.
Good morning, and thanks for joining the CF industries first quarter 2021 earnings Conference call I'm, Martin drastic Vice President of Investor Relations 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 its first quarter 2021 results yesterday afternoon on this call will review these 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'll 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.
Yesterday afternoon, we posted our financial results for the first quarter of 2021 in which we generated adjusted EBITDA of $398 million.
These results are really the story of nitrogen prices that increased throughout the quarter somewhat offset due to lower production and corresponding sales volumes.
There were a lot of other things happening during the quarter, such as winter weather driving that LNG demand and a corresponding gas prices and one very large winter storm event in the U S. But if you take all of these impacts together they roughly offset each other.
Let me provide a bit of color on our response to these events, but I'd like to refer you to slide six and seven in our posted materials.
Back in February.
In the President's day weekend, and extreme winter storm hit the U S gas suppliers into several of our locations curtailed gas deliveries and we were informed that we would likely face force majeure hard shutdowns.
Our team mobilized quickly discussed various options and decided on a following a course of action.
Given we were facing the loss of gas delivery into our plants and would be shut down anyway.
We opted to effectively sell the gas we had contracted for back to our suppliers by net settling our gas delivery contracts at prevailing market prices.
We also reduced operating rates to minimum levels at some plants that were still receiving gas and sold the excess gas above those minimum levels back to suppliers.
The result was a gain on sale of gas of $112 million.
Slide six provides some details of how we mitigate gas price risk and how the February storm affected gas prices.
However, there were pretty significant impacts to our operations as a result of the shutdowns and freeze offs we.
We experienced some prolonged outages and increased maintenance expense, including fixed cost write offs as a result of the abrupt disruption in extreme cold.
And of course gas price rose for that portion of our gas that was not hedged.
Because we lost a fair bit of production, we chose to go into the market and purchase urea barges. So that we could meet existing customer commitments, which also cost us a small amount.
The net result of all of this is shown on slide seven of our materials.
Net net our sale of gas mitigated our increased costs. So we came out of it basically even.
Now we did lose production and the corresponding positive margins, we would have received.
The full picture was a net loss for us, but at least we recovered our out of pocket costs.
Hopefully that provides some context from big unusual moving pieces.
Even if all the challenges we faced in the quarter, we feel very positive about where we're at at this point of the year.
We had solid results and Bert is now going to take you through the two main factors of why we are so bullish.
First coarse grain stocks to use ratios are extremely low.
Meaning we expect grain prices to remain strong through several growing cycles and farmers are incentive to maximize yield driving increased demand for nitrogen.
Second global energy spreads have continued to widen such that production costs for eastern European plants are actually higher than China, now, meaning the nitrogen cost curve is natalie steeper, but substantially wider for fourth quartile producers. Therefore nitrogen pricing is expected to remain quite strong.
With that let me turn it over to Bert.
Thanks, Tony.
I will look at the first quarter and into the foreseeable future. We believe that the positive conditions in the global nitrogen market are likely to prove resilient for some time.
Since late 2020 global commodity crop prices have been rising steadily.
Driving strong nitrogen demand.
Global urea prices rose alongside this demand and prices for other nitrogen products following.
Our team did a good job of capturing these opportunities in the first quarter, especially as they dealt with the impact of the severe winter weather on our production volumes.
I will note however that our UAS segments results do not fully reflect the positive environment on hand.
We continue to face challenges there from subsidized Russian UA in imports that are depressed prices in North America.
Coming out of the first quarter the spring application season in North America has progressed very well.
<unk> prices have remained high demand as strong and supply is tighter than the market expected.
As we look further out positive agricultural fundamentals are setting up an extended period of strong margins across the entire value chain.
Strong global demand for all major commodity crops has resulted in low stocks to use ratios and higher commodity crop prices.
Given where those ratios are as well as the continued robust demand for commodity crops. We do not believe stocks will be replenished in just one growing season.
In fact, if you look back to the last time, we had stocks to use ratios. This low it took several growing seasons to recover as you can see on slide nine.
As global stocks recover slowly commodity crop prices should remain higher for some time supporting strong financial conditions for all aspects of the channel from producers to wholesalers to retailers to farmers to green originators to grain processors and protein.
We believe this will underpin heightened demand for nitrogen into next year and likely beyond.
CF is well positioned for this opportunity due to the increasingly favorable global energy pricing environment.
As you can see in <unk> on slide 10.
Energy costs in Europe, and Asia have both dramatically increase from the lows of last year and returned to sizable differentials compared to Henry hub prices.
This is steepen, the global cost curve significantly Additionally, with European natural gas at around $9 per <unk> today and the outlook from the forward curves, we expect that eastern European producers will act as the marginal producer in the near term.
These conditions have created a very positive environment for the company.
Steeper global cost curve increases margin opportunities for low cost producers such as CF.
We also expect a traditional nitrogen price reset in the third quarter will be at levels well above the last few years.
We are operating in the most favorable environment, we've seen in many years and we believe this will have a relatively long tail.
We expect that the need to rebuild global stocks will persist at least through next year.
<unk> has strong economics across the agricultural value chain and robust global nitrogen demand.
At the same time.
Forward curves suggest CF will benefit from favorable energy differentials for the foreseeable future.
As a result, we believe this will have a tremendous opportunity ahead of us as we leverage our manufacturing distribution and logistics capabilities to deliver for our customers.
With that let me turn the call over to Chris Thanks, Bert from.
The first quarter of 2021, the company reported net earnings attributable to common stockholders of $151 million or.
On <unk> 70 per diluted share.
EBITDA and adjusted EBITDA were $398 million.
The trailing 12 months net cash provided by operating activities was approximately $1 5 billion and free cash flow was approximately $1 $1 billion.
These results reflect generally higher year over year prices.
We offset by lower year over year volumes and higher realized natural gas prices.
They also reflect how we offset the challenges we faced in the first quarter through management actions.
Bert described the nitrogen pricing outlook through the rest of the year is very favorable in comparison to last year.
Partially offsetting this benefit will be a number of factors.
We expect gross ammonia production to be around $9 five to 10 million tonnes compared to $10 4 million tons last year.
This reflects the impact of the planned turnaround activities and the production we lost due to the weather.
This level of production along with lower inventories to start the year will.
Likely result in the company selling between 19, and $19 5 million product tons. This year compared to over 20 million product tons last year.
We also expect our natural gas costs will be higher compared to last year based on forward curves. We would expect our average <unk> price at the end of the year to be similar to 2018 or 2019.
Finally, we anticipate that our capital expenditures for this year will be in the range of $450 million.
This will be much closer to our capital expenditures in 2018 in 2019.
Selecting a return to normal level of planned maintenance and turnaround activities.
That said the positive nitrogen industry conditions. We have described should support expanded margins for the company compared to 2020 driving significant free cash flow this year.
We will continue to invest in growth in line with our clean energy strategy.
The recent announcement of our partnership with decent crop on our Donaldson Bill Green ammonia project was an important step forward in our efforts.
The cost of this project fits within our typical annual capital expenditure budget.
We also continue to advance discussions with other potential partners for Green and Blue ammonia validating the broad opportunities. We believe we will be available on the future.
In March we repaid the $250 million remaining on our senior secured notes that were due in December.
We remain focused on investment grade and positioning the company to execute our clean energy growth strategy will continue to evaluate opportunities to further reduce gross debt over time.
We will continue to return cash to our shareholders through our quarterly dividend and opportunistic share repurchases at attractive levels.
With that Tony will 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 at CF for their fantastic efforts during the quarter, especially at a time when many of our employees we are still working remotely.
I am, particularly proud of our teamwork and collaboration critical thinking and data driven decision, making and our agility at recognizing and capitalizing on disruptions in the market.
We are very optimistic about where the company is positioned we believe our first half results will be strong and our outlook for the remainder of this year and into next year is very positive net.
Industry dynamics for producers in North America are the most favorable we've seen in years.
This along with the progress, we're making on our clean energy growth strategy positions us well to create shareholder value in the near and longer term.
With that operator, we will now open the call to your questions.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
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Your next question is from Joel first question is from Joel Jackson from BMO. Your line is open.
Good morning, everyone.
Good morning.
Tony I know you don't really give guidance. It would seem like Q2 is setting up extremely well when you think about order book lags in 19.
Nitrogen prices have trended across the quarter in Q1 and Q2 can.
Can you give us a little bit of.
Color on how good Q2 could look versus Q1 like could we see 50% higher earnings in Q2 versus Q1. So any color you can add would be really helpful to understand how how well pricing stronger price per flowing into your P&L.
Yeah Joel.
As you mentioned I'm not going to give real firm guidance, but just a little bit of color here.
Gas price is behaving itself in North America, so our cost structure.
As you know is kind of where we expect it to be.
And <unk>.
Gas prices internationally have really blown out so the TTS price in Europe GKN price in Asia.
It is very high so.
Good.
Production into the marketplace in those regions required strong strong nitrogen pricing and that not only sets up really well for Q2, but I would anticipate that that's going to be.
Bert is going to get into this I'm sure later, that's going to mean that the reset in terms of what our fill program is.
Our expectation is that will be quite a bit higher than it's been in recent years. So I don't think this ends at Q2 I think we've got a really strong rest of the year in front of us and in fact.
Based on this.
Bert talked about the stocks to use ratio and it is taking more than one growing season to recover. We think this is it at least into 2022, if not beyond so we're really excited about it.
Your next question is from John Roberts from USB. Your line is open.
Thanks could you discuss the UA and results. It looked like there was something unusual that happened there.
No I think it's.
Is it a reflection of several things like I articulated in the prepared remarks, we have had an influx of.
Low cost subsidized Russian UA and consistently and Thats pressured.
Obviously all of the <unk>.
Importing regions, which is east coast Gulf Coast on West Coast.
And then I think you have to remember we're coming out of a pandemic and when we were in 2020, it was a risk off market for.
Globally.
And so you saw low prices in different regions.
Inability or not a desire to maybe to purchase at first and so we.
Had a low low priced environment in Q3, Q4 and into Q1 and in our situation I think as well as others.
You have logistical assets that move as well as plant.
Production, even with the disruptions that you have to keep moving and so we always have a forward book on.
The prices started moving up.
For UA in mid Q1, and so youre not going to have an immediate price realization anyway, and so we expect to see more of that Inc.
And then as Tony mentioned.
The reset will be.
A different level than it has been and we expect that to be very positive. So.
More thing or better things to come we think and we're watching all the variables.
Keeping our focus on that.
This is Chris John on the other thing I would add is in the UAE.
Segment there.
It's a little misleading the gross margin there because.
The items that Tony spoke about the natural gas settlement, we put we booked all two ammonia, where those higher maintenance costs and fixed costs write offs were against all the product lines.
Just sort of that out you're closer to something that's more similar to what it was last year during Q1.
Okay. That's helpful. And then could you discuss the competition between the industrial markets and the agricultural markets for ammonia because you've got industrial recovering here at the same time.
Yes, so I think industrial caught up.
We had lost our spring program in December and then prices moved up also in Q1, and so we have a fairly attractive.
Q2.
Application season, not only volumetric Lee, but youre right prices improve and I think thats going to reflect well for the fall fall application takes place in November and we would project today based on corn prices and availability.
That price will be very attractive on the industrial side that is a reflection of globally and really for all of the products urea ammonium.
Ammonium nitrate and ammonia, we have a very tight market.
And as Tony articulated driven by energy cost differentials high cost producers. It has been attractive to important buy and decrease or even stop that production of ammonia that quickly tightened up our global ammonia market and the Baltics blacks as well as in Tampa and you've seen prices move up to above 500.
It's been many many years since we've been at that level.
We have healthy margins on the phosphate side, so the phosphate producers are.
Trying to acquire enough ammonia for their operations and then you've got a recovery economically which has driven the industrial demand for synthetic fibers in different areas.
Along the Gulf coast, as well as globally youre going to see a tight ammonia market.
Through this year and probably into next and.
I think youre right the competition for that time Theres a portion of our book that's consistent with <unk>.
Industrial demand.
And then we normally get a better margin uplift from from AG, but will be watching that and moving appropriately or as necessary to capture that opportunity.
Your next question is from Adam Samuelson from Goldman Sachs. Your line is open.
Yes, thanks, good morning, everyone.
Yes.
So maybe.
To.
Maybe Bert to your point on on the cost curve has steepened pretty materially Im trying to think one with $9 Eastern European gas, how do you think about that kind of helping set a floor price.
NOLA.
Low where it is now but well above where it's been the last couple of years I'd imagine against that how do I think about the ammonia in UAE and kind of end values. It seems like.
Those spreads versus urea and value have returned to more normal levels here in the last couple of months, where they've been pretty depressed from the last couple of years I'm just trying to think about how you think about that going forward.
Yes. So your question on setting a floor Noel I would kind of take it to a global it sets a global floor and youre going to see that and we've already seen in the India tender that was opened this morning or yesterday and the prices that reflect probably on AG number.
$3 20 to $3 30, a metric ton fob.
And you have significant amount of demand that needs to be covered without.
Heavy inventories globally, so coupled with expensive or high cost producers now.
Having an inability to export or participate in the export market.
Low inventory levels globally, a need for Brazil, and India to consistently be in the market and purchase from now from this point forward and then you will get into.
Our season will pick up later on in the year.
You have a very good platform.
For a very healthy floor level, probably higher than what people are anticipating and then if Europe and end user.
And this kind of whether it's industrial or egg in this economic market you are going to be making sure that you have sufficient supply on hand, so that will be the pull on demand at $7 corn $7.
88 on cotton just go product by product there will be that healthy incremental demand that will soak up.
Supply so we would say.
Today looking for the floors that they will be positive and you're right. The ammonia on UA and values are pulling closer to urea.
And I think will see an interesting dynamic play out this year.
<unk>.
Farm sector with how much of ammonia is actually put down and then the move to upgraded products and then especially on the pivot runs in rice run, which extend this tail thats why I talked about in my prepared remarks, the extended tail.
We have a cool weather right now so emergencies, okay planting is going very well, but when youre fertilizing for yield at $7 corn and the opportunity that's out there.
Youre going to see that incremental demand that will probably be in urea in UAS and then looking to next year at $6 corn and even into 2023, we've got a very positive price environment, that's going to again be the demand pool that we haven't seen in years for the nitrogen products.
Your next question is from Ben Isaacson from Scotiabank. Your line is open.
Thank you very much and good morning, everyone.
Question on UA on again.
You keep talking about subsidized Russian UAS imports you saw what.
They exited on the phosphate side can.
Can you talk about whether that's something you guys are exploring or will explore.
In terms of potential countervailing duties.
Hey, good morning, Ben Yes in reference to the comments, it's just a fact and so I just wanted to lay out there that that's a situation that has taken place and youre right from the mosaic situations that was subsidized gas and so I just think it was more we've had several questions reflecting the poor UAE.
On performance and when you Peel back the onion and look at that there's a direct correlation to the to the incoming product.
And the resulting nature that drove down prices. So it was just more to inform you.
And I would say Dan the other day.
Other thing I'd tack on here, which is there.
Ammonia that goes into map and DAP is a relatively small percentage of the aggregate total cost of production.
The gas that goes into producing UAS is 70% or 80% of the cost of production so win win.
The FTC.
Found that.
That there was subsidized gas and therefore duties that the Russians need to pay.
That's true on.
On map and that it should be doubly true in UA on so I'd say, it's something we're.
Continuing to.
To take a hard look at.
Your next question is from Vincent Andrews from Morgan Stanley. Your line is open.
Hi, This is Steve Haynes on for Vincent Thanks for taking my question.
Just wanted to ask a question on the carbon capture initiatives.
Whether or not there was kind of any more color to provide around substance on timing.
Regards to those discussions on.
Anything of that nature would be appreciated.
Yes, I think.
It's something as we've talked about that we continue to have conversations with quite a few different <unk>.
Who are looking to partner on that.
And it's really because of I would say the ability or actually what we're doing today by capturing our C O two or a lot of industrial organizations today do not have that capture so we have a net position where were already removing the C. O two from our ammonia streams and capturing that.
So it puts us.
A lot of other parties from that but we're being diligent as we look at.
What opportunity we would want to join there is no known right now at this particular time classics permits that have sequestration points, but there is obviously <unk>.
Credit also for you are so I would say right now we continue to explore those opportunities.
We're talking to several parties on that and I would say not.
Not just to Donaldson bill, but there's opportunities in a number of places across our network, including.
Both of our plants in the U K.
Your next question is from Steve Byrne from Bank of America. Your line is open.
Hi, Good morning. This is Luke washer on for Steve.
So you guided ammonia shipments this year to $19 five to 20 million tonnes.
And I guess, just thinking about the outages that you had in <unk>. How are your ammonia plants running right now as you enter into <unk> and how does that set up the cadence of your shipments over the course of the year. So it wasn't ammonia shipments that were talking about between 90% to $92 5 million. It was total product shipment ammonia production.
Is kind of the nine five to 10 million tons.
Tend not to.
Break out sort of current operating status of our plan. So that's one.
The entirety of the network is just one of those things that we.
Believe is kind of competitively sensitive so we tend not.
To provide.
Real time update on all of that but.
Thank our.
I think our guidance reflects both the increased level of turnarounds that we had this year versus last year.
And.
On the fact that we did have.
The Big Winter storm event that did have some knock on kind of outages associated with it. So when we look at those two things together, we feel pretty comfortable about the guidance.
This provided that both in terms of ammonia production for the year end.
In aggregate.
Sales volume in terms of product tons for the year.
Yeah.
Your next question is from Michael <unk> from Cleveland Research. Your line is open.
Yeah, just wanted to get in a little bit more in terms of your thoughts I know you mentioned that you expect higher seasonal wells how are you thinking about summer fill for UAS.
Just in terms of balancing the desire to keep imports out versus the more favorable supply demand backdrop.
I guess.
There's already been some tail.
Little bit of sales done Michael when you sort of expecting to come out with the sell price. Thanks.
Yes, when you look at summer fill we've had.
Programs for different years, depending on when demand materializes, what our situation on what the kind of the.
The opportunity is for inventory and we believe this year because of the tail that's needed to for applications that youre going to have a later season than normal.
The latest we've gone as August the earliest we've gone as June so I will.
On trends tend to be on the latter side of.
That spread.
For moving the ore announcing the fill program inventories.
Inventories are going to be low for all products and just looking at the imports to date and the production to date.
Feathering in what was lost in the winter storm in February amongst the different producers.
And again with were projecting 90 192 million acres. When you look at it today and talking with some of the different.
Participants on the grain markets.
You are probably going to be leaning or at least me personally is leaning more towards 94 million acres.
And then as I talked about earlier additional applications for yield.
Youre going to have a very robust demand coming probably starting its already has started and pulling contracts early.
So I don't see big inventories and youre going to need to fill those inventories because on the back of this year and the back of this yield if it's even average are good we're.
We're going to have to repeat that in 2022.
So when youre looking at the fill programs as well as the fall application of ammonia.
Im not going to give a price today, we've had several customers asking us for that but we expect it to be at a higher level, one because it's worth it.
Nitrogen is what's going to give you yield.
A good value and as I said earlier every one on the value chain, even at whatever levels, we come out with.
Is it a healthy profitability level and balance sheet position. So this is a very good time for our industry and we're gonna be excited to launch our fill program and work with our customers to make it a success for them as well as us.
Yeah.
Beth do you want to go to the next question.
Yes, Sir your next question is from Andrew Wong from RBC capital markets. Your line is open.
Hey, good morning, Thanks for taking my question.
Just following on on an earlier question about just the coming quarters.
I know, it's hard to give us guidance can you just help us maybe qualitatively understand.
How much volume is sold forward into Q2, and Q3 and how we should think about realized prices versus some of the.
Pretty high prices, we're seeing in the market today given.
On the nitrogen prices have kind of moved up pretty quickly and pretty sharply so that can kind of.
The expectations on realized prices off sometimes thank you.
Yes so.
Qualitatively I think I had mentioned on the last.
You were.
We're in a very very good environment. So that's kind of a statement on giving you. The guidelines quantitatively, we don't have anything sold for Q3.
And we will be looking at that necessity as we move forward for Q2 as I said earlier on we always have a book going into the quarter and we have been active every day in the market. If you do your channel checks.
We're selling we still have product to sell for Q2, so there.
From products move at different times.
Ammonia is generally first and so those programs are part of our program was sold in December and part of it was left open for this period and then you move into urea and UA in for wheat, and then as you move further north.
And we're just starting those applications in the north as well as Canada, that's for ammonia and that will move into your urea on UA in the bulk of the <unk> end market will be in the latter part of May and early June.
And.
We think we're well positioned for that also and have tons available for the pivot run which is.
Irrigated runs as well as the right run so more to come but we like where we are.
Your next question is from Mark Connelly from Stephens, Inc. Your line is open.
Hi, Good morning. This is John rider on from Mark. So we saw a fairly normal seasonal swing the coldest winter in China on as far as we can see a pretty normal shipped back where are you seeing Chinese operating rates right now and what are you assuming in your global forecast for Chinese operating rates in the rest of 2021.
Yeah.
Well I'll start John with coal Chinese coal there had been a lot of discussion about Chinese coal softening, specifically anthers site over the past year on what you've seen is it's been relatively consistent at about $160 per metric ton. Therefore.
Really on an energy equivalent we've seen the seven to $7 50.
Per <unk> equivalent.
The gas on that so from from a Chinese perspective, we've continued to see them be the marginal producer, but as Bert mentioned in his remarks, but we started to see yours with the expansion of the energy differentials is that youre actually seeing eastern European and Asian.
The equivalent to those marginal producers in a widening of the cost curve in that fourth quartile along with the steepening of the slope. So I'll, let Bert talk maybe about what type of exports. He is expecting for this year from China specific to China and obviously, we're following it because they do represent roughly 10 per.
Are some of the export market.
And are the market had been the marginal producer that expanded contract as pricing allows and have been active participants in the India tenders.
So on a percent of capacity, we estimate just like some of the publications they'd been in the 70 70 172.
That would be laying out for the year about 56% to 57 million tons of production.
Exports were estimating around 5 million tons, but the thing we have to remember and pay attention to as consumption in China consumption in China over the last four years has risen from 48 million tonnes. We estimate the 52 million tonnes. So an additional 4 million tonnes, what is happening well guess, what they need to.
Fertilize for yield.
On the tremendous imports that have taken place in China of corn and soybeans. This year is a reflection of their inability to produce that wanted to shortage of water and soil, but it seems to me that they are now trying to take care of some of that at least for the next growing season, so positive dynamics out of China.
That as a 5 million ton exporter.
I think the majority of that will go to India, We're expecting India. This year to be a 10 million ton importer. So the swings in the ability to move the market out of China is not the same than it was let's say.
Six or seven eight years ago, and I think to that point Bert.
We are seeing increased economic activity within China, and so that means on the industrial side. There is more usage it goes to your.
Pointing on consumption.
And the other thing that we're watching very closely and Bert mentioned Thats about India, because our expectation is that domestic production in India is going to be down and therefore based on consumption, they're going to be larger importers, which.
Likely China is going to take a big piece of that so again, we're very constructive if not only in terms of the overall SMB balance, but with energy differentials, where they are in the cost of the high end, where it is does suggest.
A very favorable license nitrogen pricing deck for.
North American producers and one last thing you got to remember about China in the last three years that were in 12 million tons go offline and closed that's a significant move when you're adding this year, we estimate of exportable tons, two 5 million tonnes.
And so the closures, which will continue.
Make China basically a domestic.
Producer with a marginal ton that's coming out that's okay.
Your next question is from <unk> <unk> from Exane. Your line is open.
Hello, Thanks for taking my questions.
Just a follow up on on the market on your comments on India.
Thank you said production is it.
To be down this year, how does that play into your expectations or views on.
Some of the new plants that are ramping out there right now.
And then secondly, just on free cash flows in keeping with the guide for $250 million of Capex. This year.
Can you just help us understand the phasing with that Vince Q2, and H T.
And then secondly on customer on bonds. So those are some of the hardest step up.
This quarter does that mean that we can achieve.
On our outflow in Q2.
Thanks.
Yeah, So I'll deal with a couple of those non I will turn it over to.
Bert and Chris on the.
On the India front Theres been a number of new plants that have started up over the past couple of years Shambaugh on may <unk> and others and what we have not seen as an aggregate increase in the amount of domestic production. So.
It looks like is some new production comes on some older productions, either curtailed or taken offline and particularly with where LNG is trading right now our expectation is.
In most cases, it's going to be cheaper based on the efficiencies or the inefficiencies of some of those older plants to import.
Domestically or globally traded.
Urea as opposed to try to run those Theres also as we understand it Ben.
Because of the impact of COVID-19 and what's going on over there right now real challenges on supply chain and labor issues and so.
R R.
Understanding is our expectation is for the full year, we don't anticipate there will be excess production coming.
On line on a net basis in India.
I'm trying to.
Remember the.
The other questions. There was the other question was on capital expenditures.
Yes.
In general we like to do turnarounds during the portion of the year, where we're pricing is the lowest so that suggests kind of end of the second quarter and into the third quarter and then we like the plants to be kind of up online again fully running so that we can hit fall application of ammonia and <unk>.
Pre stock for Q1 and Q2 so.
Most of the time.
As you get to the back end of Q2, and most of Q3, that's where the vast majority of our turnaround.
<unk> happen at least at the plant level, Yes, I think if you look at our historical quarterly spend on Capex and use that as Tony mentioned, we're pretty pretty set when we're when we're taking plants down and doing a turnaround work that would be a good proxy to.
Allocate where you would see that $4 50 is being spent this year.
And if you look at India over the last six or seven years.
Basically produce between 24 and $24 5 million tons since 2015 year on year out evenly as Tony said with the addition of these new plants and from our channel checks there they are late.
And they don't when they do come up they don't run at capacity. They don't come immediately up to 100% of capacity. So this is a multiyear issue and we're still seeing multiyear growth and important.
That may not continue at the current pace, but it's going to maintain a healthy level in the foreseeable future and then on the customer advance front as Bert indicated we have not taken a bunch of Q3 orders right now so the the.
Customer advances that are on the books are really for Q2 deliveries. So to your point as we go ahead and fulfill those orders we will get the rest of the cash in.
But our expectation is the customer advance number will.
Correspondingly get whittled down.
On the Bert also talked earlier about kind of thoughts on timing, which.
For launching Phil also corresponds to a new bank of kind of customer advances in orders that that he is looking.
More likely than not towards the later end of the window as opposed to the earlier end of the window. So all of that suggests say.
Lower customer advance.
Number as we're kind of working our way through the quarter here.
Yeah.
Your next question is from Roger Spitz from Bank of America. Your line is open.
Thanks, Hi, good morning regarding your comments on the prepared remarks on.
On your focus on <unk> ratings.
Specifically pushing for.
And Ikea waiting from per agency.
Agencies, and what they've been saying to you about what it might take to get that rating what do you need to do.
Yeah. So good morning Roger.
Thanks for the question related to.
We are looking at getting back to investment grade.
The one thing we believe right now is our metrics are in place for investment grade. If you look at what we've done recently here, you're taking our gross debt down to $3 75 billion and really aren't net debt under $3 billion that puts us on an LTM at two one times net debt to EBITDA EBITDA.
Hey.
And with the strong outlook, we see happening here in the market not only as Tony and Bert mentioned through 2021, but in the 2022.
We see an opportunity not only to invest in our growth projects, but also our.
Also ticked down a little bit more debt and also return cash to shareholders as well. So I think we will probably look to take down a little bit more debt and we believe that should be able to get us to investment grade will wear.
We're hearing from the rating agencies is really just to see how the market develops.
I think right now what we're seeing is a very strong not only this year, but in following years, Yes, I think the other thing I would just add to that Roger is.
As we got into kind of the spring and into the summer of 2020 last year with.
Big kind of risk off position in the equity market and some real questions in terms of what was going on in demand.
<unk> they are the rating agencies, we're taking a very.
Conservative view of materials, and industrials and there was a lot more downgrades or negative watches them there wasn't anything positive.
Although our results were down a little bit sequentially in 2000.
'twenty over 2019 demand for our products remains really strong and it was really a pricing environment and as Chris said.
Based on the pricing environment that we're seeing now and this is a prolonged period along with continued reduction in debt I think we have a very strong argument, even without taking down incremental debt. The word investment grade company at this point, but.
We're continuing to have those conversations I wouldnt say they are quick to respond.
<unk>.
They tend to be fairly risk averse, so they want to see that.
There for the long run before they make a move like that.
Give us the bump up but we're we're optimistic that that will happen here sometime soon.
Ladies and gentlemen on that is all that we have for questions for today I would now turn the call back to Martin for closing remarks. Thanks.
Thanks, everyone for joining us today, and we look forward to speaking with you on upcoming conferences.
A great day.
Sure.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may all disconnect.
Loans.
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