Q3 2021 AdvanSix Inc Earnings Call
Good morning, and welcome to the advanced six third quarter 2021 earnings conference call.
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I would now like to turn the conference over to Adam Creswell Director of Investor Relations. Please go ahead.
Thank you Andrew Good morning, and welcome to advanced <unk> third quarter 2021 earnings Conference call with me here today are president and CEO, Erin Kane and senior Vice President and CFO, Michael Preston This call and webcast, including any non-GAAP reconciliations are available on our website.
At investors Dot <unk> dot com.
Note that elements of this presentation contain forward looking statements that are based on our best view of the world and of our business as we see it today those elements can change and the actual results could differ materially from those projected and we ask that you consider them in that light.
We refer you to the forward looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K as further updated in subsequent filings with the SEC.
This morning, we will review our financial results for the third quarter of 2021 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end so with that I'll turn the call over to advance <unk> as president and CEO Erin Kane.
Thanks, Adam and good morning, everyone. Thank you for joining us this morning and for your continued interest in advancing.
And that they've continued to execute well in the third quarter, while supporting our customers successfully navigate the current set of industry dynamics.
We delivered robust sales earnings and margin performance as well as record quarterly cash flow since spin and made improving end market demand and tight industry supply condition.
Mike will cover the details of our financials in a moment.
It's important to note that our integrated business model and unique combination of assets, coupled with our leading north American positions across our diverse product portfolio are paying significant dividends for the business.
The industries in which we participate where once again presented with supply chain and logistics disruptions escalating raw material inputs and inflationary costs.
Our team continues to demonstrate that we can perform in all environments and this quarter was no exception.
Our performance was supported by strong pricing and volume improvement, including contributions from differentiated products and our continued execution to capitalize on near term opportunities, while driving our long term strategies.
Building off we shared building off what we shared at our recent Investor day, we feel very good about the foundation. We've built in the last five years and how we are positioning the company going forward to drive performance and growth.
We are highly focused on executing what is in our control.
Having superior operational and commercial performance to meet the evolving needs of our customers.
Building capabilities to strengthen our innovation and portfolio resiliency.
And maturing our capital stewardship to enhance attractive total shareholder returns.
There was a lot to be excited about.
This past quarter, we continued to expand our digital presence with our node storefront featuring a number of chemical intermediates and nylon products across our portfolio.
We received our first commercial order of our newly introduced 100% post industrial recycled nylon resin.
We maintained conversion of roughly 65% of our ammonium sulfate into our higher value granular grades to meet the growth demands of our customers.
We were ranked 30th an investor's business daily Best 100, ESG companies of 2021.
We initiated a 12 and half cents per share quarterly dividend, reflecting our confidence in free cash flow generation.
And we completed a refinancing of our existing credit facility by entering into a new five year 500 million revolving credit facility, providing increased liquidity and flexibility at lower borrowing costs.
As we look ahead the outlook for our business remains favorable.
We're focused on strong execution to close out an unexpected post spin record year in 2021, and taking that momentum into 2022.
As we align our long term strategies with strong and sustainable shareholder return.
With that I'll turn it over to Mike to discuss the details of the quarter.
Hey, yes, thanks, Darren and good morning, everyone.
Now on slide four where I'll highlight the third quarter financial results.
As you can see it was terrific performance really across the board.
Sales totaled 446 million up 58% compared to last year.
Pricing was favorable by 50% comprised of raw material pass through pricing of 22%. Following a net cost increase in benzene or propylene and market based pricing of 28%.
The improvement in market based pricing was seen across each of our product lines.
Sales volume in the quarter increased 8% driven primarily by improved end market demand across our ammonium sulfate nylon and caprolactam product lines.
EBITDA was $75 million, an increase of approximately $59 million versus the prior year I'll walk through the key year over year variances on the next slide.
Earnings per share of $1 51 increased $1 53 per share versus the prior year loss of <unk> <unk> per share.
Our earnings results were above the high end of our outlook. We provided at our September 20th Investor Day, primarily driven by better than expected pricing net of raw material costs as well as the timing of ammonium sulfate sales.
And finally cash flow from operations was a quarterly record since spin, reaching 76 million that's up about 41 million compared to last year, primarily due to higher net income and the favorable impact of changes in working capital.
Capex of $13 million was favorable by roughly $3 million year over year, reflecting capital process efficiencies and timing of project execution.
Now, let's turn to slide five.
Here, we highlight a few of the key drivers of our third quarter EBITDA performance year over year.
Pricing over raw materials was roughly a $40 million tailwind as we drove value through strong commercial excellence across the portfolio.
Tracking our key variable margin drivers performance in chemical intermediates reflected a continued favorable supply and demand environment for acetone over propylene spreads.
Capital item in nylon over benzene were up year over year as well, reflecting continued improvement in industry spreads supported by tight industry supply demand.
While demand has steadily improved.
And as expected ammonium sulfate on a net price of natural gas and sulfur basis turn positive year over year, reflecting the strong underlying AG environment as well as our ability to drive value above and beyond the sharp increase in input costs.
The impact of planned plant turnarounds to pre tax income was zero in the third quarter of 2021 versus approximately $20 million in the third quarter of 2020, representing an approximately $20 million benefit year over year as.
As you May recall, we successfully completed our larger Hopewell turnaround in 2020 in the third quarter, including our Kellogg ammonia plant.
In 2021, our larger Hopewell plant turnaround, including our sulfuric acid plant is in the fourth quarter, which as of today is mechanically complete.
Lastly, volume and other items were approximately $1 million favorable unfavorable in the quarter higher volume was largely offset by increased planned spend and sales rate to support growth and higher incentive compensation expense in the third quarter of 2021, we also had roughly $2 million of favorability from additional insurance proceeds related to.
2019 shutdown of Cumulus supplier, Philadelphia energy solutions or PFS.
So overall, a strong commercial and operational execution in the current set of industry conditions.
Now, let's turn to the next slide.
On the left side of page six we have highlighted the drivers of the $63 million of free cash flow generation in the third quarter supported by net income working capital and lower Capex spend rates.
Another very strong quarter from a cash flow perspective building on the 85 million of free cash flow generated in the first half of the year.
Working capital was roughly at $12 million source of cash in the quarter with an increase in accounts payable partially offset by other working capital.
As always there are timing consideration when it come timing considerations when it comes to working capital, particularly around inventory and accounts payable related to raw material purchases.
For Capex, we now anticipate our full year estimate of approximately $63 million compared to our prior expectations of $65 million to $70 million, reflecting efficiencies in our capital processes and timing of project execution.
This does represent a step up sequentially in capital spending in the fourth quarter relative to our run rate year to date.
Improved cash flow alongside with robust earnings enables more flexibility to create value for our shareholders.
As Erin mentioned earlier, our new credit facility also provides increased liquidity and flexibility at lower borrowing costs, reflecting our strong business performance and more favorable credit market conditions.
Given the strength of our cash flows and our confidence in future cash generation. We are committed to a structural return in the form of a competitive dividend, which we intend to sustain and grow over time.
We also continue to target accretive M&A and are building off the success of the <unk> acquisition earlier. This year. So overall, a disciplined and balanced capital allocation strategy that we believe is a value enhancer to our core strategies and a key focus to support attractive total shareholder returns.
Now, let me turn the call back to Aaron.
Thanks, Mike and now on slide seven while we've included pricing and spreads across our product lines.
Starting with nylon, we've seen spreads further improving into the third quarter on a year over year basis, while remaining roughly flat sequentially from the second quarter.
The Asia caprolactam over a benzene spread average roughly $10 50 per ton in the third quarter in line with the second quarter of 2021, and an increase from just over $600 per ton in the third quarter of 2020.
Spreads are relatively in line with marginal producer economics, reflecting a more disciplined environment.
While we are monitoring potential impacts from Dol policy controls in China on the value chain. The North American market continues to be characterized by robust end market demand with the backdrop of rising input costs and continued industry supply constraints globally.
Yeah.
Overall nitrogen industry pricing has significantly higher through the third quarter supported by higher raw material input cost industry supply constraints globally, and continued strong agricultural fundamentals, including crop prices stock to use ratios and planted acres overall.
As I discussed previously natural gas and therefore ammonia as well as sulfur prices have substantially moved higher this year relative to historically low prices throughout most of 2020.
We do believe we are well positioned to succeed in this environment given our footprint here in the U S with access to key premium selling regions and our make versus buy advantage on feedstocks.
As an example in natural gas prices in Europe have been roughly five to six times higher than here in the U S.
Overall, we would note that we did not see our typical ammonium sulfate seasonal price and mix impact sequentially in the third quarter.
The better than expected results reflected improved domestic volume and pricing performance through the quarter.
And lastly industry realized acetone prices of our refinery grade propylene costs, while still higher year over year have further moderated sequentially into the third quarter as expected and now into the fourth quarter, our continued balancing of supply and demand as.
As a reminder, the small medium buyer acetone price.
<unk> roughly one third of the domestic industry, where pricing is predominantly freely negotiated.
Let's turn to slide eight to discuss our preliminary outlook considerations for 2022.
We are building on the momentum created this year as we head into next year.
Across the various value chains, we participate in we continue to see rising input costs and industry supply chain disruptions at a time when demand overall remains robust.
Our ability to execute and navigate in this environment is core to our integrated business model pricing mechanisms and leading customer positions across a diverse set of end uses and applications.
There are some puts and takes across the portfolio from a commercial perspective.
In the nylon space, we expect steady North America demand amid favorable end market conditions and tight industry supply.
Residential construction has remained strong and we're seeing early signs of recovery on the commercial side.
Packaging demand has remained healthy as well.
Demand for engineered plastics continues to be resilient. However, we are monitoring the effects of chip and other materials shortages, leading into the auto value chain.
In this tight supply demand environment, we remain focused on delivering to our brand promise of being our customers' trusted partner by meeting their buying and quality needs.
In a short term my priority is to ensure inventories are in line to meet our targeted service levels. While we continue to drive our longer term development efforts on differentiated nylon product offerings.
In ammonium sulfate a number of key indicators continue to trend favorably as well and we expect robust industry fundamentals through the 2022 planting season.
It's fair to say that this is the strongest AG and fertilizer environment, we've seen in the last decade.
Underlying demand coupled with nitrogen industry supply tightness and rising input costs all have supported increases in pricing.
With software demand remains robust as a key nutrients supporting crop yields we continue our efforts to drive that software nutrition value proposition down the value chain as well as our initiatives to drive strong bringing that conversion of our ammonium sulfate product.
Moving to chemical intermediates, we expect favorable demand trends to continue for our full product portfolio, which serves a diverse set of end markets and customers across the building construction.
<unk> paints and coding solvent electronics and pharmaceuticals to name a few.
We're supporting growth across the portfolio through investments in high value and high purity applications.
Our recent <unk> expansion will enable further growth into athletic based paints and other applications as we continue to drive commercial traction in this product launch.
Also ramping up efforts to support anticipated growth of our NATO cyclohexanone product line, which is a solving used in various high value applications.
Now finally, we do anticipate further balancing as we've seen this year to continue North America, acetone supply and demand into 2022.
Operationally, we will continue to be focused on safe stable and sustainable performance, while driving less variability and utilization rates, which as we've shared in turn drives higher returns for the business.
We have ramped back up following our planned fourth quarter 2021 plant turnaround.
During this time, we did take the opportunity to pull forward some compliance and essential work that ultimately what have been completed in 2022.
So for the fourth quarter 2021, we now expect the pretax income impact from planned turnarounds to be approximately $90 million, a roughly $4 million higher than the midpoint of our previous expectations.
In 2022, we expect capex to be in the range of $95 million to $105 million, primarily reflecting an increase in base maintenance capex from 2021.
Some of it is tied to an increase in capital associated with our turnarounds and timing of project execution relative to this year.
We are also still refining and executing against the roughly $50 million to $100 million high growth and cost savings project pipeline. However, we share. These projects will generally be smaller in size to what had been executed over the past few years.
Overall, we expect continued strong execution into next year with a number of tail winds at our back to support robust earnings and cash flow performance.
So, let's turn to slide nine to wrap up before moving to Q&A.
I'd like to return back to our investment thesis that we shared at our recent Investor day.
Our integrated business model and unique combination of asset is they can source of competitive advantage and positions us well in any environment.
We continue to see that on display for the third quarter.
We have leading positions across our product lines and are more than a nylon company with significant contributions from our millennium sulfate in California immediate portfolios.
Our products are a variety of diverse applications, where macro trends are supporting long term growth.
We significantly improved the base earnings power of the company with a high return investments, we've made in operational and commercial execution.
Our differentiated products that provide a good tailwind for the company and we expect that will continue.
And lastly, we are enhancing value creation through our disciplined and balanced capital allocation strategy. We have initiated a structural return of cash to shareholders in the form of a dividend and are excited about further opportunities to deploy capital.
All of this positioning us to drive total shareholder return over the short medium and long term with that Adam let's move to Q&A.
Great. Thanks, Erin Andrea can you. Please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble the roster.
The first question comes from David Silver of CL King. Please go ahead.
Yeah, Hi, good morning.
Thanks.
Okay.
Yes.
So I have a I have a few questions I guess, maybe I would first maybe like to drill down on the.
The elements or the catalyst that drove your.
Third quarter results above the.
Guidance that you issued I guess on September 28th as part of the.
The analyst Investor Day event.
What happened maybe in the last few business days of the months.
Led to that incremental upside thank you.
Yes, I mean, David as combination of really two things.
One is ammonium sulfate volume domestic volume here was a bit stronger than what we had anticipated.
We closed a bit strong so thats really timing between the third quarter and the fourth quarter. So that may perhaps give us a little bit of a headwind in the fourth quarter, So really timing that drove.
After that upside.
And the other half was better price raws.
Results, particularly in the intermediate space we.
We had propylene that ended settling down just a little bit little more favorable than what we expected and that drove the other yes.
Half of that favorability.
Okay, So I'm going to drill down on the fertilizer side of things now but.
When I looked through the quarterly results I mean, the one number there were a lot of great numbers, but the one that really stuck out to me was the.
Revenue performance in ammonium sulfate <unk> versus <unk>.
I don't really I did not expect the revenues to be higher in the third quarter.
Could you maybe just discuss I mean, I see the price chart, and this and that but can.
Can you maybe discuss the elements that led to that kind of on seasonably.
Strong I guess revenue performance.
Yeah.
Yes sure.
Thanks, David and certainly when you look at.
There were pricing was let's say on July one two.
To where things have really kind of.
Then trending in the last couple of weeks.
As you see on that.
Pricing charts, you know the ASP corn belt pricing is up 33%.
Corn belts up nearly 54%.
You have rising through this timeframe.
Energy prices and natural gas just have continued to continue.
Drive forward on what that means into the industry cost base. So when we when we think about normal three Qs right. We've talked about this in the past.
We tend to see is our.
Fall film or a pricing reset for.
For the next season, we had indicated pricing would be higher this fall than previous years.
The the industry reset so we started out at a good spot but as the.
Situation just became tighter.
And I think that the volumes picked up domestically more than we would have anticipated and pricing moved up.
Quickly as well.
So when you think about sort of that sequential consideration that we normally think about it comes in both volume and mix right and so we we swing to the export markets. We still supported the export markets in both granular and standard sales, but the domestic side moved more quickly.
Then what would have typically been seen and it really is that price move that that contributed to the.
The expectations are sorry, the results that you saw here versus our expectations.
Okay, and then maybe just one question on cash flow.
You know I was a tiny bit surprise.
That the working capital the net working capital usage was a I think a $10 million benefit this quarter.
And I'm thinking I was just wondering how much of that might be.
You know.
Inability to get your full complement of raw materials on the one hand are you teed up for.
Continued high utilization in the fourth quarter across your.
Integrated chain and then the second thing would be again back on fertilizer in kind of that fulfill the the customer deposit activity, maybe if you could.
Chart that.
This third quarter versus a year ago that would be helpful. Thank you.
Yes happy to take that when you look at the working capital.
Really most of that benefit is timing.
I would say when you look at the Bennett roughly working capital when you look at the slide was a generator of $12 million in cash flow.
Overall and.
If you sort of Peel the onion on that accounts receivable was actually unfavorable from a cash perspective sales were up so that's not a surprise.
Fries inventories were slightly unfavorable by about $3 million.
And that really where you saw the big benefit on cash as an accounts payable accounts payable was favorable by <unk> by $20 million in the quarter and frankly that was really more associated with timing and a win win.
<unk> of raw materials, particularly Q mean, you could see some swings.
Acumen perspective that could impact the inventory balances as well as.
The accounts payable and by the way some of that so that contributed to the very high conversion free cash flow conversion that we had in the quarter. In addition to the fact that the capex spend rates were still below depreciation.
Which also contributed to.
To the to the high <unk>.
Conversion, what I'll say is some of the working capital will probably reverse itself. So working capital. When you look at the fourth quarter is likely to be a bit of a.
Headwind.
And then we will see the capex spend rates come up in the fourth quarter. If you sort of back out the first three quarters of the year.
We're anticipating roughly $25 million of Capex spend in the fourth quarter. So that conversion. If you will when you look at free cash flow relative to net income will come come down relative to what we've seen so that's what I would anticipate with.
With respect to the pre buy as is the case in any fourth quarter, we'll assess the.
The market environment.
Understanding the pre buy and what the customers are are anticipating and what theyre looking for clearly it is a tight environment supply demand environment overall.
At the same time raw materials natural gas as you see sulfur had been very volatile.
So we'll take all of these elements into consideration and developer approach intended really to optimize the outcome in the fourth quarter. So we'll evaluate that as we as we get through the quarter.
Okay, Great No you read my mind, Theyre, a little bit thanks, very much I'm going to get back in queue.
Thanks, David.
The next question comes from Vincent Anderson of Stifel. Please go ahead.
Yes. Thank you.
So I'm wondering can we expect to see you, placing incremental kaprow into Europe.
Over these next few months just given the disruptions to their guests.
About your availability or is the U S market tight enough that was free it's still more profitable to keep most of your product here.
Yeah, Jay I'll point out Vincent.
Globally, there's quite a bit of.
Tightness going on and disruption in this chain.
Our long tenured and standing relationships with our North American customers.
<unk>.
As you think about how demand has come back we have always said that our volumes will come back here.
Relative to supporting their demand and their needs and and right now North American demand is robust so.
I appreciate that.
There are these considerations.
<unk>, but.
Over over long stretches being close to our customers that we share 2030 years' worth of relationships work.
It is a keen focus here that we're their trusted partner first and then obviously if there is additional molecules to to optimize around thereafter, then we would obviously seek to place them in the best.
And the best opportunity.
Gotcha, so that makes perfect sense.
And just kind of given us it's coming up on that time of the year.
And with the huge swing in trade flows around acetone into the U S. Do you have any indication or maybe some history.
The large buyer.
Networks working with some of these new Asian suppliers to the U S.
Yeah. Thanks.
The large buyer.
Customers here I mean, there they are buying larger volumes right represents more or less two thirds of the market.
You can look at them on a geographical basis and some do have the ability to potentially important.
Way, we see the market is.
We need about 15000 tons give or take two to balance.
Yes.
The.
Really the North American situation on average trade as we think about what those monthly and quarterly volumes need to be to coming in.
Right now, though when you look at where underlying raw material pricing is and everything else will be the V where north America since most of our discussions.
On security of supply.
That has been our focus really throughout a number of our value chains and and obviously plays well into what we believe is our competitive advantage and core proposition that we can bring the customer sell.
There is always a point of conversation, but I think youre, saying until it to how folks are securing their molecules for next year Vince that the only other thing I'd add is that.
That channel to market, which is two thirds of acetone.
Going into primarily MMA is highly contracted so we do have agreements that span over time for volumes in <unk>.
Aaron indicated security of supply is really an important element in consideration with the with that channel.
Okay. Thank you that's helpful.
I just had a couple of non market based questions.
So first we've been hearing more and more about labor shortages and you in Virginia, or maybe a little secluded from the bulk of the U S. Pet Chem industry. So I was hoping you might be willing to discuss how you feel about your age distribution that your key assets and what kind of programs, you run or or exploring to promote.
And secure skilled labor over the longer term.
Yeah.
Thanks, Vince and certainly from a trend perspective and a demographic.
The footprint perspective, I would say that.
Our demographics would look very much like the broader industry.
No I don't think we've talked about this personally but there is sort of a.
A missing generation if you will in the chemical industry based on.
We're in the passive had tougher time than and less hiring so we do have a bimodal demographic to some degree.
And.
Certainly as we think about that transition I think there's a lot of opportunity set for us I mean, obviously, we are spending time with.
Thinking about how we can use technology.
Relative to improvement in some of those industry.
Tornado kind of conversations and opportunities and how we leverage our technology.
Building out our reach into communities and high schools.
And working even listen state programs on what the profile of the graduate needs to be right for us to have a thriving pipeline.
We've been supportive of.
Programs and scholarships for.
Buffy which is the future of stem sellers initiative focused on.
Really enabling folks.
That are underpinned, aged and underrepresented minorities getting into to stem education.
And then building out really a multifaceted program here and.
As you point out something that the industry will have to transition.
That said I do think we're going to have multi generations in our labor force for years to come and I think that could be a real strength for us given.
The longevity of many of our employees and really the.
The strength of knowledge and opportunities that they have relative to driving the company forward as well.
Excellent.
And then just because you brought it up so I was playing around on this node website. It looks pretty interesting can you just describe how this operates from a commercial perspective is just like sales dropped from distributors or is it more of like a lead generator, where the customers are directed to you.
Yes, so the latter at this point Vincent so I appreciate it and that was in and around there.
We think about again just a.
It's a build perhaps from your last question right.
Generation, let me see are that our customers have.
Different profiles.
Technology in our personal lives as how we interact with what we buy as well. So this digital platform and digital marketplace. Its just another opportunity for us to right now broadened our reach into formulated and folks who are specifying and looking for product with various attributes and benefit and.
Then in the background, we obviously are providing.
Technical expertise and of the ligand in its a lead generation and we will look to continue to seeing how this.
Ken can you really kind of play forward for us going forward.
Alright. Thank you that's all for me good luck on the rest of the year.
Thanks, Vincent Thank you.
The next question comes from Charles <unk> of Piper Sandler. Please go ahead.
Good morning, everybody.
Couple of quick questions. One Im looking at your chart for ammonium sulfate and obviously the last month or so we've seen a real movement on it.
Paul the nitrogen pricing.
<unk> seems to be lagging a bit do you guys expect to sort of close that gap up again, I mean, it seems to.
Periodically we will open up and then re close so looking at where things are right now and some of the prices that have gone off.
Is that something you expect in the fourth quarter in the fourth quarter numbers. It understanding that theres, maybe a switch between the granular and standard product and instead of working off of that have you seen any logistics issues I guess to Brazil, because as it gets it's about time, we start moving product down there.
Once you go to winter when you're not moving as much product domestically. So can you just talk to that dynamic a little bit.
So certainly when you look at.
The pricing of ASN in Korea.
There there is a watch area and as you point out because it provides the underlying nitrogen value if you will.
And then certainly we are then focused on earning the premium associated with our.
Software and sort of the residual.
Is that a grower when paid for and and indeed, when we look at sort of the current.
Mark to market. So the price is at the latest offerings of ammonium sulfate against the latest offerings of urea, we do continue to see strength in that in that.
That value proposition.
And premium.
They have different dynamics, though relative to.
Sort of where.
We're reached a product is right. There there can be varying considerations on what is more spot oriented trades, which may get published out versus what.
Paul Phil if you will or sort of where people take positions. It as a market as you. All know that there are folks that kind of sell and buy into positions at various times throughout the year. So certainly though the.
The ammonium sulfate market does continue to appreciate in price and we expect that to continue to move forward.
Charlie just one consideration with that as well as the rapid escalation with with natural gas if you think about the.
The variable margin for ammonium sulfate right, it's less sulfur less natural gas.
And we saw a 40% increase in natural gas in the third quarter. We're looking at another 40% increase in the fourth quarter and are clearly ammonium sulfate pricing is moving in a favorable direction, but when you think of it from a net net EBIT perspective.
Also need to consider the escalation and natural gas as well.
Got it and then with regards to Brazil. So you got to go out I mean, assuming you move product down into that region have there been any logistics issues you are having to deal with.
I mean, I'm, assuming that pricing down there is also moving up fairly nicely. So what do you see going on and it's about Latin American markets going forward.
Yeah no. Thanks for reminding there was a part two there Charlie I appreciate that and as you say certainly yes, I mean I gave some of the data points are for the corn belt, but.
As granular in Brazil.
Yes July to now is up 60%.
Well see even on the Black sea side.
Significant appreciation, particularly on the tightness of.
Materials in.
Coming out of Europe, as well as even Asia itself, but on logistics side, because they're really hear more bulk vessels.
We've been able to continue to secure or our customers have continued to secure the transportation they need to take that material down into South America. So not the same logistics.
The challenges that you see on the container side.
Certainly in freight is up.
Relative to jet fuel and things like that but.
No no fundamental sort of capacity constraints.
And then just one quick follow up sorry to sort of beat the.
Of course, the same horse.
One of the things I've noticed in the for the plastics producers.
It has been they've been able to move on the export side a lot of product into the Latin American market more so than they usually have in large part because competitors, who would typically also show up in those markets haven't been able to get product there whether its from Europe or from Asia is that something you guys are seeing at all in the.
In the fertilizer side or.
But just hadn't broken.
Maybe there's a nylon opportunity as well and I know that I don't think that market is particularly large for that but is that is there an opportunity to Latam. This super lateral that has opened up because others can't get there.
Yes.
No.
I think it is something to watch for I mean, certainly China has played on significantly into Brazil.
And then exports into that region over the last couple of years.
Particularly post the antidumping measures that were put into place here in 2017.
As you know China has put an export ban on fertilizers.
As of October 15th.
It does not include ammonium sulfate to date.
But certainly we understand that given just sort of the last two week appreciation has been quite a bit of price movement that we have heard and its been reported three prophecy that.
Government officials have reached out to ammonium sulfate producers in China.
Perhaps suggesting that if these types of price gains continue on that they could potentially be added into.
Into the band so something to watch going forward.
But I would say just given the exports coming out of that region.
Probably right now certainly.
Taking.
Kind of filling the void, perhaps with what has been constrained through.
Sort of European supply.
Yeah.
This market is characterized right now just a lot of focus on security of supply and making sure that folks have had.
Have their fertilizers.
As they head forward into what is expected to be a rather robust planting season, given where fundamentals are on stock to use ratios and a number of moving parts. This year as I'm sure you track on.
Just sort of where.
Where yields have been and where production has been reduced.
Leading to higher crop futures and just the strong expectation for the coming year.
Okay, well, thanks very much.
Thank you John Thank you.
The last question is a follow up from David Silver of CL King. Please go ahead.
Yes.
Yes.
Yes, hi, thanks, very much so I'll just make a based on the questions on this call I'm going to make a suggestion you your company name might be.
So fix or something I don't know.
No.
Sorry, that's all I could come up with on short notice.
Sure.
Yeah. So just so I am actually going to you know maybe grab vincent's comment about.
Production disruptions, starting with ammonia and other regions.
Charlie's comment about.
No.
Okay.
Excellent demand I guess, but this is more kind of a.
A marketing philosophy question. So I think this is you mentioned in response.
A couple of times in the Q&A here the balance between your long term customer relationships and maybe the nearer term.
<unk> opportunity and I know that Mike and Aaron you folks used the term robust or strong.
I think personally I think.
This is borderline shortage conditions already and Thats just my opinion.
Looking ahead to spring.
You know.
I guess I'm just wondering has your has your oversight has your philosophy with marketing your fertilizer volume, let's say from now through next spring I mean.
Does how does that change or how does that evolve in this environment in other words any of your customers that bought in the third quarter.
There are probably extremely happy now.
Just based on the trends in the market.
<unk>.
The markets are going to be volatile for sure but.
Is this the kind of market where.
You know the selling the product allocation decisions.
For your fertilizer business, maybe moved from the selling office to the boardroom or how do you know how how how has that thinking about marketing your product for the next few quarters changed thank you.
Alright, David and first I'd like to.
Yeah, probably give a great shout out to our plant nutrients team. This is a.
Group of individuals that are steeped in the industry.
Our.
Led by a set of folks that.
Really know the industry well know our customers have a great path on.
Where things are and have inherently I think through.
The cycles that we've experienced in the past stayed true to driving the value proposition driving.
Priorities for for growth and having a keen.
Keane check on on value and how we extract value.
For for the proposition that we deliver getting paid competitively for the products and earning in many cases.
<unk> premiums over our competitive set as well.
I think the key thing as you pointed out that is probably most notable in what has changed is the frequency of our conversations.
They.
There is just a the market's moving at.
At the pace that they are a bit more of a conversation on where our order book is how we can.
Think about where pricing is moving competitively how as you say we balance.
The the.
The security of supply to customers that has been with us for a very long period of time.
Interesting as I would point out I was reflecting that fly in golf.
In the nitrogen space, we have been servicing customers since the 19 thirties.
When you think about the transition of the marketplace and in our value chain and where we really entered selling nylon <unk> with 2006 2007, so our our depths here.
And.
Longevity is important to our success and you know maybe the flip side of even.
Charlie's question on can we move up at the same pace of Julia you can go back in time and see we don't give back at the pace urea urea in general is much more volatile than the more asset sell.
A lot of attention a lot of focus on how we think about.
Optimizing our performance in the set of considerations, but we have a tremendous and quite talented team at the helm here managing this business and I have full trust in it now and our conversations are just more frequently.
Okay.
Okay. Thanks, a lot and I apologize for not in my long preamble I Should've mentioned that.
I consider your sales team probably the most sophisticated in terms of marketing ammonium sulfate probably in the world. So I left out that part, but no. Thanks for that perspective.
You bet.
I appreciate it.
They're working hard.
This concludes our question and answer session I would like to turn the conference back over to Erin Kane for any closing remarks.
Terrific. Thank you all again for your time and dialogue and interest. This morning, the third quarter results represented standout performance and I'm very proud of how our organization continues to support our customers while navigating the current environment.
We continue to execute against focused strategies align with our ability to drive and achieve attractive total shareholder return over the long term I hope you are as excited about our future as we are here today. So with that we will look forward to speaking with you again next quarter and stay safe and be well.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Yeah.
[music].
Okay.