Q4 2021 Mosaic Co Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the mosaic company's full year 2021 earnings conference call.
At this time all participants are in a listen only mode.
After the company's completes their prepared remarks, the lights will be open to take your questions. Your host for today's call is Paul Massoud, Vice President Investor Relations.
Hey company Mr. Masoud, you may begin.
Thank you and welcome to our fourth quarter and full year 2021 earnings call opening comments will be provided by Jocko Rourke, President and Chief Executive Officer, followed by a fireside chat as well as open Q&A.
Clint Freeland Senior Vice President and Chief Financial Officer, Jenny Wang Senior Vice President of Global strategic marketing will also be available to answer your questions.
We will be making forward looking statements. During this conference call statements include but are not limited to statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties.
Actual results may differ materially from projected results.
That could cause actual results to differ materially from those in the forward looking statements are included in our press release furnished yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures now I'd like to turn the call over to John .
Good morning, Thank you for joining our fourth quarter and full year 2021 earnings discussion I hope you've had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday I will provide some additional context before we respond to questions. We received last night.
And then we'll conclude with a live Q&A session.
Well, it's Eric delivered excellent financial performance in 2021 with total EBITDA for the year of $3 6 billion, our highest total since mosaic listed on the New York Stock Exchange adjusted earnings per share was $5.04 highest since 2011, our results were a reflection of strong performance across all of.
Our segments.
Allstate segment, adjusted EBITDA totaled $1 7 billion over 200% higher than the segment's total in 2020, reflecting strong pricing and growth in micro essentials, which more than offset the production impact of hurricane idle.
Potash segment, adjusted EBITDA totaled $1 3 billion up 78% from the prior year as pricing increase output from Q3, and the restart of clumsy largely mitigated the closure at K, one and K too.
In Brazil mosaics hurdles onto has generated adjusted EBITDA of $821 million up 74% from the prior year as the team capitalized on strong demand a trend that we expected and drove our decision to acquire furloughs onto his four years ago in 2021, Mosaiq furloughs onto as it was.
We're able to achieve its 200 million dollar transformational EBITDA improvement target.
Over a year ahead of schedule.
These results highlight the decisions we've made over the last decade, but it will strengthen the business.
Most significant has been the construction of case REIT, which at full capacity will be one of the largest most efficient and automated potash mines in the world.
Assuming a net investment consistent with what we discussed at our 2019 analyst day at today's prices case freeze payback period can be measured in months rather than years.
Also in potash, we successfully restarted clumsy and reached our targeted annual run rate of 1 million tons. During the fourth quarter belonged to its fourth quarter cash cost averaged $85 per ton well below our pre idle cost of $100 a ton despite higher price driven taxes and royalties.
In Brazil, our acquisition of Mosaiq furloughs onto as in 2018, followed by the teams transformational work to improve margins has driven significant shareholder value.
At the time of the transaction pro forma EBITDA was less than $70 million. Our 'twenty 'twenty. One results show that we've been able to optimize that business through integration and transformational share gains and co product sales.
In our phosphate business performance products, primarily higher margin micro essentials.
Count for more than 40% of the segment's finished products sales volumes.
All of these decisions combined with strong execution.
Also in a position to benefit from 2021 favorable market backdrop, and improve mosaics financial position in 'twenty 'twenty. One mosaic retired $450 million of long term debt raised the annual dividend by 50% and repurchased nearly half a billion dollars in shares.
Looking forward, we continue to see agricultural market strength extending through 2022.
Demand for grain and oilseeds remains high while stock to use ratios are at the lowest point in more than a decade.
Food security concerns and rising biofuel consumption are driving demand for corn and soybean as well as rice wheat coffee palm oil and other agricultural commodities. These dynamics are sustaining agricultural commodity prices.
It's the strength in crop markets combined with global industry supply constraints sort of pushed fertilizer prices higher.
Well supply disruptions from 'twenty to 'twenty, one are expected to continue impacting the global market in 2022, and potash sanctions against Belarus are beginning to have a profound impact on supply global buyers are beginning to acknowledge this including India, and China, which both signed contracts with Canpotex at $590.
Per ton to ensure they have adequate supply for 2022.
In phosphates, the secular shift of China's supply away from exports towards domestic agriculture, and industrial consumption is expected to outlast. The short term export ban currently in place over time, we believe domestic demand will drive China's phosphate exports lower as secular or a mantra.
<unk> continue to grow, especially on the industrial side from chemicals and electric vehicles lithium iron phosphate batteries.
Globally strong demand over the last 18 months resulted in many producers delaying maintenance downtime to meet customer needs, which will have to be addressed at some point.
On the demand side farmer economics in most global growing regions remains constructive.
Inflation in input costs are impacting profitability. Our recent increases in crop prices are improving farmer economics for 2022, even if the estimated profitability remains below the 2020 one record levels.
As we head into North American spring planting season, we're seeing normal buyer behavior as demand continues to reflect strong underlying crop prices in Brazil fertilizer shipments in 2022 appear set to equal last year's record setting total grower economics are improving thanks to rising crop prices credit availability.
And a favorable exchange rate and India, while farmer demand remains very strong availability is still lagging this month the Indian government released its initial budget for nutrients subsidies highlighting the Indian government's willingness to respond to market condition with revisions give.
Given depleted Indian inventories, we see India as a source of pent up demand, which should see phosphate and potash consumption growth in 2022.
As we look at our business in the context of today's global markets. We remain very optimistic in potash K <unk> ramp up is expected to be completed by the end of the first quarter, meaning it will reach full capacity under budget and two years ahead of schedule when combined with bell plane and a full year of production from Colons like we expect.
Production in 2022 with production cost trending lower as the year progresses.
In the first quarter, we expect sales volume of one eight to 2 million tonnes with average realized fob prices more than $125 per ton higher than prices realized in the fourth quarter.
In phosphates, we also expect a recovery in volume in 2022, following last year's production curtailments related to sulfur shortage in the second quarter and hurricane either in the third and fourth quarters.
We expect to see input cost inflation in 2022, especially related to our open market purchases of sulfur and ammonia.
But in ammonia, we continue to benefit from two thirds of our needs being met by internal production and our supply agreement with the U F industries in the first quarter, we expect phosphate sales volumes of one six to one 8 million tonnes are expected sales volumes reflect supply chain constraints as well as low inventory.
At the start of the year because of Hurricane Katrina.
Average realized fob prices are expected to be more than $60 per ton higher than prices realized in the fourth quarter somewhat offset by higher input costs for.
For Mosaiq fertilize onto as we expect the business to continue reflecting the favorable market backdrop and our transformation efforts in 2022 sustained grower demand and improved market positioning should continue to drive results. We are seeing inflation effect, our cost structure, but believe our transformation initiatives should.
To offset much of the impact.
Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022.
With that in mind. It is imperative that we allocate capital wisely across our three strategic focus areas of capital returned to shareholders balance sheet strength and investing in the business.
Returning capital to shareholders will be a key focus in 2022 over the coming year, we anticipate returning most of our free cash flow up to 75% to shareholders through a combination of share repurchases and dividends.
Raise price, we believe our shares represent compelling value given the dynamics we're seeing.
To underscore this point, we will be initiating a $400 million accelerated share repurchase program in the coming days. After the ASR, we will have repurchased approximately $830 million against our 1 billion dollar authorization established last August we plan to exhaust the remaining portion of that authorized.
Nation through open market purchases.
As a result mosaics board has approved a new $1 billion repurchase authorization, which goes into effect. After the current program is completed.
The ASR and our new authorization together represent about 8% of our market capitalization.
Combining both authorizations represents approximately 12% of our current market cap.
In addition to share repurchases mosaics board has also approved raising the regular annual dividend from 45 to <unk> 60 per share beginning in the second quarter. This is the third regular dividend hike in the last 12 months and reflects our confidence in the long term strength of the business.
In the area of balance sheet strength, we remain committed to reducing long term debt by $1 billion last year, we retired $450 million, which leaves $550 million left towards our ultimate goal. This coincides with $550 million of long term debt that matures later this year.
It is also important to note that our working capital needs tend to grow as our end markets strengthen because of this we have expanded our working capital lending facilities by $375 million.
US more efficiently manage our liquidity.
Given our outlook for the year, we expect will also be able to continue investing wisely and efficiently in our business. Even as we returned the majority of our capital to shareholders over the last five years the value created by key investments like accelerated construction of K three the acquisition of Mosaiq for Liz on taste.
And the development and growth of micro essentials speaks for itself looking forward, we will continue to seek out high returning investments, but our focus is not on large scale greenfield projects, rather we believe better return can be realized in areas like enlarging our footprint in Brazil expansion of micro essentials.
Investment in soil health in biologics.
And the last area, we are seeing very promising results.
An example through our partnership with Barrio Consortia field trials of our first generation nitrogen fixing formulation for corn have shown promising results that we believe are as good as anything available in the market today.
And we believe further development can result in a best in class nitrogen solution for growers in the next two years.
We will have exclusive rights to that product when it comes to market in the Americas, China, and India key growing regions that want to reduce their nitrogen costs. This is just one example of many partnerships as we continue to explore broader solutions across biologicals and soil health and we continue to do this through small.
All efficient investments that established exclusive rights partnerships like with bio consortia or give us access to entire product portfolios. As is the case with our recent investment in plant response, a small AG technology company that develops and commercialize those plant and soil health products.
In total we've invested approximately $50 million over the last two years to build the foundation for an exciting future portfolio of value added products that our customers are asking for.
We anticipate having more to share on these investments over time these moves emphasize our commitment to disciplined capital allocation.
We will remain flexible in our approach continuing to evaluate compelling opportunities that strengthen our business over the long term optimize our balance sheet and returned significant capital to shareholders.
Finally, a discussion of the future of our business would be incomplete without including an update on some of the initiatives. We've taken to make sure. We continue to operate sustainably over the last year, we've made significant progress towards our ESG performance targets originally set in 2020.
So much so that we've said even higher targets in the area of carbon emissions mosaic has set a target of being net zero is Florida operations by 2030 and globally by 'twenty 40.
For diversity and inclusion we set new goals for 2030 around the issues of race gender and community support our global goals ensure that our actions are purposeful sustainable and measurable as we seek to operate our business. While also helping to build a more inclusive culture, where all of our <unk>.
Employees can thrive with that let's move on to the Q&A portion of the call.
Thanks, Chuck before we open the lines with the live Q&A, we're going to address some of the most common questions. We received last night. After our materials were released to speed things along we won't identify each individual analysts because many submitted similar questions.
Our first question is on the issue of the potash market in Belarus, how should investors think about the impact of sanctions on the global market.
Thank you first.
Potash market was already tight before any sanctions came into place higher crop prices higher demand for fertilizer globally.
Led to a tightness in this market.
That was driving higher prices before the dollar Russian sanctions.
The Russian sanctions have simply exacerbated and made the tightness more serious in terms of the length of the sanctions, we really don't know and there's no obvious immediate resolution to that issue right now part of maybe a regime change I can't see how.
Issue is going to be resolved.
In terms of the shortfall, we believe it could be anywhere from a few million tons in the best case scenario to as much as.
8 million tons, if the sanctions remain all through the year. Our base case, we're working on right now is that there will be about a 4 million ton.
This year.
Now the best evidence for this from our perspective is not what we see but what our buyers are saying our buyers are signaling this issue could be longer lasting than some of our producers have suggested India and China, both signed 2022 contracts with $590 for longer durations than the previous six month contracts and we are.
Hearing similar sentiment from our other global customers they cannot get the tonnage and if they can there is no method to pay for it with U S banks.
So it's fair to assume.
But every producer is likely already evaluating every economic ton that they can get out to the market including us.
But remember in addition to maximizing and increasing tonnage we cannot forget about the supply chain constraints.
Substantially increase our logistics capability.
<unk> will need more railcars more port capacity and all of this takes time and capital to overcome.
A follow up question on this issue how.
How much can mosaic raise volumes to help fill the gap specifically what run rates are you targeting is there any potential upside in the near term.
Okay. Thank you.
Before the sanctions mosaics targeted run rate by the end of the first quarter was about 10 and a half million tons.
And let me just quickly give you the breakup of that Esther hazy in its existing form we believe can run a consistent sustainable $5 5 million tonnes.
Bell, playing around 3 million tons blondes.
Before the shutdown was running somewhere around one to one and a half million tons and we will find the right spot for that this year that gives us an MLP tonnage of around nine and a half to 10 million tons available today, and then K Mag at just a little over 700000 tons.
It takes our total to about $10 5 million tonnes of sustainable production capability.
So as we look forward what can we do to push.
Our capabilities, we know we have some latent capacity at Kalana Zip and we're looking right now on how we can do a little extra development, what's the mining panels into place that work.
Cut down a few years ago in terms of Q3.
The run rate of five and a half million tons. We think we could run a little more than that and that'll play out as we start getting more and more mining areas running and we get the 11th miner in position.
Other issue at Esterhazy, we think we think theres some pretty good debottlenecking.
Projects that were already studying and we believe some of those will lead to a little better tonnage coming out of Aster hazy in terms of Bell plan. We believe it's running pretty much at its maximum right now so the easy tonnage will come from Debottlenecking colons, they getting more miners.
Higher production panels, and then pushing K three and doing the small debottlenecking projects that come at the end of a long capital project.
Jack the next issue is on the broader phosphate market.
And in particular.
Much will China exports this year could that export ban being lifted early.
Thank you.
We think China exports could be down as much as two and a half million tons. This year to about 9 million tons.
We do expect that the ban could be lifted as early as the ending of the planting season.
And we have to expect that at todays prices it wouldn't be surprising to see China's producers try to benefit from that high price environment.
But we do think that annual exports are going to continue to trend lower over time.
Domestic demand in China will pull increasingly large amounts of phosphates away from the export market.
And we cannot ignore industrial uses.
Battery growth and domestic fertilizers will take precedence over exports and we expect the Chinese government will continue to for suppliers to prioritize domestic demand.
Our next question focuses on farmer economics, and I think this one's for you Jenny.
Our crew or economics.
Now at the point, where nutrient demand destruction as a real threat to the market.
Today's prices around all major growing regions, we are saying pharmacy economics and cash flows.
Very constructive.
Got.
It just it just probably no more than last year's level.
Far above the historical average.
North America, we are seeing customers didn't stomach behavior are normal.
Pre spring season in Brazil, especially over the last few weeks has been price right.
We are seeing very strong.
And things are happening.
In the country.
Yeah, we expect that the government is going to do again.
Yes.
Level in order to support their farmers in Nashville.
As they did last year.
Hum.
If you have any stretch to the consumption demand.
Because lacking alphabet Costco.
Both phosphate and potash and the global demand is there if the terms are available.
Chuck we've received quite a few questions on phosphate first quarter guidance.
One six to $1 8 million tonnes seems like compared to history.
What's happening there.
Is the lower sales volume guidance due to operational issues or due to demand destruction buyers balking at current prices.
Well thank you.
In terms of our expected volumes for quarter, one I think there's really two big issues, we have to consider when we look at our our sales volume.
First of all us is actually quarter, four where hurricane Ida and subsequent repair events impacted at the beginning of the fourth quarter and left us with very very low inventories entering this year, which of course tends to contribute to first quarter sales.
In terms of the other issue from our perspective, it's really the logistics COVID-19 and winter weather or having a major impact on the supply chain, including rail Ocean freight ports and trucking logistics.
The industry is seeing delays throughout the system and that's contributing to the lower than historical sales volume guidance. Just as an example rail alone. This year, we're seeing about a 20% to 30% increase in cycle time for our trains and you can expect that to have a big impact on.
Rev Rec at the very end of the quarter.
That said, we expect our annual sales to be in line with historic norms for phosphates.
Late shipments due to supply chain issues.
Will resolve themselves as we come out of the winter weather and we get through this last wave of Covid.
We will see those come in the next quarter or two.
The thing I would emphasize is we're seeing normal buyer behavior, yes, nutrient prices are up the crop prices more than offset that and point to a very good year for growth profitability, even if it's a small step back from the 2021 levels. We expect crop prices to continue to incentivize farmers to apply fertilizer.
As they normally would.
Clint or last two questions are for you.
The first set is on working capital you add some color around working capital what you anticipate needs to be in 2022.
Sure. Thanks, Paul.
So I think as everyone knows our business is highly seasonal.
And we can experience pretty significant working capital changes throughout the year and over the last.
A couple of years, we have put in new working capital facilities.
Help us manage through excuse me some of that some of that seasonal dynamic.
The current pricing environment and the environment that we've been in.
And the rate of change that we've seen.
That just amplifies those seasonal working capital moves and so you know more recently, we've we've upsized some of our working capital lines to better align our options and our tools to the needs of the business.
Just to give you a sense you know as we look at the second half of last year, our core working capital needs were up.
Well over $1 billion and the majority of that was in was in the fourth quarter.
And as we look forward to 2022, I think any incremental working capital needs are likely to be dictated by the pricing environment that we see to the extent that the pricing environment.
A moderating the rate of change moderates, then I think the working capital incremental needs will moderate but if we do see a continuation of what we've seen in the last six months I think we could expect to see.
Increasing working capital requirements.
Our final question is on our capital allocation strategy we.
We seem to be prioritizing share repurchases over other use of capital is that correct.
And what are those other uses and is it possible to do at all given our commitment to return up to 75% of our free cash flow to shareholders.
Thanks, Paul as we look forward to the balance of 2022, we expect to generate a significant amount of earnings and cash flow.
We think about capital allocation for this year, we intend to continue strengthening both our business and our balance sheet.
By continuing to invest in high return and opportunistic investments and paying down debt.
Well, we think we can do those things and return a significant amount of capital to shareholders. This year within the construct that we've outlined today.
Today, we announced an increase in our dividend for this year and going forward as well as.
Our buyback using an ASR tool.
As we go through the balance of the year, we intend to remain disciplined and nimble and look at different ways of returning capital to our shareholders.
Our current priority is on buybacks you know, we look at our share price.
Where it is and we think that it is compelling given the environment that we see so that's our priority today, but again, we intend to.
We remain flexible as we go through the year.
Thanks, Clint that wraps up the fireside chat portion of this call.
Now like to turn it over to the audience for your questions.
As a reminder.
To ask a question you will need to press star one on your telephone.
We draw your question just press the pound key.
Please limit yourself to one question.
First question comes from the line of John Roberts from UBS. Your line is now open.
Thank you.
I assume in Brazil that the competitive distributors are significantly exposed to Russian and Ukrainian potash if they have to if they have trouble sourcing potash. If your competition is troubles sourcing potash does that also impact their ability to cross sell other inputs that is if farmers have to turn to fertilize on taste for potash are you likely to pick up.
The other inputs as well.
Thanks, John .
Certainly that would offer an opportunity to us, but I suspect what will happen is that actually the blends will probably be adjusted for.
Less potash, if theres actual potash shortages.
And we do believe there will be a real risk of potash shortages.
Brazil market.
Should be fairly good they've been delayed by rain in such et cetera, so far but.
We believe this will be a good market. So we do expect it's going to be very tight for potash as the.
Full impact of the sanctions really comes home to roost. If you will so yes, we we we may pick up a little bit, but I don't think it'll be because of the blend.
Opportunity versus others, I think it'll just be because of our.
People trying to get hold of potash.
Your next question comes from the line Joel Jackson from BMO capital markets. Your line is now open.
Hi, good.
Good morning.
Yes, Bob.
Yes, nutrient decided that some of these issues around salary BPC, our persistence and they wanted to really an eye at all there are millions of access times hire a bunch of miners in Saskatchewan and really ramp up their volume would.
Would you be supportive of that what I mean is in Canpotex. Obviously, you would get your you should get your pro rata sales share and nutrient can add known at the time to their production and you cannot you would not get you would have to refuse the ability to produce pro rata and give it to neutral and would you be supportive of that or would you seek to renegotiate a little bit how cabot gas works.
I don't want to be in any way a base of Joel and good morning, but I cannot answer a question about confidential negotiations that would happen within canpotex. So I think you can only wait to see what happens this year or to know now having said that I will say one thing we have been.
Flexible in the past as you're well aware, including last year. When we had an inability to produce we are.
Asked and allowed new trend to produce the gap, which they helped fill so obviously, we are all very concerned and interested in supporting our customers globally.
And so to do that there'll be an element of flexibility, but I cant speak specifically about canpotex.
Your next question comes from the line of Chris Parkinson from Mizuho.
Great. Thank you very much you've done a pretty solid job as you know over the past few years, completing yesterday hazy, eliminating brine inflow costs.
And now it appears you know Colonsay has had a nice gap down in cash costs post the issues you're facing in last year. So when we all kind of take a look at this year under the context of current contract spot pricing higher operating rates transportation costs and even the Canadian resource tax, but can we just take a step back and just look.
Where you ultimately think the gross margins.
Should be for this year and perhaps just any additional considerations. We should also have for 2023. Thank you.
Okay. Thank you Chris.
I guess you got to look at this in two ways, what's the cash margin and what's the.
What's the gross margin after depreciation I'll, let me just talk about cash for for a moment and I'm gonna be pretty general here, but you know if you look at right now for standard we have a contract through canpotex for $590 a ton.
I think you can pretty much make estimates.
<unk> colons, they being $85 a ton and the others are significantly lower than that you know and put a round number on transport, which is easy to do I think you'd come up with a.
You know quite frankly, a gross margin or cash margin that is at least 50% plus.
Your next question comes from the line of and Adam Samuelson from Goldman Sachs. Your line is now open.
Hi, yes. Thank you good morning.
You did see a little more color on the phosphate.
Rating cost environment, obviously inputs in prison.
Here the way you framed that shipping margins as they have.
Wind is a resolved and the market outlook.
You didn't provide any.
Cost guidance in phosphates for the first quarter that you, sometimes do or have done in the past any color there and I can just squeeze a quick follow up to that last question on the cash margin for potash not 60% before or after the reason in fact.
Well, we're in a we call resource taxes and royalties as part of our cash costs were our assortment.
Do you want to correct out of them. So in calculating our cash cost per tonne. We do include royalties in there, but do not include.
Our CRT right.
Think our other Canadian producers and does not include royalties either.
Correct, I think they call them bolt taxes, but there is some inconsistency between the two of us, but I would say that both of those are in our EBIT calculate yeah.
I do recognize the resource taxes quite significant right now.
So in terms of.
Florida costs, if you will.
For for Phosphates. The way you can look at it is you know first of all are.
Our average ammonia costs, which.
Yeah.
We paid 20.
20% of.
Sorry.
20% of the cost per ton of ammonia goes into so if ammonia costs $600.
Time's up by point too and that's the cost inside Dow, but right now you know market ammonia is probably in the range of Jenny.
$1100. So that adds about 200 plus dollars per ton to the cost of making phosphate now recognize our costs are significantly lower than that because two thirds of ours is on a natural gas basis. So for.
For our competitors call it $250 per ton for us probably.
More than half of that range would be the right number in terms of sulfur.
Sulfur, 40%, so a sulfur prices $300, then you know your cost and in.
Making DAP is probably 100 twentyish dollars per ton. So you could you could look at that for our competitors being a total cost of up.
Up to $300 extra autonomy for us, probably 220 or something in that range.
Your next question comes from the line of Steve Byrne from Bank of America. Your line is now open.
Yes, Chuck I wanted to ask you maybe a two part question on furloughs on phase in the first one being.
These co product sales is that the gypsum or or I know you have some titanium an overburdened there what's driving that the co product sales and then maybe a higher level question on fertilizer thesis.
Where do you think you can take that business from here is the opportunity in expanding your your domestic production, there or being able to increase.
More imports with with Port expansions.
Where do you where do you where do you see the most opportunity and furloughs on pace.
Okay. So first co product sales I think youre absolutely right. The majority of the co product sales is likely the sale of gypsum, but there's a number of co products, whether they be produced from some of our wastewater streams or or whatever.
But we sold last year, I think over $400 million of co products with with a pretty healthy margin because the cost of these of course is very low.
So.
We feel that's a pretty attractive place and of course when you sell gypsum. That's just gyp stacks you don't have to make in the future. So again big piece of the.
Long term business improvement will be those sales of co products and particularly the sell sale of gypsum in terms of moving this business forward.
You're right. There's a number of opportunities I think there is a number of new opportunities for co products and particularly when you look at.
<unk>.
Titanium.
Niobium.
And whatnot that is naturally in our or.
And as made by our neighbours at least our neighbors at cod to allow the other areas Gip is distribution and distribution, particularly as you go to the north.
West part of the.
Country, So north northwest part of Mato Grosso, and <unk> and heading into what we call. The motto Peto States, which are the the northern states south of the Amazon, but in the western side of the country. We believe the distribution opportunity there is high.
We are looking very seriously about how we.
<unk> get a bigger piece of that how we can participate more in that so distribution one area co products, new products and of course, if we can debottleneck or.
Improve our existing operations, that's another great area for them.
Taking advantage of what is a great market.
Your next question comes from the line of Vincent Andrews from Morgan Stanley . Your line is now open.
Thank you and good morning, everyone. John I was wondering if you could talk a bit about regional phosphate prices and just the gap that exists between.
India and the rest of the world basically.
How you envision that evolving through the course of the year, whether you know how it will converge with all converged. Thank you.
Yeah, Okay. Thanks Vincent.
I'm going to start off but I'm going to hand, it over to journey, but I think what you would be fair to say as you know when the demand started really picking up this year, India was the first two to respond and you know in the in the typical winter lull North American prices, probably lagged, but those are.
Quickly catching up as well.
We get closer to the North American spring, but let me, let Jenny talk a little bit about price disparity around the world and what that means for Jack.
Yes, you mentioned.
Due to the very low input India, Nokia, we saw the pent up demand and it for sure.
In the first two months of the year and the Indians basically paid a good price.
Price to 920, Vincent. Thank you Pepe you referred to that the gap between India and the rest of the work.
With.
Prices are rising in Brazil over the last few weeks, we saw the precedent.
Also step into the market after yesterday the gap between Brazil.
To to India there.
We saw the MEP.
In Brazil already reached to over 2900 <unk>.
Okay, and similarly to NOLA, we saw some seasonal price knows and over the last two weeks that price has rebounded and we saw the shrinking of the price gap between NOLA.
Wow.
Overall, we see.
Strong demand supported by the farm economics, and also pent up demand in India and in that case of China Wow are we see the fundamental.
The phosphate market is going to continue to be tight and the price there are always going to stay at this elevated level.
And let me just highlight in North America, we don't participate in those.
Fluctuations of price that occur when the traders start.
Trading at the Gulf, we kept our price list constant through that and you know very quickly once the pricing windows ended prices came up to our price list.
Your next question comes from the line of Michael Picken from Cleveland Research. Your line is open.
Yeah. Good morning, just wanted to get a sense.
Terms of your longer term expectations for India as ability to continue to afford you know fertilizer I know that they've raised their subsidies, but still it seems like prices are going up at a pretty fast rate.
How do you sort of see it India's demand evolving over the next several years not just in 2022, where they need to restock.
Yeah. Thanks, Michael look I think India as you know this.
This becomes more than a simple problem for a country like India with 700 people living in and basic poverty and relying on the agricultural.
Economy.
You know the Modi government needs to be responsive to those those people. So they they have a tight balance to keep food security and food affordability for their population and also keep their farmers.
<unk> to be profitable so that they keep farming. So you know our our expectation is that India will continue to spread out that or walk that tightrope as best they can so they will have to respond to global pricing.
They will have to make sure they get the fertilizer they need and we're seeing that right now I mean with the fast settlement of their potash.
And the <unk> at 590, they were the first to settle with Canpotex quite early and I think that reflects the pent up demand that they need to make sure. It gets out to their farmers and then we just talked about you know their willingness to pay $930 four or $920 for phosphates. So were.
Thing.
The buyer response, we know the government will have to either.
Help with food subsidies or with fertilizer subsidies to keep that balance and I know when it comes down to food securities Theyre going to do what they have to do to make sure that works.
And that's long term and short term.
Your next question comes from the line of Andrew Wong from RBC capital markets.
Yeah.
Hey, good morning, So just a couple of questions here first on furloughs on Ts.
Just talk about why the phosphate rock and conversion costs.
Continue move up through the year is that mostly due to the local inflation and what's the expected run rate at the current FX rates for that.
This year and going forward.
And then maybe a second question probably more for clients.
Mosaiq is a very complicated business across multiple geographies and product lines and it.
It can be difficult sometimes to model out.
Some of the variability is around the quarters and even you know maybe for the year.
Is there any thought on providing some more specific guidance such as maybe including furloughs on stays in that kind of quarterly outlook guidance or maybe even cutting to like a specific EBITDA line. Thanks.
Okay. Thanks, Andrew and I will leave they will lose the tougher guidance question to Clint because that's only fair.
Yeah.
Let me start with furloughs onto isn't the cost structure fertilizer Auntie. So theres a lot of factors I think that are impacting furloughs onto is right now I mean, the first of it is as you mentioned is inflation and if you look at U S dollars is probably easier to see where that's been not as severe as what it might look.
But Brazil is probably seeing in industrial inflation somewhere in that 15% to 20% this year and that's having a real day to day impact on on cost structures.
The other thing that has hurt Brazil in the last while of course as Covid. It has made it a lot more difficult to do mechanical or maintenance turnarounds, it's made getting.
Hi chain people in place et cetera, et cetera. So you know there's a maintenance it takes longer just a lot of little nag leaf things that come with the people problems in the Covid problems and then there's of course supply chain issues getting materials and when you get materials are more expensive. So all of those things are.
Impacting our we think that.
Long term U S dollar and U S dollar to Brazilian real high will be offset with the inflation rates. So in other words, if the inflation keeps higher than U S. It will probably be equalized by exchange rates.
And the other issues should go away with with Covid and whatnot as things sort of returned to more normal.
Your next question comes from line demand, Hi, Andrew Hey, Matt.
Yeah.
Alright, operator, we still have the second part of that question.
Thank you Yeah, Hi, Andrew this is Clint.
And and thanks for your question on guidance, you know I think as we.
Oaken about before you're in one of the challenging.
Challenging things about providing specific.
Specific earnings guidance is just.
How quickly and materially prices can change and that can obviously change your expectations and our outlook for the year, but what we have tried to do.
Is to.
Provide a framework provide.
Areas of of of our cost structure of our spend and so forth.
That can be helpful in modeling the company.
Paul and I have been.
Ben speaking.
Particularly about about fertilizer entrees.
And is there some more information.
In detail that we can provide around that business to help investors understand and model that business better. So I think that's that is an ongoing conversation internally I would expect us to put a little bit more focus on that as time goes on.
And if there are other other areas that you would find particularly helpful. In understanding some of the complexity certainly.
We are open to those discussions and get feedback on that.
Thanks, operator can we move to the next.
Thank you. Your next question comes from the line of Adrienne to mono from Aaron Berg. Your line is now open.
Good morning.
I have one question left.
C J.
Yeah.
No.
Yes.
Oh I was just curious.
Yes.
Okay.
Hum.
Okay.
The market.
Yeah.
Yes.
Okay.
Yeah.
Okay.
Okay.
Oh, I'm, sorry, I have got such a staticky line here.
I didn't catch most of that.
When we try try repeating that Adrian.
Yeah sure.
Yes.
Question.
Yeah.
Okay.
Just the normalization of the market.
It doesn't really change.
Yeah.
Options to more comfortable.
Yes.
I sort of got phosphate market, but I was but all I really got.
Okay, maybe Andrea maybe we can let Paul talk to you. After this I'm sorry. The connection was so bad we really didn't hear about well at all so maybe Paul you can contact Paul when we can talk thank you sorry.
Your last question comes from the line of Jeff Zekauskas from Jpmorgan. Your line is now open.
Thanks, very much and do you expect the global phosphate market too tight and too.
2023 or to loosen or you can't tell.
Yes, Thanks, Jeff.
I'm going to let Jenny talked a little bit about this but let me start off by saying you know as we look at this.
Over the next let's say three to five years.
And even short term short term, we expect China's exports to be lower.
Which which should lead to.
Tightness in the next little while and as we look forward from that assuming the market continues to grow at the normal rates. We don't have any big projects coming forward that we think are going to.
Going to fill and fill that gap. So we see it tight this year and assuming our Chinese estimates are correct continuing tight for the next four or five years, even and then as we look at the.
Evolution of industrial uses for phosphates, and we talk about lithium iron phosphate batteries in particular, but as we as we move into those other uses for phosphates, particularly in China. We do expect long term that the Chinese exports will continue to decline.
And that new projects.
That aren't haven't been called yet and take four or five years, we will have to fill that gap.
Jenny anything else.
Okay, So jenny spine.
Okay.
Look with that I will conclude our call here by reiterating some of our key messages.
<unk> delivered excellent financial performance in 2021, driven by very strong agricultural and fertilizer markets.
And by leveraging the value we have created through major investments in cost restructuring.
We look forward to returning much of that value that we created to our shareholders through the accelerated share repurchase our new repurchase authorization and an increased dividend target.
And with continued high levels of global fertilizer demand and ongoing tight supplies in both potash and phosphates, we expect another year of very strong value creation in 2022.
Thank you for your call for the call and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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