Q3 2022 Mosaic Co Earnings Call
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Good morning, and welcome to the mosaic company's third quarter 2022 earnings call. At this time, all participants will be have been placed in a listen only mode. After the company completes their prepared remarks, the lines will be opened to take your questions. Your host for today's call is Mr. Paul Massoud, Vice President of Investor Relations and financial plan.
An analysis of the mosaic company Mr. Ms. Yu you may begin.
Thank you and welcome to our third quarter 2022 earnings call opening comments will be provided by Jocko Rourke, President and Chief Executive Officer, followed by a fireside chat Q&A.
Clint Freeland, Senior Vice President and Chief Financial Officer, and Jenny Wang Senior Vice President Global strategic marketing will also be available to answer your questions.
We will be making forward looking statements. During this conference call. The 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 factors that could cause actual results to differ materially from those in the forward. Looking statements are included in our press release published 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 third quarter 2022 earnings call.
Mosaic delivered record third quarter revenues of $5 $3 billion, which resulted in net income of $842 million or earnings per share of $2 42.
Adjusted earnings per share was $3 22, and adjusted EBITDA was $1 7 billion.
These results are driving significant cash flow generation, which is allowing us to return significant capital to shareholders. While also continuing to invest in the business.
Strengthen the balance sheet.
During the quarter, we returned roughly $670 million to shareholders, including 600 million of share buybacks.
Before diving into our operations I'd like to address current market dynamics food security remains a concern around the world global grain and oilseed stock to use ratios remain at 20 year lows and early data continues to suggest there may be further downside to total production once the fall harvest is complete.
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It is important to remember that the market was tight when the year began well before the start of the war and issues over the last several months have further exacerbated the situation Ukraine's production shortfall was significant.
But weather issues like high temperatures and drought conditions in other major growing regions are having an even bigger impact on an already tight market in.
In the U S weather delayed spring planting and the compressed planting window reduce nutrient applications. The growing season was further impacted by high temperatures and drought in some areas.
Weather tends to be a significant factor in yield, but under fertilization doesn't help and you can only mine the soil for so long.
Both are contributing to an expectation of weaker than normal North American harvest.
And this was reflected in the most recent USDA yield forecast.
In Brazil fertilizer shipments appeared poised to have dropped around 10% year over year.
And linear remains a threat despite the market counting on record breaking corn and soybean production.
Beyond grains, and oilseeds, we're seeing food security issues play out in other crops as well staples like Rice are also seeing significant production shortages driving some countries like India to restrict exports.
Because of this we see a tight market for global grains, and oilseeds continuing into 2023 and beyond.
The global fertilizer market remains tight with supply constraints in both potash and phosphates still unresolved.
Global potash supply remains impacted by the significant reduction in Belorussian exports, which we think will be down 8 million tons in 2022.
The 4 million tons. They will export this year, we estimate about 2 million tonnes were shipped in the first quarter before the sanctions and lithuania's decision to prevent Belarus from using it supports.
Belarus exports are down significantly from the first quarter and we do not expect much recovery through the rest of the year or for most of 2023. This means the market will continue to be short of potash in 2023.
The phosphate market is also impacted by supply constraints.
China production is down because of environmental concerns and exports are being restricted to ensure domestic availability and affordability. This year, we expect Chinese phosphate exports will be down by up to 5 million tons.
Those restrictions could extend through at least the first half of 2023, and possibly beyond as China prioritizes, securing domestic food supply and meeting growing industrial demand.
While global channel inventories of phosphate and potash remain below historic norms certain regions, especially in the areas, where we do most of our business. So inventories build in the first half of the year, but prices have retreated back to levels low enough to entice growers to step back into the market, we expect inventories to continue.
Working lower through the end of the year and into early 2023.
U S fall application has been trending back towards normal levels. We believe we could end the season with inventories significantly depleted, especially for phosphates.
<unk> is also experiencing low water levels on the Mississippi River, which is delaying supply coming through New Orleans.
In Brazil, the higher priced inventory built during the first half of the year has slowed third quarter shipments, but sentiment is improving prices have retreated enough to encourage sales and we expect inventories will end the year much the same as where they started the barter ratio suggests we're approaching a much more construct.
The environment for demand.
In India importers are taking advantage of the price pull back in phosphates Indian phosphates inventory is still low while farmer demand remains strong government subsidies remain at a level that is supportive of phosphate imports, but are likely to leave the country short of adequate supply of potash.
To summarize the strength of crop prices and more affordable fertilizer prices suggest nutrient demand will recover from the summer lull, we experienced during the third quarter given the constructive AG backdrop, we believe our business is well positioned to benefit in our phosphates business Hurricanes in forced us to.
Down operations late in the third quarter, which delayed shipments at the end of September our team performed admirably and was able to get our Florida operations back up and running quickly following the hurricanes, we estimate the shortfall in production to be in the range of 200000 tons looks.
Looking forward, we now expect fourth quarter sales to be in the range of 1.7 to 2 million tons. Our phosphate business is expected to benefit from lower raw material prices in the fourth quarter, particularly as low sulfur prices start flowing through our cost.
We expect our fourth quarter benefit of 40 to $45 per ton from lower raw materials in our north American phosphate business over the cost in the third quarter.
In our potash business, we are realizing the benefits of improved volumes for master hazy and from the addition of Colons. A 11 of the 13 planned miners are now running at Astro hazy and improved operating rates of clumsy together are driving higher volumes.
We anticipate some turnarounds during the fourth quarter that will impact total production, but expect sales volumes to be two to 2.2 million tonnes.
Mosaiq fertilize onto is continues to be a very good business, having earned $1.2 billion in EBITDA over the last 12 months high inventories built during the second quarter led to slower than initially expected demand during the third quarter as shipments typically seen during quarter three didn't materialize.
But pricing trends towards the end of the third quarter reached a level that is beginning to drive shipments and we've begun seeing that in our business.
Some of the third quarter buyer hesitancy is impacting the fourth quarter, but we expect trends to begin normalizing as we finish out the year.
Before moving on I'd like to address the next iteration of our transformation process.
Over the last three years, we've extracted significant cost efficiencies in Brazil lowered our cost profile in the potash business with transition to Esther hazy K three.
And benefited from the combination of support functions across North America.
Our next area of focus is the realization of efficiencies through a digital transformation of how we manage our business.
In our release last night, we introduced our global digital acceleration project and initiative that will transform how we use data to manage a complex business across our global footprint. This effort will upgrade our core systems and allow for more seamless integration across sales production supply chain and global <unk>.
Support functions.
Over the next several years, the total cost will be about $200 million to $250 million split roughly evenly between SG&A and capital expenditures as a result of this transformation, we expect to realize significant benefits in our sales and production planning and our cost and capital management.
Right.
Similar to our early transformation efforts. This initiative will continue the trend of adding shareholder value. We expect this investment will have a payback in the range of three to four years.
Finally, I want to reiterate that we remain committed to our capital allocation strategy.
Later this month, we expect to retire the remaining $550 million of long term debt that completes our goal of 1 billion of long term debt reduction our capex expenditures expectation. This year remains unchanged at $1 3 billion and.
And all remaining free cash flow. After these commitments will be returned to shareholders through dividends and share buybacks. During the quarter, we returned roughly $670 million to shareholders, which included $600 million of share repurchases over the last year, we've reduced our share count from approximately 300.
80 million shares to 340 million shares.
Putting all of this together our outlook is quite strong the global agriculture market continues to point to tight supply and demand for grains and oilseeds.
We strengthened our balance sheet. Our team has recovered from hurricane in Florida, Our potash business continues to benefit from our low cost position that Astra AZ and the flexibility gained from restarting Colons I R. Brasil distribution business has a significant and growing footprint in an important agricultural.
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We have positioned ourselves to maximize value across our business and this has allowed us to return significant capital to shareholders with that let's move on to the fireside chat portion of our call Paul.
Thanks, John similar to last quarter before we open the lines for live Q&A, we're going to address some of the most common questions that came in last night.
First we received several questions on our general view of both the potash and phosphate markets, where are we most optimistic and where do we continue to see risk as we move into 2023.
Thanks, Paul I'm going to hand, this over to Jenny for some detailed here, but let me summarize by saying, we're very positive on both markets as both remain supply constrained AG fundamentals remain strong and fertilizer prices have moderated from the previous peaks seen earlier this year, which is driving a real.
Turn to more historic levels. So Jenny can you give us some detail.
Thanks, Chuck I liked the stock from North America.
The warm dry weather has allowed farmers to go to the field to full full application with a wide open window and as of today. We are still same products are going to have to go hunt in.
Improved farmer economics, and therefore, the ability I think harsh the farmers to put down their phosphate and potash in the fall in fact, we start to get customers' inquiry and the request for the spring season demand. We sold a block also speaks to one of our major customers yesterday.
And their customers the stomach.
I've come to the table to bike product with the concern of the potential logistical issues for the spring.
This strong cash flow to farmers are having to manage but before end of the year.
So a good a normal fall application are setting a good state.
The inventory draw down in North America, and some good Statesville spring season in 2023 movie.
Moving over to Brazil, the bunch of ratios have improved significantly with the moderation of fertilizer prices and elevated at commodity prices, we are saying the Brazilian customers are engaging in the purchases in order to prepare the coming off the frame seasons.
And the inventories are coming down.
Moving over to India. The fun economics have been very strong this year with the support from the government. The muscle has also been helpful. As we see demand increases, especially for phosphate. The recently announced subsidy program from the Indian government has.
Been very supportive to their phosphate imports and also the consumption. We are seeing steady buys from Indian customers M. P. A P recently at $750 per ton level.
We saw strong demand in Q4 and getting into 2023, we continue to see the supply constraints for both phosphate and potash.
Phosphate, we expect Chinese exports control well continue as we get into 'twenty two 'twenty three.
Chinese government to ensure the domestic supply availability and that theyre farmers to be able to CAD two first titusville their food production.
And there's very little new capacity coming online in phosphate production in 2023.
Similarly to potash we envision.
But I use in russias of supply well remain constrained in 2023.
Kinda chips elsewhere, well not be able to ramp up quickly to offset the continued constraints from that part of the work.
To summarize as you mentioned, John we are very positive to both phosphates and potash as we move into 2023.
The next question is on channel inventories for both potash and phosphates can you provide some detail on recent channel inventory levels and what we expect for the balance of the year and early 2023.
Paul I'm going to hand, this one straight over to Jenny Jenny.
Sure Chuck the inventory level in most part of the word I'm pretty low in some of the regions like in Europe . The humans level, it's really really know given the supply situation in 2022.
Do you want to provide some color on the inventory situation in North America, and Brazil, where we believe most of the questions about.
In North America.
So both phosphates and potash the current channel human trait are about average relative to historical know at the same time up this year.
As of yesterday, I'm, a country of warehouse capacity for phosphate just come down to 70%.
And for potash that has come down to 50%.
This level of the industry are right.
The same level as we see historically at this point in time.
As we have seen good known fall application the channel inventories are expected to come down further.
I will also want to remind ourself logistics remain very challenging in North America, particularly on the river, which highlights the unique strengths awesome was ex asset, which can serve north America by both Val and projects.
Move over to Brazil since the war started in the first quarter, our largest Brazilian customers rushed to byproduct from all around the word in order to ensure their supply as a result of this rush buying we are seeing a very high inventory beauty and the poor.
In Brazil started in July .
That inventory at the Port has gradually draw down over the last few months, but end of October we are saying that you mentioned at port has come down by 35% versus the Pik and end of July .
The other thing that I want to mention is the import shipments to Brazil in.
In the middle of the year, the vessels coming to Brazil had to wait for over eight weeks to unload product because the ports warehouses are so full.
The waiting time has come down to less than two weeks, that's the signal and in the meantime, we are seeing re export vessels for both potash and phosphate was that we believe the market reached to the bottom in Brazil.
The next question is on the status of our potash production increases, especially given what we've seen with recent demand and price trends are we committed to continuing to increase production in 2023.
Thank you Paul let me start by talking about extra hazy aster as he has been a 10 year plan and in that plan, we not only brought out a new mine at K, three but fully intended to bring on an extra million tons of production, which was aligned with the capacity of the <unk>.
<unk> K two mills, so as we talk about that we've always looked at Astro hazy as being our most efficient lowest cost operation. So yes, we absolutely will expand the capacity of Astra hazy as K three mine to meet the capacity of the mill.
Yeah and in terms of Colons Eh.
We see an immediate need for those tons as the gap in supply from Belarus has meant there has been an opportunity for us and through Canpotex exporting more product.
That near term need we expect will continue into 2023, so we certainly see a need for colons in the near term, bringing that production on has been relatively inexpensive likely in the range of $50 per capacity ton. So on that basis, that's paid off.
Off over a matter of months.
No.
How will we look at it as we go forward, we will always be focused on working towards value not volume and as such we will meet the needs of the market and no more.
The fourth question, we should cover us on photos entrees gross margins in the fourth quarter, how should investors think about the impact of cost inflation in Brazil across our production and distribution businesses, but what are the key takeaways on cost.
Thank you Paul Yes inflation is showing up in our cost structure through the increased price of commodities labor and inputs.
As well as our raw materials, we expect overall the impact on our cost structure to be around 15%.
Our distribution business in Brazil benefited by matching low cost inventory with high priced sales in Q2, we saw a reversal of that in the third quarter for a distribution business due to the timing of purchases a step down in gross margin per tonne is expected. However, even with that we are still seeing.
Gross margins above our historic norms.
With that operator can we open the call to questions from the audience.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.
If youre using a speakerphone please pick up your handset before pressing that Keith and to withdraw your question. Please press Star then two.
Please limit yourself to only one question and at this time, well pause momentarily to assemble our roster.
And the first question will come from Steve Byrne with Bank of America. Please go ahead.
Yes. Thank you Josh you were talking about.
Lower pricing kind of incentivizing farmers to start to purchase again.
Is is it is that what was delaying it or were they just simply deferring purchases because prices were falling and now that it's showing some stabilization there could be a bit of a flood of purchasing going on from here going forward is that reasonable.
Yeah. Thank you Steve.
And good morning.
Certainly as prices are declining.
Nobody wants to step into a market.
There's necessary caution.
I I would argue probably when the prices were higher there was also a psychological or sentimental.
Response.
The economics of planting and using fertilizer never went negative so it isn't a matter of the fundamentals it was a matter of the.
Sentiment.
I would think at some point and then as the prices declined as you suggest the the buyers take a step back and wait.
If if they think the price is going to be lower tomorrow they'll wait.
And <unk>.
Start buying when they absolutely need to I think the indication now is the price has in fact stabilized it's stabilized at a price where they can see a easy value. If you will and so they're stepping back in and.
Absolutely, we expect there will be a pretty steady.
Buying remember at least in North America, though we are in the fall season. So they are taking a price risk for next spring.
So there might be a little more caution in terms of coming all in but we're seeing good movement and that indicates that they believe that this is as good value and they'll come that'll continue.
Thank you.
The next question will come from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes, thanks, good morning, everyone.
I guess right.
My question is thinking about your market outlook into 2023 with the increases that you're forecasting in potash and phosphate shipments how should we think about mosaics ability to.
To grow shipments.
In excess of the market.
Lapping some of the production issues this year.
Increased capacity.
Star Hazy, I mean, what's a rough framework jock for how much production for you can be up in a in a market that has higher shipments next year.
Yeah, Thanks, Adam and good morning.
If I think about 2023.
You know starting with potash and we've been saying this and.
With the lack of or the lack of sales coming out of Bell a ruse, we do see that the market is going to have to ration supply.
Does as you mentioned bring up an opportunity for us to potentially move more product I will say that North America, we expect to stay relatively flat, it's not a high growth market. So this is all an export opportunity if you will.
The challenge there are two fold one is do we get to the right markets that really need it and then the other question is can we even move it. So those are the first point you know the the supply chain is at its limit right now and where you know we struggled to to get the tons out particular.
Say in the first quarter, which I think everyone sees problems getting product out of Canada in the first quarter with winter and all the rest.
And then it comes down to what's the production capacity we have.
I think developed real great flexibility, there with Astra hazy now, reaching what I would call it full capacity.
Bringing on Colons eh.
To augment that capacity and give us some flexibility.
So that we can hit the CS.
Seasonality as well as the increased amount so I think we're well positioned there.
Demand.
Demand, but I mean, we're looking at a global market of.
64 million tons next year and in potash.
Probably a little bit off this year I think this year, we might've been a slowest 62, so we do see an improvement in the market. We see the rush of tons that came in the first quarter from Russia, and Belarus are probably not coming.
A good opportunity for us in that first and second quarters certainly of next year and then throughout the year in terms of phosphates, we're probably a little more production limited in phosphates I mean, we're running those assets Hum.
But between the limitations of the.
The resource base whatnot, we don't have an expansion.
Opportunity really there so we expect that to say stay similar and that sort of eight to maybe eight and a half 9 million tons of capacity, how well we utilize those will depend on the market and so our expectation is our utilization will be quite high next year.
And in both those cases, we're looking forward to being very well sold if you will and and having high utilization of all our assets and that would include our production assets in Brazil of course as well.
Okay. The next question will come from Josh Spector with UBS. Please go ahead.
Yeah, Hi, Thanks for taking my question I guess, just given consensus seems to be at the market will be short something like five to 8 million tonnes of potash next year I'm curious, where you think support level is the pricing for potash that environment. Just given you for Q expectations of around $600 per ton, you think pricing moves up from here as inventories come down or.
Is there a support level you would think about thanks.
Yeah.
Yeah. Thanks, Josh.
If if I think about prices I think there's there's really at this stage.
It's it's going to be sentiment that will really sentiment and fundamentals that are really going to be the limitation to prices I would argue that what we saw particularly in Brazil, when the price of potash went to say $200.
The.
Economics was still okay, but it was starting to get pretty.
Difficult for the Brazilian farmer, and the one that they probably work off more as their barter ratio, which became quite elevated so in other words. It was costing them a lot more of their production to buy the inputs than it had in previous years.
I think there's.
Our risk if you go too high in price that you will actually start really destroying demand. So look I think there is a great opportunity for a you know at the same reasonable BARDA ratios as we've had with elevated crop prices, but we can have.
Very good margins and the market.
Should be able to move up from here I don't believe it's going to move to 1200, but I think theres, probably some some good room to move from where we are today.
The next question will come from John Roberts with Credit Suisse. Please go ahead.
Oh, Thank you actually it's edlin Rodriguez.
He did an excellent job highlighting the strength of both potash and phosphate granted it's always difficult to choose between your children, but if you have to differentiate between potash and phosphate, which one do you believe will prove more resilient twice wise over the next three to six.
X months.
Yeah. Thanks headline.
So yes, we don't we love all our children as you as you highlight them.
If I look at the market fundamentals and they are both strong but clearly today.
Potash has a very good position in that as this slightly smaller of the two markets and it has the the bigger supply disruption.
Supply disruption in China, while we believe will continue through 2023 or the export restrictions out of China.
We expect those to continue but that's 5 million ish tons on a 70 something million ton market, where in potash you're talking about a.
8 million ton decline on a.
70 million ton market. So as you as you think about it from that perspective.
The.
The problems in Belarus in terms of exports are a less likely to be resolved and be more significant to the overall market. So if I had to be asked which of the two had higher resilience you'd probably say at this stage it would be the the potash market.
Thank you.
The next question will come from Christopher Parkinson with Mizuho. Please go ahead.
Thank you so much Jack just taking a step back and looking at the various costs and both of your businesses in potash. It seems like you know Australia. He is running well and Colonsay is getting back on track and on the yeah on the phosphate side. You know you have relative stability right now in an H three faustina ops and then yeah.
A decline in the sulfur price.
On any just preliminary basis, how should we be thinking about that margins or the strip margins in phosphates.
Yeah I'll hit on 'twenty three are what are the big puts and takes in your team's view. Thank you so much.
Thanks, Chris Hey, so if I'm thinking about potash I'll just hit potash real quick because I think you've you've touched on that.
In potash.
It's two things that matter one is where were those product comes from so obviously running colons a little higher cost. The other thing that we have to take into account is bell plane is highly dependent on the price of natural gas. It uses arguably some 30 million <unk> to use per year of natural gas. So.
If you add cut.
A couple of dollars to the natural gas prices that was a pretty big impact on that operation.
Other than that though as you mentioned, the potash pricing or the potash cost is pretty stable.
If we then look at phosphates.
And.
Quite frankly, we are seeing some inflation in both our mining costs.
And processing mining the distances are getting longer the grades probably over the years is declining slightly so you you've you've got some costs in there that come up.
But they pale in comparison to when you look at then the raw materials, if we think about a thousand dollar.
Ammonia that represents $200 on the cost of a ton of phosphates. If you think about a 400 dollar sulfur that represents about a $180 cost on top so you could have.
You know at the peak it was probably 420.
<unk> dollars, a tonne in or sorry, $380 a ton in our.
Phosphate cost just on those two raw materials now they retracted back to $100 for.
For.
<unk> and our average I think our average ammonia cost is now in the range of 600, if you take into account our own production and all the rest so that stable and I think we've talked about a 40 or 50 dollar decline in raw.
Our raw materials costs and that will fall straight to the margins. So assuming flat prices you could expect a margin to increase by about 40 to $50.
And so we'll see where the price goes in the next quarter, but that's kind of how that plays out.
The next question will come from Jeff Secaucus with J P. Morgan. Please go ahead.
Thanks, very much just two part question.
In your slide deck, you said that you were contemplating a special dividend.
Why is it that you are contemplating a special dividend given your very low valuation and your high free cash flow generation.
Continuing.
Share repurchase.
A higher return for your shareholders.
Second.
I was hoping you would comment on the possibility of Chinese phosphate rock capacity expansions.
Dapper map expansions in 2024.
Okay. So first one first special dividend.
I think we've been consistent in saying that we would be.
Look at both.
Dividends.
Regular dividends and share buybacks.
And special dividends.
So far we are definitely focused on the share buybacks and one of the reasons for that is or one of the main reasons for that is exactly as you say, we believe our shares offer as good of that.
Is anything we can think of and so that's a good place to.
To return money to shareholders at the same time, we have to consider all of our shareholders. Some of the long term shareholders would like to see income.
I'd say as a shareholder myself I don't mind, the idea of things some of it come back as stable income and you know quite frankly, if I decide that as I think I would that the value of that meant I could buy more shares I'm free to do that as well. So I don't think the idea of a.
<unk> is bad we certainly are focused more on share buybacks, but I think we wanted to make sure. We look at all of our shareholders and you know if if a small portion of our our return to shareholders is through a special dividend when we're doing well I think that's that's fair too and obviously on a yearly basis will look.
At our overall dividend and make sure that we give a fair, but affordable dividend there too so.
So second question P rock I'm not sure I, 100%.
Understood the but question, Jeff, but Theres no question.
In general the phosphate rock mining in China has been restricted greatly because of its proximity to the Yangtze River and so for environmental reasons, they've done a lot of restrictions on mining in.
In China. So if anything I would argue that China is probably somewhat resource constrained from a phosphate rock process and so.
We don't expect expansion, there and what we've seen as well in terms of finished fertilizers is they have dropped their capacity significantly and shut down plants.
A lot, particularly again, along the Yangtze River.
And have not rebuilt them. So I think their capacity is down about 25% now and you know in terms of their exports to things are going on there more product is going to industrial and particularly a purified phosphoric acid.
Can't help but mentioned for the again you know.
The growth of lithium iron phosphate batteries in China as is just incredible and.
It seems like that may well be the future of batteries is.
The the more economic lithium iron phosphate rather than nickel iron ore nickel lithium cobalt, so putting all that together, we see a Chinese government needing to make sure.
Utilizing stays affordable in China, and they're doing that by restricting exports and so we think that'll continue.
I hope that answers. The question you were asking if you're asking about potash I think what we've seen is Qinghai Lake has actually decreased in capacity over time.
And I suspect that's just the.
The quality of the resource and what they can extract on a year by year basis.
The next question will come from P. J <unk> with Citi. Please go ahead.
Yeah, Hi, good.
Good morning, Jack and team just a couple of quick questions. One you kind of partially answered earlier.
I had a question on raw materials, particularly sulfur imp.
Impact on phosphates I guess my question there would be.
You know you expect to keep that benefit you said straight to the bottom line. What gives you confidence that it falls to the bottom line and then you don't have to share that with your customers.
And secondly, just on this L. F. B batteries that you just mentioned and am I understanding is that the use of phosphates in L. F. B, it's a very small part of phosphate that goes into RFP.
Do you really think that the L. F. B is going to have an impact on the phosphate market. Thank you.
[laughter] excuse me.
Thanks P J, okay. So.
Raw materials first lithium iron phosphate second.
So.
When I when I say that the benefit of the raw materials will fall to the bottom line. If you look in general that's a flow through to the customer, but what we find of course as always supply and demand impacts so in the case of.
A tight market more of that sticks with us in the case of.
Of a sloppy market if you will.
That goes the customer it takes all of the all of that benefit.
Today, we see the market is relatively tight so we think we can maintain our margins.
And.
Potentially benefit from that falling falling cost.
In terms of.
Is L F P battery a significant use of.
Phosphates are what we're seeing today I think is.
I think we've gone from 100000 tons of purified phosphoric acid. This is China alone.
Moving up in a couple of years to about 400000 tons of purified phosphoric acid and even year to date. The <unk> piece has gone up to 670000.
And we expect 2022 will be a million tons total so what we're seeing is a.
You know an extremely quick.
Increase in consumption.
We think over time, it definitely will have an impact on the on the.
On the supply and demand balance for the product. It is a big industrial use for phosphates.
The next question will come from Joel Jackson with BMO capital markets. Please go ahead.
Hi, Good morning, I have two questions, maybe I'll ask them one after the other if that's okay.
So.
Sorry, so mosaic I don't know really shouldn't ruling I know that that's there in a row [laughter], what's that sorry, Joel I'm just kidding go ahead, Oh, sorry, I missed that sorry.
Does that kind of relatively lower potash sales volume decline in Q3 than your Canpotex partner nutrient and you're also guiding to flat volumes in Q4.
There's a nutrient guiding lower so I mean, I know you just sponsor for yourself and your linked on the offshore Canpotex.
So are you.
Are you.
Like you just said that you think that potash volumes in the channel in North America are normal.
But.
Do you think that.
The pies and purchases in North America channel is it a longer period than the offshore market.
Yeah look first of all I can't comment on.
Anyone other than mosaic, obviously and I also don't know the differences in selling strategies or Rev. Rec and all that so like you know, making any kind of comparison, what I will say is what we saw in North America in the third quarter was eight.
Pretty good slowdown.
What we did also see though was a reduction of imports I mean imports year to date are probably down by 50% or close to 1 million tons I suspect we had a pretty good uptake of our.
Summer fill program or you know considering how the market's played out we had a pretty good uptake of our summer fill program. So you know we think our customers came to the table and.
Again saw good value and saw that they you know they were willing to price and that was a good thing. So we we Rev wrecked.
So what we think was reasonable considering the market in terms of going forward. You know again, there's just a high level of uncertainty of where.
Where that market is going to be and I would argue that that is that.
Pertains, both to Canpotex and too.
The north.
<unk> market in the North American market, we expect a decent fall season.
If we do better than that hey, all the better but the expectation is as a decent or a normal fall season, and that's exactly what we're seeing.
We expect to see the.
We expect to see the inventory work its way down throughout the season, which is good I think Jenny said earlier, we're down to 50% of our.
Our in in market inventories, so that's been run down significantly to where a normal level for middle of November . So we're seeing a very normal sort of play out.
And that is what we would expect now you know we had a summer fill program. It was we didnt discount or anything so I think that just says the fundamentals are there.
And.
You know people are ready to buy.
The next question will come from Andrew Wong with RBC capital markets. Please go ahead.
Okay.
Hey, good morning.
Okay, a few questions on a regular five days.
I find it a little bit difficult, sometimes for us to get some good visibility there.
In phosphate production it looks like it's kind of trended.
Little bit lower in the past few quarters now can you maybe shed some light on what's going on there and what your expectations are on production going forward.
And then on gross margins going into Q4.
Im understanding the commentary correctly it sounds like it'll still be relatively quite high but maybe sequentially down into Q3, even if you include the wholesale.
<unk> is that correct and then just lastly on the second piece, Andrew I, just I didn't quite get the Q4 question.
Just wondering like margins going into Q4 comp.
Commentary sounded like it'll still be a very strong historically, but maybe down sequentially versus Q3.
It sounds like there's some pressure on distribution and then just wondering if you include the wholesale sales, which are typically higher margin, but the margins still be down sequentially.
And then and then just on costs yes.
Yeah.
Yeah.
And then just on cotton cost margin and distribution sure sure and.
And just like what you expect going forward.
Should these costs this year that we're seeing in front of all one thing is is that what we should expect going forward. Thanks.
Okay.
Okay. That's a brainfart, let me, let me try and hit these one at a time first of all phosphate production I guess, we have over the last couple of years up and down a little bit on phosphate production. Some of that obviously as you know from time to time reliability from time to time are moving in different areas of the <unk>.
Mining, etcetera, which which will happen.
But the other pieces you know the market started moving pretty slow and we ran into where.
Our sales out of production haven't really been.
Up to where we might might have loved them and you know as such you got to you got to match your production to your sales we've had a situation, particularly if you look at single Superphosphate, SSP, where were actually pretty loaded up on our on our inventory and so continuing to run against.
Our full inventory doesn't make a whole lot of sense. So.
And from a cost perspective that hurts your unit costs. So theres a couple of things in play there.
In terms of our when I was talking about margin I just want to highlight.
We take positions and normally we try and keep our positions fairly balanced, but you tend to take a position as much as a couple of months ahead of when you sell.
If you are in a declining market and you buy you know.
You buy in July and you sell in September you tend to take that price risk for those two months. If the prices are going up you have extraordinary or you have gains in that positioning and if it's if the prices are going down.
You have losses in that positioning so if we look at Brazil right now.
You are seeing that we had very good margins in quarter, two that reversed to some extent in quarter three although as I said in the earlier comments the.
The.
Margins are still looking pretty strong and I think I would credit that with our product management teams not only globally, but in Brazil, specifically, who are able to understand the market dynamic decide how far ahead or how late they want to.
Address the the pricing and how much inventory, they're holding so I mean, theres, a theres a great art to that.
As a production company. However, there is limitations on how much of that you can really do so.
I think that answers most of what you asked there Andrew.
The next question is a follow up from Joel Jackson with BMO capital markets. Please go ahead.
Sorry, I wanted to fall back question, it's a tough one but jocks so.
So nutrient is going to add some tons going forward here and obviously, they're canpotex allocation of Sac because that capacity I assume proving ground was already done so for them to place those extra time has to be all in North America, and then you said that dynamic 64 million tons next year based on your preliminary gas up only a couple of million.
From 2022, assuming bethune has a little bit more about the cable assets. You mean is Israeli chemicals, a little bit more excuse me I see a little bit more skewed Belarusian maybe get a little bit out more who knows happens with Europe .
Hum.
It would seem that nutrient can't place all those tons. So I guess I'm trying to figure out what to have an answer but how do you think about all of this and if Qantas does swing mine are you cautious to want to run it.
At the beginning of the year fallout, if if it looks like based on your own numbers you may not be needed.
Yeah. So so.
As you.
Absolutely mentioned I can't and won't.
Contemplate.
Either my competitor.
Partner or whatever and what their plans are I think you have to ask are there new CEO .
However, let me say, how we view of the market like I said, we see next year that that 8 million tons won't come back yes.
I'm sure ICL will try and push out what they can I'm sure your camera seems to be reasonably effective in getting to market.
I will say that.
Your calorie seems to be.
I'm not as active in the market this year as previous and there's been a couple of rumors and.
Whatnot about why but I can't tell you that that would be again a question for them.
What and the Belo Russians as long as they can get product through the Lithuanian ports, they're going to be restricted to either a long rail haul to St.
St. Petersburg.
Assuming they can get a port.
City, there or a long and complicated rail haul to China, which they have done relatively successfully I think they've probably been able to move a million and a half ish tons to China through that rail link so but with all of that together, we see a.
Supply side, even with no extra tonnes from Canpotex, we see a supply side of in the range of 64 million tonnes.
And from our perspective if.
Yeah.
The market will have to find a way to be at that 64 million tons. So in other words are we.
We think theres good need or there is need for all of the Kalonzo tons next year, what happens beyond that who knows again I will emphasize with Colons zee.
It cost us virtually.
A couple of months production to restart it so.
We're making.
Making a good margin at Colons, they right now and the.
The downside risk of restarting it was virtually zero and the upside opportunity was was large so to us that's a perfect value adding decision.
This concludes our question and answer session I would like to turn the conference back over to Mr. Jacques O'rourke for any closing remarks. Please go ahead Sir.
Thank you.
To conclude our call I would like to emphasize the strength of mosaics financial performance.
We delivered excellent results and our outlook remains strong global agricultural market conditions remain constructive and tight supply of grain and oilseeds is very likely to continue for the foreseeable future as a result fertilizer demand remains strong and supply constraints persist.
We're using this opportunity to return significant capital to shareholders to invest in our business and to strengthen our balance sheet.
<unk> is in an excellent position to continue to benefit from compelling business conditions throughout 2023 and beyond. Thank you for joining the call have a good and safe day and go out and vote. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.
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