Q2 2023 Nutrien Ltd Earnings Call
<unk> 2023 second quarter earnings conference call at this time, all participants are in a listen only mode.
A question and answer session will follow after the formal presentation. As a reminder, this conference call is being recorded I would now like turn the conference over to Jeff Holzman, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to nutrients second quarter of 2023 earnings call as we conduct this call various statements that we make about future expectations plans and prospects contain forward looking information certain material assumptions were applied in making these conclusions and forecasts therefore actual results could differ materially.
From those contained in our forward looking information additional information about these factors and assumptions are contained in our quarterly report to shareholders as well as our most recent annual report MD&A and annual information form filed with Canadian and U S Securities commissions.
Now I'll turn the call over to Ken Seitz, President and CEO and Pedro our CFO for opening comments before we take your questions.
Good morning, Thank you for joining us today as we review our Q2 results and the outlook for our business.
Fertilizer industry has gone through a period of unprecedented volatility over the past 18 months driven by a series of unique events.
However, we are encouraged by the continued improvement in demand as the year has progressed.
This is most evident in North America, where we had a strong spring season.
The positive sentiment has carried into the second half with solid customer engagement on all fertilizer products.
The process has been slower in certain offshore fertilizer markets with a lack of consistent buying but we believe the most significant period of volatility is now behind us.
Moving forward, we know there will be fluctuations in the market and requiring nutrient to maintain a flexible approach and focus on controlling what we can control.
The strategic actions, we announced yesterday reflect our commitment to disciplined capital allocation and our focus on initiatives that enhance free cash flow through the cycle.
Before I speak more about the outlook and specific actions. We are taking I will turn it over to Pedro to review our Q2 results.
Thanks, Ken.
Our second quarter performance illustrated the contrast between how the market has progressed in North America compared to certain offshore markets.
Neutral and delivered adjusted EBITDA of $2 5 billion in the second quarter and $3 9 billion through the first half of the year.
This represented the second highest earnings total for both respective periods, but it was down significantly from the record prior year due to lower fertilizer prices offshore potash sales volumes and retail margins.
<unk> AG solutions results in the quarter was supported by strong grower demand in North America, and the relative stability of our business in Australia.
America retail crop nutrient margins largely normalize as higher cost inventory moves through the channel.
Sales volumes were up 16% compared to the prior year and would have been even higher if not for the extremely dry conditions throughout the U S. Midwest.
We ended the quarter with fertilizer inventories at the multi year low down more than 40% from the prior year.
We expect this is generally indicative of retail inventory levels across North North America, setting up the potential for large purchasing requirements in the second half.
In crop protection gross margins were impacted in the quarter by lower prices for certain commodity products higher cost inventories and reduced demand as a result of the dry conditions in the U S. Midwest.
We recognized a noncash impairment primarily related to the goodwill of our South American retail business. This region has been impacted by volatility in crop input markets and a sharp increase in local interest rates among auto macroeconomic factors.
The long term prospects for agriculture in South America remains strong and we see opportunity for future growth.
However in the near term we are pausing additional investments in this region until there is further market stabilization.
Now turning to our fertilizer segment still impacted in the quarter by lower benchmark prices compared to the exceptionally strong period in 2022.
In potash, we increased sales volumes in North America and achieved relatively.
Steel stable pricing compared to the trailing quarter.
This outcome was in line with our expectations offshore demand was weaker due to a lack of consistent engagement and spot markets and a delayed contract settlement with China.
Our offshore net realized price was impacted by lower benchmark prices and additional logistical costs associated with an unplanned outage at Canpotex export terminal in Portland.
North American nitrogen prices were down from the prior year with strengthened during the quarter as supply tightens. Following the start of the spring application season.
Global ammonia markets were pressured by lower European gas prices and weaker industrial demand.
Second quarter nitrogen sales volumes increased by 10% from prior year, driven by strong fertilizer demand.
Nitrogen gross margin as a percentage of sales was about 35% in the quarter highlighting the advantages of our strategically positioned assets.
The performance of our supply chain and order book positioning allowed us to capture incremental value associated with the <unk> season premiums that emerge in North America during the quarter.
Phosphate benefited from the strength of industrial and feed product lines, partially offsetting the impact of lower fertilizer prices.
We completed maintenance and reliability initiatives and are targeting utilization rates above 90% in the second half of the year.
During the quarter, we recognized a noncash impairment charge to a widescreen phosphate assets.
This facility has a short mine life than our Aurora site, therefore near term fluctuations in fertilizer prices and margins have agreed to impact from carrying value of its assets.
The ISI asset counting this has resulted in the recognition of impairment losses and reversals in recent years to.
To summarize our first half results were below the record prior year. However, we saw a number of positive market developments in particularly in North America that provide opportunities for nutrients as we look forward to the second half of 2023 and beyond and I'll now turn it back to Kent.
Thanks, Pedro I will start with the outlook for the business and our updated full year guidance assumptions.
Weather and geopolitical challenges continue to prevent a replenishment of global grain and oilseed supply and is providing support for AG commodity prices.
Futures prices for corn, wheat, and soybeans are 15% to 20% above the 10 year average and fertilizer affordability has improved significantly over the last year.
North American crop development is tracking ahead of the historical average pace, which could support an early harvest and extended fall application window for fertilizer.
The combination of low channel inventories and prospects for a strong fall season has contributed to increased demand for all fertilizer products in the third quarter.
We had a very positive response to our North American potash fill program and have closed the order book for third quarter deliveries with the targeted $30 per short ton increase for the fourth quarter.
Turning to Brazil, where growers have purchased a lower than normal proportion of inputs for the upcoming spring planting season, which we anticipate will lead to solid demand over the next few months.
Brazil fertilizer prices have strengthened in recent weeks with potash prices up around 10% since early June .
We expect Canadian potash exports will be constrained in the third quarter by logistical challenges related to the strike at the port of Vancouver, and the outage at Canpotex is Portland terminal.
It could take several more weeks until the backlog is cleared and the supply chain returns to normal.
As a result, we have lowered our estimate for global potash shipments to a range of <unk> 63 to 65 million tons in 2023.
Nutrients full year adjusted EBITDA is now projected between five 5% to $6 7 billion.
As disclosed in our news release on July 11th the revision largely reflects reflects factors impacting offshore potash sales through canpotex and lower offshore realized prices than previously anticipated, including the impact of higher logistics costs.
We reduced our potash sales volume guidance to a range of 12, 6% to $13 2 million tons and have adjusted our production plans accordingly.
We lowered our nitrogen adjusted EBITDA guidance range slightly due to a decline in global ammonia benchmark prices in the second quarter.
Urea prices have strengthened in the third quarter, and we anticipate a recovery in ammonia markets driven by low inventories and ongoing production curtailments.
Our revised retail guidance reflects greater margin pressure in South America, as we sell through higher cost inventory and the impacts of dry conditions in North America during the growing season.
We expect a strong fall fertilizer application season and per ton margins above historical average values, which is in large part due to growth in our proprietary nutritional products.
Based on the change in projected earnings and cash flow for 2023, we have taken a number of actions to reduce controllable costs and provide additional flexibility for future capital allocation.
We are indefinitely pausing, our potash ramp up following the completion of in flight projects in the second half.
These projects are primarily related to the procurement of new mining machines that support further automation of our fleet.
We will maintain operational flexibility in our potash business preserving the ability to quickly respond to changes in the market, while ensuring we maintain our low cost position.
We have also made the decision to suspend work on our Geismar clean ammonia project and to defer the timing of capital spend on select brownfield expansions.
We previously stated that a final investment decision on our Geismar project was contingent on obtaining a greater degree of certainty on capital cost estimates.
And as engineering work progressed, we have seen some escalation in costs.
Therefore at this time, we expect to have higher return alternatives for our capital.
We believe emerging uses for clean ammonia will provide a long term growth opportunity for the nitrogen industry, but there continues to be uncertainty on the timing of this demand.
We will monitor how this market evolves and evaluate future options with the objectives of preserving value and optionality for the project.
In retail we are reducing expenditures across a number of smaller investment projects as we prioritize capital across the business and maintain flexibility on future allocation opportunities.
The focus of the retail team will be to integrate recently acquired businesses in Brazil drive supply chain and operating efficiencies and enhance the free cash flow generation of the business.
In aggregate. These initiatives are expected to lower our 2023 capital expenditures by $200 million and reduce associated capital by two 5% to $3 billion over the next five years.
We will also taken measures to reduce operating expenditures by approximately $100 million in 2023 to offset some of the impacts from extraordinary events that occurred this year.
Looking ahead, we believe structural market shifts are supportive of higher average fertilizer benchmark prices through the next cycle.
This view is driven by the expectation for continued tightness and global crop markets higher energy prices and other inflationary impacts on the global cost curve.
Based on the changes to our capital plans, we have revised our mid cycle earnings scenario.
To reflect lower anticipated potash and nitrogen sales volumes for.
For potash, we assume assume a return to trend line global demand growth and nutrient sales volumes in the range of 14 to 15 million tons.
We now expect a mid cycle adjusted EBITDA scenario in the range of 7% to seven 5 billion, which.
Which is highlighted on slide 18 of our Q2 earnings presentation, along with a comparison to our previous mid cycle assumptions.
In closing, we expect to generate strong cash flow through the cycle and are committed to a balanced and disciplined approach to capital allocation.
We will leverage the advantages of our integrated business and continued to position the company to serve the needs of our customers and deliver long term value for our shareholders.
We would now be happy to take your questions.
Yes.
Thank you, ladies and gentlemen, we will now conduct the question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.
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Your first question comes from the line of Joel Jackson from BMO Capital markets. Your line is now open.
Hi, good morning.
So again, we talk about potash capability, so now that you're part.
Deferred adding warm machinery and people what is the maximum potash production that you would be able to produce this year and next year, So run rate and then.
Maybe balancing out one of your competitors. Your Canpotex partner suggests that potash demand potash shipments will not get backs, a 70 million ton level until 2025.
And the base that on the supply constraints that you have excess supply that you could run if you wanted to use a bit of confusion over how much of that is a demand story getting back versus constraints out of Belarus can you talk about your sort of your own views on that story.
Thanks.
Yes, good morning, Joe and thanks for the question so yes for 2023.
And based on some of the challenges shipping Canadian potash, we reduced total global shipments of <unk> to $63 to 65 million tons and we regarded this year as you've seen 12, 6% to $13 2 million tonnes.
Next year of customers, we're calling for $15 5 million tons, we would be able to supply into that so bye.
By the end of this year as is mentioned in the commentary will have procured mining machines was completed in flight projects and have the ability to meet customer needs to that level as.
As it relates to.
The return to historical trend line demand in potash when we talk about our new mid cycle. It's in that 70% to 75 million ton range and our assumptions are getting back to that sort of level over the next few years.
Your next question comes from the line of Steve Hansen from Raymond James Your line is now open.
Yes, good morning, Thanks for the time.
Just wanted to follow up on the potash expansion strategy.
For the at least the halting of it can you just give us a rough sense for the capabilities. After the in flight projects are completed I'm not sure. If that was delineated exactly and then as we think about sort of the year over year.
Improvement.
Export capabilities both in Vancouver.
And in Portland.
How do you feel about.
Moving the amount of volumes that you are talking about here in the next year, you still feel confident that that's doable.
Yes, Steve so.
Sort of a global trend line demand of 70 to 75 million tons.
And our new mid cycle assumptions for nutrient of that 14 to 15 million tons, and allowing ourselves some surge capacity to flex into the market when customers are calling for it that's what we're planning for this.
Customers are calling for $15 5 million tons next year, we would be able to supply into that having completed this year our in flight projects in expanding some potash capability, so I'd say in and around that range as it relates to export capacity.
Have expansion capability in at Neptune, we have some expansion capability. This is all by a canpotex at Portland. So we have line of sight across at least certainly our five year plan to be able to.
But to be able to ship potash into a market that's growing.
Hence.
Our plans around the new mid cycle.
Okay.
Your next question comes from the line of Andrew Wong from RBC Capital markets. Your line is now open.
Hi, good morning, Thanks for taking my questions. So in that mid cycle. Adjusted EBITDA scenario can you talk about what you.
Use there are assumed for retail.
What would you consider as a normal run rate or maybe put another way what would retail look like this year.
Under normal conditions, and then just secondly on retail SG&A.
<unk> down a little bit this year, but not down as much as the overall segment profitability was so.
The operating coverage ratio has gone up.
Is your expectation on how that trends going forward. Thank you.
Yeah, Thanks, Andrew as it relates to our retail assumption for.
Mid cycle earnings, Yes last year was an interesting year in terms of.
Our margins being quite strong and then obviously talking about the.
The reset for 2023, which we're experiencing and we're experiencing that really across our retail business and probably more than more than anywhere in Brazil with the extreme volatility we've seen there but.
Sumption.
Prior to this current view of mid cycle and as we've described it in slide 18 of our presentation. Our assumption was $2 1 million billion dollars out of our retail business and we are announcing a about one 9% to $2 billion when margins do normalize too.
So it's one nine to $2 1 billion.
As our assumption, Jeff maybe I'll pass it over to you to to talk about.
Andrew's question regarding SG&A, yes.
Yes, Andrew Thanks, when we look at SG&A and we look at this year on year over year basis from that perspective, a lot of our increased cost to come.
From a standpoint of our expansion into Brazil, and 60% of our cost and our sales and customer.
Customer focused organization comes with people and people are our largest cost and so we've obviously seen some wage inflation in that area, but with that said we started early in the year taken some very targeted actions this year to reduce head count where it is an absolutely essential in particular, we're very focused on.
Re evaluate now organizational needs in Latin America to ensure that we have right scale to operate efficiently and properly for the size of our current operations.
He had mentioned in his comments and I think Pedro as well that we've been very deliberate about controlling our controllable and were taken out discretionary cost Kraushaar network. If you look at it on a percentage basis, we've managed to hold our cash expenses below 10% of revenue for the quarter, which is actually just slightly better than last year.
Despite an overall reduction in.
In revenue and in dollar terms not just of cash expenses are down year over year on a year to date and quarter basis. So that's something I'd like to think that we're doing continuously.
And controllers are controllable and we're certainly going to put a lot of effort on in the back half of the year and going forward as we continue to drive efficiency in our organization.
Your next question comes from the line of Christopher Parkinson from Mizuho. Your line is now open.
Great. Thank you so much so when we take a step back and just look at the potash markets with the recently sanctioned Chinese contract and a little bit of a rebound in Brazilian spot. It seems like southeast Asia is a bit out of whack.
Due to the recent declines over the last let's say four to six weeks at what point in time would your team or Canpotex.
Expect.
Fairly robust demand response, obviously, there are a bunch of other moving factors inventories weather.
Crop outlooks, so on and so forth.
But in terms of the eventual rebound of the potash market. How is your team currently thinking about that as a response to lower prices. Thank you so much.
Yes, great. Thanks, Chris.
Youre absolutely right, we have seen sort of a illiquid trade in southeast Asia for some time for standard grade potash and part of that was held up by drawing down inventory as part of it.
We are waiting on the China contract in setting that benchmark.
But here we are so maybe I'll hand, it over to Mark hedges will provide some more detail.
Yes, Thanks, Chris Good morning, So look I think first above all else would just say, we're very encouraged by the continued stabilization and recovery of demand, particularly in North America, and Brazil, which are obviously really important markets for nutrients. So I'll, just maybe say a few words about North America and then talk.
Internationally as it is all part of a bigger picture here so.
As you heard Ken say in our commentary we saw a record Q2 for domestic sales in really strong and rapid customer engagement as spring activity unfolded in the U S. As we talked about previously Q2 was more of just in time basis, but following Q2 in North America, we really did see.
Most of our major customers with inventory levels that we're at least at multiyear lows if not.
The lowest levels they've ever had following our spring season. So you have got an attractive crop price backdrop the potential for early fall activity and this really has set up for what we've seen via exceptionally strong fill program that we've just laid out.
As Ken said, we saw really strong demand in fact, we'd call it overwhelming demand for customers on the Phil We closed the order book on Q3 at $3 70 per short ton level and have upped our reference price for Q4 by the $30 per short ton and in fact, just in the last 24 to 48 hours, where we've seen customers come to occupancy.
Small volumes and transacted at that $400 per short ton level in the Midwest. So we're encouraged by what's going on in North America, I think moving internationally and just to talk about a couple of the markets that are important to canpotex all of which you mentioned, let's start with Brazil, Brazil really has led the demand recovery internationally.
It's been the strongest overseas market since the signing of the Chinese contract I think there was an anticipation.
That contract would put a floor under some of these markets and we've seen that in Brazil from a low of $3 10 or 320 around the time of the contracted today.
The industry publications would call the market $3 50 to 360 and as Ken said the pace of crop input demand. We think is a little behind last year, so that sets up well for more normal consumption through the second half of the year. So we see things as being on track in Brazil.
In China with the signing of the contract we actually saw good shipments in the first half of the year into China and the contract is kept those moving so as you would've seen in our materials, we've upped our demand estimate for China. This year to 15 to 16 million tons and we've seen strong consumption domestically in nitrogen and phosphate and we also think that bodes.
Well for shipments into China in the second half of the year. So again.
<unk> and China looks on track.
Other important market to Canpotex as you mentioned is southeast Asia, and southeast Asia as the market.
That has been a little more varied and and more protracted and its recovery versus other markets. This was likely due to a few factors in our view one being the delayed timing of the Chinese contract buyers wanting to see some stability in global benchmark pricing and then some volatility in.
Palm oil pricing and key crops.
Just in recent weeks, we have seen some signs of demand re emerging in those markets and even within southeast Asia. It's a mixed picture so in markets like Vietnam, and Thailand, we've seen prices anywhere from $3 30 level up to almost $400 level with more stability and I think.
Asia in Malaysia are taking a little longer to recover but we do see demand picking up in Q4 and Chris as we move into 2024, we would expect some recovery recovery and stabilization.
In Southeast Asia generally so as I said to start in my comments I think we're generally encouraged by the direction of the potash market and the rebound in demand.
Okay.
Your next question comes from the line of Ben Isaacson from Scotiabank. Your line is now open.
Thank you very much and good morning.
One more on the potash expansion if I may.
I actually really like it I think it's a good move to cause the potash expansion, but I don't fully understand the decision making process when.
You talked about a strong Q2 in North America, Brazil is starting to come back.
But that's all short term in this year and even if there is weakness you're dealing with it by curtailing production. When we think about long term structurally nothing has really changed the demand growth trajectory is the same we haven't seen any meaningful change at the Belarus, Russia BHP is kind of still on track et cetera.
So what actually has changed from a long term outlook to pause.
Increasing capability to 18 million tonnes.
<unk> continues to be quite a bit of uncertainty on the supply side of the equation and the reality is that while we have seen Russian and Belarusian volumes coming out of the region. The region is still down 30% ish from 2021 levels about 8 million tons.
And.
Thats a little bit more than we had we had forecasted at the start of this year about 1 million tons of that said, that's also being offset by some of the challenges for Canadian producers off the off the west coast. So.
Our assumption today is we looked at 18 million tons in the ability of.
The Russian and Belarusian producers to get to export markets. Some of that volume is coming back that's certainly happening but it is also true that there is a significant volume that is still challenged and again this year about 8 million tonnes, we see that volume returning to the market over the next few years, we do but that has us.
Completing in flight projects to the end of this year and again with the capability to supply that.
$15 5 million tonnes meet the needs of our customers, but always preserving some flex capacity to surge tonnes into the market, which we've done in the past and created immense value. When we do that because there continues to be this really significant uncertainty on the supply side of the equation Mark Jason did you want to provide more color look I think Ken.
Covered it really well Ben I think the only thing I would add is maybe just to put a few numbers to the equation. I mean, obviously, we responded quite quickly last year. When we saw an unprecedented global disruption in supply at the time, we were talking about this last year, we probably saw on a run rate basis volumes out of the former Soviet Union.
On a run rate annualized basis, we're probably down about 13 million tonnes and so in that type of environment. We obviously look to quickly mobilize and understand what we can do from a supply perspective, I think one of the other things that we did see in that environment was that an a.
Higher than normal price environment, because of the panic buying we did see demand be temporarily impacted and we mentioned there's going to be some period of time to rebuild vacuum to trend levels. So I think the simplest explanation for the company is really this is an optimization of capital deployment, how we deploy our resources and how we staff our operations are.
Long term belief in the fundamentals of the potash business have really not changed but it's really a decision on the timing of how we deploy that capital what resources, we carry at the assets and ultimately our go to market strategy Hasnt change, we're going to supply when our customers need and so as Ken said, we'll respond to market conditions, but we think the capacity we've built through the.
Work that we've done provides us ample flexibility at least for the foreseeable near term to meet that market demand.
Yeah, great. So thanks, Marc and with respect to the question about Latin America I mean, the reality is that the Brazilian market continues to grow it continues to be one of the most exciting agricultural markets on the planet and we have a meaningful presence there.
As it relates to our plans pass over to Jeff, but really it is about pausing on further acquisitions as we integrate these nine.
These nine acquisitions that we have done and get our cost model and our operating model right. There for US certainly in these times, where we've seen this extraordinary volatility compression in crop margins and movement in interest rates, but but Jeff over to you.
And Ken I'll, just reflect an echo on the comments you made I think we've mentioned several times. This morning, the factors and there were several factors that led up.
Our impairment volatility, but much more severe volatility across fertilizer segment in chemistry segment than we saw in North America, and Australia and again.
Raj and interest rates were much more abrupt there as well and which led to a lot of devaluation and inventory and such.
<unk> said, we still see long term, we still believe in the long term growth prospects for Brazil and is expected to be the fastest growing AG market in the world, but if we look at where we are today.
In the near term, we are going to pause additional investments as we really focus hard on integrating the nine businesses that we bought over the last three years and when we say integrate and that's from a system standpoint that from a standpoint of a procurement nessa standpoint of integrate <unk> businesses into.
And then maybe I'll just add Pedro here.
Now, Brazil is a market characterized by very long cash conversion cycles.
As we accelerate growth.
Actually accelerate the investment in working capital and the carrying cost at this point in time is punished by the highest Rio interest rates in the world, which is in Brazil.
So therefore, as we see now interest rates starting to.
Abate I mean, there was a.
Central Bank Brazilian Central Bank decision ready to reduce that in the futures are pricing further reductions.
Is it is good to wait a little bit until that becomes less punishing because otherwise we're going to be growing.
All the.
Okay.
Your next question comes from the line of Jacob bout from.
CIBC Your line is now open.
The suspension of the clean ammonia plant in Geismar is this just a cost issue.
Maybe just talk a bit how strategically important clean nitrogen eastern nutrient.
And what needs to change for further investment in that.
Area.
Yes Jacob.
The reality is that we do believe there'll be an opportunity.
In the Imodium business to clean ammonium business.
In the future and of course, that's where we talked about marine field Thats, why we talk about energy hydrogen economy.
But it is also true that the timing of the evolution of that demand is unknown and it's a bit in question. So we're watching that very closely and that could be something that has us return to that conversation at some point in the future in the meantime, I think we have been fairly quite clear that we were heading toward a final investment decision in the.
And creating that flexibility that we talked about earlier, but I'll hand, it over to Trevor Williams President of our nitrogen business and then mark to provide a bit more color.
Yes. So thanks for the question in a couple of conference obviously, the IRI in the Q4 five have been a big.
Improvements in terms of being able to try and justify some of these projects.
At an overall perspective in terms of the IRR that was built in when we look at our capital allocation decisions. So really at this point.
While that is obviously a bit of a tailwind or improvement.
It really didn't get us over the hurdle in terms of the economics of the project at this point.
Yes, the second part is a great question.
That will continue to do so.
We'll talk with our partners both on the technology sizes as well as on the downstream side and evaluate opportunities, but at this point in time, we really looked at the delay probably being at least a minimum of 24 months, but to your point, we would continue to look at opportunities from a partnership perspective going forward.
Mark.
Yes, I think Kevin.
Cover covered it pretty well Richard what I would say from an economic standpoint is that covered Ed mentioned earlier and Ken We did see some capital cost escalation relative to our original expectations.
Obviously, that's something that deteriorated the economic somewhat and then I think obviously a lot hinges on.
In the future and Ken said over the long term, we do have confidence that these new sources of demand related to cleanup man you have a number of reasons why they should emerge but today the evidence wouldn't be sufficient to justify the assumption of a premium at least not in the near term emerging for clean ammonia. So on the commercial side of things. We did an exceptional amount of work in terms of.
Market development talking to partners and as Ken mentioned, we do see a day, where this could potentially become more attractive and really the attitude at this point is to preserve value and optionality for the project and really just making a decision that there are higher return better capital allocation alternatives.
The near term and possibly medium term, but the option to revisit this at a later point.
Okay.
Your next question comes from the line of Michael <unk> from DB Securities. Your line is now open.
Hi, Thanks, Good morning, a question on the potash side can you provide an update on the protect production curtailments, you announced last month that Corey.
<unk> and <unk> and what you're assuming in terms of bringing that production back online.
And then as a follow on can you also provide an update on the status of the equipment issue at the Portland terminal and and when you would expect that terminal to be back up.
Great.
Absolutely with respect to the curtailments, yes, we've talked about those and talked about some reduced potash volumes related to the challenges on the west coast, and hence having to bring down some production, but Chris I'll hand, it over to Chris to talk about the curtailments and then with respect to Portland and how we.
Is evolving in terms of getting that back in service over to Mark. So so Chris Yeah. Good morning, Michael Thanks for the question and Youre right. We did were forced to curtail production at both our core and broken fill sites in the plan as it stands today is that where we're hopeful that the.
<unk> result here formally by the end of the week.
In Vancouver, and that would enable us to bring <unk> back to normal production rates, but our plan at the moment is to keep.
Korea Little curtailed.
But if demand was to <unk>.
Move up towards the end of the year, we could also remove that and bring some production back if the market needed. It so but but that's our plan as it stands today and regarding the west coast ports I'll hand, it over to Mark.
Sure. Thanks.
Thanks, Michael So look I'll start with Portland, but maybe just for completeness talk about Neptune as well given thats all part of the picture on logistics constraints and your questions on potash production to Chris So from a Portland perspective repairs are progressing at the facility and what we hear from Canpotex is that we do expect completion of that work in court.
Glad to be back in service by the end of Q4 from.
From a Neptune standpoint, as Chris said were hopeful we see resolution in the next few days and a definitive answer that there will be no more strike action there today at Neptune labor and productivity as we hear is about normal but there is a meaningful backlog that exists from the two weeks or so of strike action that did happen.
Canpotex does have numerous loaded trains at third party sites and producer sites sitting in Western Canada that do need to be worked through so there is a backlog in.
Some time, it's going to take and right now we assume that time period will be until the end of August assuming no further disruption.
So right now thats, our expectations on both Portland and Neptune.
Your next question comes from the line of Josh Spector from UBS. Your line is now open.
Yeah, Hi, Thanks for taking my questions I guess two quick ones for me if I can first just to clarify on the Geismar clean ammonia facility. So I believe you had a letter of intent for some offtake of that did that partner change any of their willingness or timeline to take any of that product in that play into your decision at all and then second on the Capex.
I think Pedro you mentioned that you would have said $3 billion range, which to operate in but you're still spending about $1 billion on growth. This year. So could we see a number closer to $2 billion next year or is that not realistic.
Great. Thanks, Josh.
With respect to the offtake in letter of intent there no no that was not part of the decision making process that was with Mitsubishi.
We have a very strong relationship with Mitsubishi that continues but that was not part of the decision making process. It really does boil down to the things that we talked about earlier evolution of end markets, increasing capital costs and and better uses for capital in the near to medium term and wanting to maintain flexibility with disciplined cap.
Allocation in the near to medium term with respect to the.
Capex assumptions I will hand, it over to Pedro.
I think Josh.
I think just to clarify our two $5 billion to $3 billion is what we will be saving and the both the ramp.
And the Geismar project into the future. So those are capital expenditures that will not happen that would have been in our five year plan for the next five years. So in addition to that we're looking at other.
Potential actions.
Our capital plan for this year next year, but I just wanted to make sure I clarify that.
Okay.
Your next question comes from the line of Ed Linde <unk> from Credit Suisse. Your line is now open.
Thank you. Good morning, everyone. Just one quick question on India. I mean, maybe this is for Mark what are you seeing in India in terms of products.
Actually buying and paying that price.
Yeah. Thanks for the question Atlanta and.
<unk> 422.
But also you may have seen the Capex pulled offers in India. As a result of the challenges off the west coast, but Mark do you want to provide more color, yes, good morning, Ed lanes. So.
The signing of the India contract it.
$422 I think right at the beginning of the <unk>.
Second quarter, we did see some canpotex shipments go into India, and we understand from other producers at that $422 price level, but subsequent to the signing of the Chinese contract, we have not seen meaningful volumes at least from a canpotex standpoint going to India.
Assessing where the best Netback Saar.
So it remains to be seen how the rest of the year evolves for India, We do know that because of the better than expected monsoon. We would expect there is going to be demand for potash in India and that India will need.
More potash for the remainder of the year.
Yeah.
Your next question comes from the line of Irene <unk> from <unk>. Your line is now open.
Hello, Hi, good morning, just a follow up on India.
Confidant that you announced with this in the call.
Expiring in September that this is not going to translate into a.
Paul.
The price recovery, we have seen now in the impoverished prices.
Yes. Thanks for the question Erin really looking at the region and standard grade I mean, obviously, the China contract had the effect of creating the stability in the market.
That was reflected really.
Almost immediately Brazil bouncing off that floor and now strengthening as we talked about earlier, 10% since June .
And CPO prices, making potash affordable so affordability has gone up and inventory levels being drawn down that we expect movement in southeast Asia, and India inventories are very low as Mark just said so heading into the fall here strong months soon we do expect demand in India, It's always subject to the discussion about the.
Subsidy in India, but but we expect.
Inventory replenishment in India, as well, India has been a case of demand rationalization because with some of these supply challenges over the last 18 months simply not getting the volume.
But a question earlier about about yield.
Yield impacts I mean, India is a place where.
We could see yield impacts if some of these challenges persist.
There are no further questions at this time I will now hand over to Jeff. Please continue.
Alright, Thank you for joining us today on the Investor Relations team is available for follow up questions have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.