Q3 2023 Nutrien Ltd Earnings Call
Greetings and welcome to look beyond 2033 third quarter earnings call. At this time, all participants are in a listen only mode.
And answer session will follow after the formal presentation.
This conference call is being recorded.
I would now like to turn the conference over to Jeff Hoffman, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to nutrients third quarter 2000, 22023 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.
Annual information form filed with Canadian and U S Securities Commission.
I will now turn the call over to Ken Seitz, President and CEO and Pedro Farah, our CFO for opening comments before we take your questions.
Good morning, everyone and thank you for joining us today.
Neutrally and delivered adjusted EBITDA of $1 1 billion in the third quarter and $5 billion through the first nine months of the year down from the record comparable periods in 2022.
Saw a number of positive market developments in the third quarter that are constructive for our business, including strong crop nutrient demand in North America and increased stability in global potash markets.
In retail North American crop nutrient sales volumes were up 5% in the third quarter and 10% on a year to date basis as growers, we're incentivized to maximize crop production.
North American crop nutrient margins in the quarter increased by $10 per ton compared to the prior year.
Courted by improved margins for commodity fertilizers and growth in our proprietary crop nutritional and bio stimulant products.
These high value proprietary products contributed nearly $350 million in gross margin through the first nine months of 2023.
Crop protection sales in North America were down from the record prior year due to lower prices for certain commodity products and slightly lower sales volumes are result of dry conditions in the U S. Midwest.
We ended the quarter with North American crop protection inventories down more than $200 million from the prior year, and we will be patient with our approach to restocking inventories.
Crop protection inventories in South America remained more elevated resulting in pressure on prices and margins.
Crop nutrient volumes for our South American retail business were up 25% in the third quarter due to improved grower demand and the benefits of our Cassa <unk> acquisition in the fourth quarter of 2022.
Nutrient financial sales increased in the third quarter and first nine months of 2023 due to higher utilization of our financing offerings in the U S. As well as the recent launch of our digitally enabled financing program in Australia.
We are pleased with the uptake of our financing programs and see additional opportunity to drive organic growth for our retail business.
In potash, we delivered record sales volumes totaling $3 9 million tons in the third quarter.
North American channel inventories were at multi year lows entering the second half and customers secured supply in anticipation of a strong fall application season.
We had a very positive response to our summer fill program.
Utilizing the strength of our distribution network to deliver $1 7 million times to customers in North America.
Okay.
Our potash volumes and net realized prices were impacted by logistical challenges associated with the port strike in Vancouver, and an outage at Canpotex is export terminal in Portland.
Shipments through Vancouver returned to normal later in the quarter and we expect the Portland terminal to be operational by the end of the year.
We increased granular potash production to meet the surge in domestic demand and our controllable cash cost declined to $56 per ton in the third quarter, highlighting the advantages of our low cost <unk> mine network.
Yes.
Our nitrogen realized prices in the third quarter reflected the reset and benchmark values at the time of summer fill programs.
Nitrogen sales volumes declined from the prior year due to production outages at our Trinidad order in Geismar plants.
We completed two smaller brownfield expansions at our Geismar facility and installed the final of H <unk> abatement projects at our nitrogen sites, which we expect will be a key contributor to reducing our greenhouse gas emissions.
Phosphate sales volumes increased in the third quarter due to our strong engagement from phosphate fertilizer customers. We did however encounter hurricane related downtime in our white springs facility that impacted production volumes and costs.
Excluding this downtime our phosphate plants have operated well following the completion of reliability initiatives in the first half of 2023.
Now turning to the market outlook.
Grain yields are projected to fall below trend in 2023 for the fourth consecutive year limiting any meaningful recovery in stocks.
New corn crop in soybean prices have incurred some seasonal pressure, but remained 10% to 15% above the 10 year average.
Fertilizer affordability has improved significantly over the past year and projected grower cash margins are above historical average levels.
Harvest in the U S has progressed ahead of average providing an open window for fall field work we.
We project U S fertilizer demand will be up 5% to 10% in the fourth quarter compared to the prior year.
Global potash demand has increased in the second half driven by greater price stability and improved grower affordability exhort absorbing the gradual increase in eastern European export volumes.
We now forecast global potash shipments in the range of 65% to 67 million tons in 2023.
We expect robust agricultural fundamentals and the need to replenish soil nutrient levels will support increased potash consumption in 2024.
We project global potash shipments next year in the range of 67 to 71 million tons with the majority of year over year growth in Southeast Asia, Latin America, Europe and India.
Global ammonia supply has been tight to start the fourth quarter due to outages in Europe and production challenges in other key regions.
Urea markets are relatively balanced as Chinese export restrictions and strong import demand in India offset weaker seasonal demand in other regions.
You have political conflicts have the potential to create additional volatility for global energy prices and nitrogen supply.
Sure.
Most notably European natural gas prices have increased by 20% over the past month and nitrogen production in Egypt has reportedly been curtailed due to gas availability.
To summarize agricultural fundamentals remain supportive and we are seeing strong demand for crop nutrients and from our grower customers.
Global potash demand has strengthened in the second half of 2023, and we expect this trend will continue into 2024.
And we anticipate constraints on global energy and nitrogen supply will continue to provide a positive backdrop for our low cost nitrogen assets.
I will now turn it over to Pedro to review, our guidance assumptions and capital allocation plans.
Thanks, Ken I'll start with our updated guidance for potash, we increased the bottom end of our full year potash adjusted EBITDA and sales volume guidance to reflect the strength of our market fundamentals in North America.
We continue to see strong customer engagement and have increased our domestic restaurant surprise for deliveries in the fourth quarter.
Spot prices in offshore markets have been relatively stable and Canpotex is fully committed on its sales plan for the remainder of 2023.
In nitrogen, we narrowed our adjusted EBITDA guidance range as higher benchmark prices offset lower projected sales volumes.
Our north American nitrogen plants are operating at higher utilization rates in the fourth quarter, including Geismar, where we recently completed expansion projects.
We made a decision to bring forward a planned outage at our border side to address reliability issues that impacted production in the third quarter.
We lowered the top end of our retail adjusted EBITDA guidance range to reflect pressure on crop protection margins in South America, and the impact of weaker livestock markets in Australia.
We maintain our outlook for North American retail business. This fall fertilizer application rates have been strong and per ton margins are expected to be above historical average levels.
Based on these factors mutants full year adjusted EBITDA guidance range was narrowed to five 8% to $6 4 billion and adjusted net earnings was revised to 415.
To $5 per share.
Our effective tax rate on adjusted earnings in 2023 has been impacted by noncash impairments and an unfavorable geographic mix of earnings.
We do not expect these to be recurring items and anticipate our effective tax rate will return to more historical levels in 2024.
We are projecting total capital expenditures of approximately $2 7 billion in 2023.
And plan to return over $2 billion to shareholders through dividends and share repurchases.
We are focus is focused on investments to sustain our assets and highly targeted growth projects in our retail potash and nitrogen businesses.
Based on current plan initiatives, we expect to reduce annual capital expenditures to a range of two to $2 5 billion going forward.
In retail.
Our focus is on increasing earnings and free cash flow by enhancing margins and asset efficiency.
This includes investing in our proprietary products production capability and network optimization and digital initiatives, which are all key drivers of organic growth for retail.
We continue to evaluate retail tuck in acquisitions in the U S and Australia, and we will remain selective based on strategic fit and evaluation.
In Brazil, we believe the long term prospects for agriculture are very strong and see opportunities for future growth of our retail platform.
In the near term, we have paused additional investments until there is greater stabilization of the market.
We will utilize this period to integrate recent acquisitions and optimize our cost structure.
In potash, our mid cycle scenario assumes global demand returns to historical trends and nutrient sales volumes in the range of 14 to 15 million tonnes.
This translate into volume growth potential from existing operational capability of one to 2 million tons compared to 2023.
We are continuing to focus on further automation of our fleet enhancing safety and productivity productivity Oklahoma.
Lastly, the nitrogen.
Our priority is to complete in slide brownfield expansion and reliability projects that support our mid cycle sales volume scenario of 11, five to 12 million tons round.
Brownfield projects expected to add approximately half a million tons of nitrogen production capability by 2026 with projected returns well above our hurdle rates.
Back to you again.
Thanks, Pedro I will just make a few final comments.
We are encouraged by the positive market developments over the second half of 2023, and particularly the strength of crop nutrient demand in North America and increased stability in global potash markets.
We're optimistic on the outlook for our business going forward and we will continue to position the company to efficiently serve the needs of our customers.
Our focus is on initiatives that strengthened the advantages of our integrated model drive operational efficiencies and increased free cash flow.
Pedro highlighted we are proceeding with highly targeted investment opportunities and will maintain a balanced and disciplined approach to capital allocation, including the return of meaningful capital to our shareholders.
We would now be happy to take your questions.
Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you have a question. Please press star followed by the number one on your Touchstone.
You've been here at <unk>.
If you would like to cancel your request please press star two.
Your first question comes from the line of Andrew Wong from RBC capital markets. Your line is now open.
Hi, Good morning, Thank you for taking my questions.
Nutrient recently pause on adding some potash capacity, which looks like it was the right decision for the market.
Then.
Now one of your.
Writers BHP announced that they want to accelerate.
Two projects at Janssen.
Your thought on.
Economic rationale for that project, how does new Shouldnt view, the future supply additions to the market and how neutral and we'll respond to those changes in the market and just the broad impacts.
Okay, great good morning, Andrew and thanks for the question so yeah.
Yes, so as we've discussed.
We are in a growing market in our potash business and that's owing to the things that you're talking about growing population decreasing rate of arable land expansion in <unk>.
Back casting over the last couple of decades, we've seen those growth rates to 5% average annual growth rate so that.
As we've talked about we get to the end of this decade and we're at we're at 80 million tons.
So a market that's growing we continue to maintain our 20% market share and we have always had a phase two for BHP bhp's plans and our supply and demand forecast. So I know this is a surprise to us what I will say is you know for our part in our ability to.
<unk> to expand volumes, yes, we paused, but we've talked about our 18 million tons of low cost additional capacity the ability to expand beyond that in a demand environment that is growing.
And I'll also say that so here we are it's 2023, our first production announced jets in 2026.
These are challenging projects, we have 50 years of experience with that in soft rock mining and ramping up in a phase one takes time, it's technically challenging and then certainly going beyond that so we are talking about volumes in phase two that are in the next decade.
In the meantime, nutrient with ours and flexible six my network. The investments we've made in our supply chain our customers around the planet I mean, we will continue to serve those customers as the market grows.
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, maybe to follow up on Andrew's question in terms of potash can you talk about the market balance for potash in 2024.
Can you you've said that you are looking for further demand growth in 'twenty four closer to that.
<unk> 67 to 71 million tonne.
Level. Some some people are concerned about.
A slowdown in southeast Asia because of El Nino.
Indian subsidy seems to be a little bit tepid for potash demand in Chinese inventories are high and so how do you balance that against increasing production and exports out of Belarus and Russia.
I guess the bottom line question is do you see the market being tighter in 2014, and where we are right now thank you.
Yes, a lot going on there Ben Thank you for the question.
We are constructive and it certainly.
The experience, we're having here and 2023, North America, Brazil, where we've seen strong demand and thats on the back of much improved affordability.
Among our grower customers as a peer into 2024 again, we're constructive and I'll hand, it over to Mark Thompson to talk about the details, but we can see that grow affordability continuing we've seen destocking of the channel we've seen some depletion of.
Crop nutrients in the soil and yet some supply side challenges persist, but mark over to you to maybe walk through some of those details.
Thanks, Ken.
Morning, Ben So look maybe we will just parse out your question to a few different pieces I think just to reiterate as Ken said, we have been encouraged by the stability that we've seen in prices in the attractive affordability levels have really accelerated the return of.
Demand to the potash market, which has certainly been a positive in 2023.
Just a bridge to 2024, we've got to talk about 2023, a little bit and I think the story on 2023 versus where we were in August on our Q2 call is really about three markets. So first of all in North America. We've seen continued very strong engagement in North America. Our fall fill program was very very strong.
<unk>, we've seen continued interest from retail customers and growers for product going to ground and things are moving well in Q4, and obviously that whole backdrop has contributed to our Midwest reference price moving from Phil.
Phil value at $3 70 to two increases since then and most recent reference price in the Midwest achieved at that $420 per short ton level. So North America, certainly has been a positive story in 2023.
Two markets internationally that have really contributed to that demand growth.
In 2023 versus prior expectations are Brazil, and China and overall in Brazil, We've continued to see very good engagement on fertilizers and despite the fact that growers are still a little more hand to mouth in that market. We're seeing consumption levels back at 2021 levels, which is a positive indicator and.
Trade in recent weeks has been relatively thin, there, which is normal but if we look at inventory levels in Brazil. There are similar to a year ago, but significant imports are required over the next two months to meet demand for <unk> and if that doesn't materialize inventories will be very very tight. So we expect a positive transition on the demand side in <unk>.
Brazil heading into 'twenty four.
Coming to your question on China, because Thats also part of the 2023 story really in China, I think 2020 Three's Big increase in shipments is primarily due to two factors. The first is that apparent consumption in China. Just generally is very strong across all the nutrients were looking at consumption levels that appear.
B demonstrating growth of about 5% across the board and domestic production in China is down and our expectation somewhere between 750001 million tons. This year.
So that's all led to inventory is actually in September.
<unk> had.
It had been drawn down to levels just below $2 5 million tonnes now we do expect that by the time, we get to the end of the year. Some of the shipments will have gone to rebuilding inventories to some extent, but as we look to 2024 as you would see in our materials, we do project a bit of a step back in China next year. So other markets are really.
Driving that growth in 2024.
Those markets that we've called out then in 2024 really our South East Asia.
India, Europe and continued growth in Latin America. So to your question on Southeast Asia in 2023 shipments were down in southeast Asia quite substantially and we've seen conditions improve inventories.
Inventories have been drawn down in southeast Asia, we've seen from Canpotex indications of good interest returning in Q4, we've seen interest already in Q1.
Palm oil prices and rice prices and fundamentals in particular are very strong there. So we do expect a rebound in shipments of course to your point watching dryness in the region as a risk factor will have to watch, but given the depressed level of consumption in that market. This year, we do expect.
A meaningful rebound there next year.
You also asked about India in your question, we expect growth in India next year.
While Indian inventories are.
Improving as of recent months, they are still relatively tight and even with the subsidy changes I'd say those were about as expected for us importers are still making just over a 10% margin in that market and shipments in 2023 were depressed by historical standards. So we do expect good things in 2024 in India.
And Latin America, obviously this year has been a positive surprise, we expect continued growth there as I've outlined and then in Europe. Europe's in other market that has worked through its high cost inventory and in Q4, we've seen good engagement. So as Ken said, when we transition into 2024, we see demand stepping up at the midpoint by another 3 million tons next year.
Which will further support market fundamentals.
Your next question comes from the line of Jacob bout CIBC. Your line is now open.
Good morning.
I had a question on the nitrogen divisions I think this is the first time that I've seen three outages in the same quarter.
How much of this is coincidence.
Maybe just talk through any maintenance or reliability issues.
And then any comments on Trinidadian gas quite contracts that availability.
Oh for sure Jacob Thank you for the question. So yes, we had outages at our Geismar Borger and Trinidad sites and varying reasons, there, including some of it some of those that you mentioned, yes. We are also in the middle of a contract negotiation with the National gas company in Trinidad I'll hand, it over to Trevor Williams.
Our our president of the nitrogen business to talk about those pieces.
Hey, good morning, Jacob and thanks, So a couple of comments so year to date actually the majority of our assets are actually run quite well, averaging about 97% capacity utilization.
Excluding our planned turnarounds however, as folks have referenced we did experienced some issues at three of our facilities primarily turned at borger at Geismar.
Now at our Geismar facility typically historically, a top quartile performer.
We just.
Undertook on and completed a five year major overhaul here in Q3, however, during the outage and coming out of it we did experienced some issues with some large rotating equipment as a result of some some quality challenges, which did force us to come back down a couple of times to address those.
Thankfully those repairs have been completed and now the site is back up and running well and the new capacity Debottleneck capacities.
In Trinidad just really comes down to a story around some of the challenges around some of the gas curtailments.
We did experience several I'll say deeper curtailments through the through the year that forced us to take some plants offline as a result of cycling those plants. We did experienced some equipment failures that required us to come down to to make some repairs.
Those repairs are underway and we expect the site to return to normal levels of operation here in November.
And as Ken alluded to we are working with the natural the national gas company to develop more effective ways are going forward to manage some of these curtailments.
Such that we don't compromise the Trinidad facility here going forward and in addition, with some of the recent announcements related to longer term gas supply. We're optimistic of returning back to full capacity over the course of the next couple of years and we will be taking steps to prepare the site in terms of being able to take maximum advantage of that opportunity.
And then finally from our Borger perspective.
We did have several reliability equipment related issues that were scheduled to actually to be addressed in our 2025 turnaround.
However in order to reestablish the reliability of that facility and safe operation. We did elect to take an outage here in Q4 of this year or two to address a number of those operational risks and really set the site up here for successful <unk> going into the next major turnaround.
And then finally, just a couple of things in terms of overall reliability program. Just wanted to highlight the first thing obviously is really prioritizing our capital to focus on increased uptime and efficiency, obviously, managing the risks associated with our facilities.
Really doing a lot of work in terms of enhancing our reliability program using data analytics people skill development and some organizational structural changes within the organization of the company and then finally, which is a really a big step forward to us as is around external monitoring troubleshooting and optimization.
Through our recently commissioned operations or remote operations center in Loveland, Colorado.
And finally, we just put together over the course of the last couple of quarters and infield their reliability task team, that's really been put in place.
To drive operational improvement through targeted reliability initiatives across the organization.
So if that gives you a good picture in terms of the reliability front and thanks for that in terms of Trinidad gas contract. We're in the final stages of finalizing the contract with the National gas company, and we expect to be announcing something here in the short term.
Your next question comes from the line of Joel Jackson from BMO Capital markets. Your line is now open.
Good morning.
Usually when the potash corporate nutria and you see global shipments rise so much since you hold the excess tons, usually you're getting disproportionately share. This year, obviously I guess, the belarussian picked up as they've gone up to 80, 85% of capacity utilization sorry, So now you're modeling a very bullish outlook next year for 3 million tons.
Further potash demand next year, how much of that 3 million tons.
In your model are you, assuming neutral and should be able to benefit how much more you think there always has to go through how much of the three next year should we assume in your base projections nutrient should get.
Good morning, Joel Yes. Thank you for the question so yes.
Obviously, when we say $65 67 million tons. So that's up from last year.
Yes, it's nutrient as I mentioned earlier, we continue to maintain our market share. So we have been we have been deploying our tons into the market.
There have been a few challenges this year as soon as I'm sure you know with the logistics side of our business and we are talking about canpotex and the strikes that we saw on the west coast.
H certainly challenged our volumes and we did have a volume impact there.
Those shipments have returned to normal, but we're still dealing with canpotex is still dealing with an outage at its Portland facility, which that work has been underway to get it back online, which we expect to happen by the end of the year, but there have been there have been volume impacts associated with both of those outages.
Yeah, as we peer into 'twenty 'twenty, four and talk about 67% to 71 million tonnes.
And with what we believe will be some ongoing challenges with FSU exports and it's not to say that we don't plan for those exports to come back over time, but we expect that next year, there still be some of those challenges.
Yes, Canadian potash and nutrient potash will play a role certainly in and filling some of that void.
Your next question comes from the line up Vincent Andrews from Morgan Stanley. Your line is now open.
Thank you and just kind of wanted to follow up on that in terms of your expectations for that normalization of Russian and Belorussian supply and it seems like maybe they as we move through the course of this year they were able to export a little bit more than you thought.
And it seems I'm wondering if that's again going to be the case next year versus what you thought 369 months ago.
And if that's true.
Is it it's allowing them to get more product out faster than you previously anticipated.
Yes, Thanks, Vincent for the quote.
For the question yes.
What I'll say is yeah.
Yes. It certainly those volumes are at the top end of <unk>.
What we saw coming out of the region. This year I mean, there is of course, a lot of uncertainty associated with this and yes.
Yes, we see volumes going into China via rail from Belarus, albeit at $280 a ton, we think to deliver to that part of the world and we saw that we see depending on the Chinese domestic price, we see those volumes coming up when it's affordable and coming back down again, when it's not so and then there's the <unk>.
Shipments sort of off the coast, Russia, So a lot of moving parts as I said at the high end of the range. The reality, though is there are there continue to be sanctions against the belarussian Zen.
The terrible conflict and that carries on in eastern Europe. Aside those sanctions were in place prior to this conflict. So we think there'll still be challenges I'll hand, it over to Jason Newton to maybe talk a little bit more about some of those details.
Okay. Thanks, Ken Good morning, Vincent Yes, if we look at the <unk>.
Exports coming out of Russia, and Belarus whats been.
And the majority of the increase that we've made quarter over quarter for 2023 has been from Russia, and what we've seen there is particularly.
<unk> has been operating at a higher operating rate than we would've expected and shipping more out through <unk>.
St. Petersburg now if we look forward to 2024 as mentioned, we'd expect that volumes will continue to increase.
From Russia.
But actually there's less potential growth there to get back to pre.
<unk> levels than was the case before and so.
Incrementally, we would expect somewhere in the range of 1 million tons additional supply.
Can also mentioned dollars continues to be constrained and actually if we look back.
At the monthly shipments that we've seen out of that region really since the end of Q1, it's been relatively steady volumes.
And as the Chinese contract was signed we've really seen a prioritization of shipping the lowest cost logistical routes, which are through St. Petersburg, and bronco and less through the other Russian ports, which really limits the upside on logistically, we believe and the volumes that can get to.
Art.
Through the summer months, a little bit of higher volumes moving into China is the strong demand as mentioned that we've seen seasonally in China that supported prices and volumes in that market led to a little bit higher volumes moving into China, but again, that's a high cost to serve location that the rail distance just to get to the border is.
10 times, what it would have been to get to quite paid a port and to get to the port warehouses in China to cost to serve in the high two hundreds.
On a per ton basis. So it's it's a high cost regions to get those volumes out and so as we look forward to 2024, we don't expect.
Significant increases in the belarussian volumes that we've seen although as a whole with the region will continue to watch and likely to continue to be variable from month to month, depending on downtime that's taken in end market conditions through the year.
Yes.
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.
Your ability to move record volumes in the face of the logistics constraints you outlined is impressive.
Perhaps at the risk of being too granular can you maybe give us the latest update on when precisely you expected Canpotex terminal will be back up and running and just want to understand the potential risk for not being able to serve the demand you're speaking to and just as a related question. How do you feel about the relative price spreads were starting to see between North America and Asia.
You've described it.
Robust demand environment. There do you expect to see some normalization of those spreads over time. Thanks.
Yeah, great. Thank you so yes with respect to.
The logistics piece, yes, our supply chain and Canpotex is supply chain in light of some logistics challenges that we've described but also.
Low.
Low river levels, along the Mississippi is made barge movement very difficult, we've seen challenges with rain in the Panama Canal and obviously.
Bottlenecks, there, but given the investments that Canpotex has made both on the west coast, but of course on the east coast as well and then with our vast network throughout North America, we have been able to meet the needs of our customers and I think it just demonstrates the resilience of.
<unk>.
Of our network in all backed by obviously, our six mines as well so.
Yes, we have been able to like I say meet the needs of our customers with respect to the Portland outage I mean, as I said Vancouver.
The <unk> terminal in Vancouver, our Neptune Canpotex as Neptune terminals back at normal operating rates and we expect Portland to be backed up by the end of this year. So that peering into 2024, we expect to see full export capacity through the Canpotex terminals.
Can we talk about the spreads.
<unk> North America and Asia.
Of course, these are granular markets versus standard grade markets.
There is a distinction there where.
We've seen this very strong demand in North America as we've.
Certainly heading into the fall application season in that.
That is our largest.
Granular market and as we said earlier, we're expecting we're expecting a strong fall with respect to the standard grade markets. We've talked about those in terms of Chinese consumption, we've talked about southeast Asia, and we expect to see there is could we see a narrowing of those spreads.
We could in 2024, but I think it's really a.
Distinction between between grades.
Our next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.
Yes, Thank you and good morning, everyone.
I was hoping to maybe digging a little more on the retail side and I know you gave some color on crop protection kind of vertical in the prepared remarks, but can you just talk about where you are.
Channel inventories at least in your retail system are in North America, Australia, Brazil kind of looking through looking through the end of the year, how you've seen.
Grower behavior change if at all this year.
We've seen based on some of the suppliers that it's not just the distribution chain thats been slow to purchase products and.
If you think they are you getting to a normalization point.
Looking into next year that'd be helpful. Thank you.
Great. Thank you Adam for the question, yes crop protection inventories have been drawing down in North America, Although we will continue to be quite selective there I would say opportunistic.
In Brazil, where we're still working through some some higher cost.
Inventory, but I'll hand, it over to Jeff <unk> to talk through all of that.
Good morning, Adam.
As Kent, just said we came into the year work diligently to get our crop protection inventory down I think we've done a good job year to date.
All of that we've drawn I inventory down in our retail business about $200 million below where we were this time last year.
Sitting in real good spot in the U S market.
Kian and Pedro mentioned in their commentary.
And market a bit more difficult more product in the channel. There we think by the end of the year in our retail business. We have we would have worked through the majority of that crop protection inventory.
In the Brazilian market.
We look for.
Power side of things just can't say it will be we'll be very selective and opportunistic.
On our purchases in the fourth quarter and I do think you used the word normalizing.
I do think that.
Purchases supply demand has normalized over the last 12 months and.
Growers don't Theyre not as keen to purchase ahead of time right now because they're not as worried about supply in inventory from that from that standpoint.
At the same time, we've seen our margins on crop protection normalized very nicely from the first quarter as well.
Your next question comes from the line of Steve Byrne from Bank of America. Your line is now open.
Yes, Thank you Ken.
I'd like to tap into your Breen from your old Canpotex day with respect to the current pricing in potash.
If you were to think back a few years and see a scenario where.
Plenty of John's assets, you could be down say 5 million tons for the coming year.
<unk> got a little bit coming out of loss, but you clearly have.
A supply shock.
You've got favorable fundamentals and the World would you would you expect canpotex to be.
Sold out for the rest of this year.
And spot pricing in some key markets to be what looks to be fairly modestly above level.
Levels from two years ago before the supply disruption is that logical to you.
Yes, good morning, Steve and thank you for the question so.
What I would say is in the dynamic and the volatility since this conflict in eastern Europe started and all of the supply side events that followed.
Hum.
I have just created a situation where we saw the big inventory movements at the start of this conflict, where there was concerns about supply and.
Those rushing into the market because those are great example of that building inventory in all of the impacts on price that followed which from a grower affordability point of view, while the fundamentals in agriculture were and continue to remain very strong from an affordability perspective, I mean prices just reached.
To a level where affordability was compressed.
We saw that buyer's strike as a resulted we saw that buyer's strike in North America, we saw it in Brazil, and we saw that continue until those inventories had been drawn down and we've been watching those inventories coming.
From market to market.
And as those inventories coming down of course, no one stepping in until we're able to sort of see an inflection point.
And so thats.
I believe we can characterize the last 18 months along those lines and then where is that inflection point or what is stability look like and I think.
I would say Steve from a Canpotex perspective, peering now into 2024 and as we talked about.
Very strong consumption in China, this year and as we talked about southeast Asia stepping out of the market and really now with the CPO prices rise prices being where they are at and expectation that.
Is there going to be stepping back into the market with Europe, having cleared higher price inventories with India actually I think we believe suffering yield losses because of lack of crop nutrition.
And stepping back into the market, we're constructive on 2024.
While yes, canpotex is placed volumes and committed through the end of the year as markets have been stabilizing in us.
That's continuing to run our fixed cost.
My network of low cost production.
This is this is where we are but yes, we are peering into 2024.
We're expecting even more normalization across those markets. So yes, it's been an interesting and volatile 18 months, but but here we are in constructive on 2024.
Your next question comes from the line of Michael <unk> from TD Securities. Your line is now open.
Thank you within the nitrogen business. The brownfield projects that were completed in Q3 can you talk about how much incremental annual production volume those contribute to nutrient.
What you're expecting to add in terms of volumes in 2024 from any additional projects.
Perhaps the settlement of the gas contract in Trinidad.
And then kind of bigger picture.
Any commentary you can provide on how you're thinking about year over year nitrogen volume growth in 2024 versus 2023, both for the overall market and specifically for nutrients.
Yes, Thank you, Mike and and yes.
We certainly expect increased volumes in <unk>.
2020 for getting above 11 million tons, but I'll hand, it over to Trevor Williams to talk about some of those details alright. Thanks, Mike a couple of thoughts here so with the Debottleneck. So we did this year, we'll add about in the range of about 150 to 200000 tons. This year, mostly in UAE.
Little bit on the ammonia side, but again most of this year from the from the work that we did at Geismar earlier in the year.
Going into next year, we do have a couple of small debottleneck as well it's on the smaller volume of 40 to 50000 tons it'll be completed mostly on the ammonia side in the Alberta system.
But if you think about where.
Our glide path is.
This year, we provided our guidance in the range next year, we think we'll be in that kind of a little bit above the 11, or 11 9 million tons and as we look forward to 2025 2026 getting back to that mid cycle expectation of being in the 11 five to 12 12 million tons on a run rate going forward Mark maybe.
Over to you just in terms of some of the comments in terms of the market. Yes sure. Thanks. Thanks, Michael for the question look I think Trevor summed up the volume story really well from a nitrogen standpoint overall of the market's quite constructive generally we've seen supply constraints.
In urea and ammonia around the world playing a role the last several months and that's led to a significant tightness in the market I think much as Ken has described here. This morning, just generally from an agriculture standpoint in North America.
Things are quite positive from a nitrogen standpoint I think.
As Jeff Archie would probably tell you, it's a little bit early to call acreage shifts for next year, but we do still expect healthy corn planting and strong agricultural nitrogen demand next year I think just double click a little bit on where things are in the market certainly from an ammonia standpoint on our Q2 call. We had articulated that we felt ammonia was fun.
Mentally undervalued given the tightness in the market and we've certainly seen things firm up here over the last several months, which really hasnt been a supply driven event and so ultimately we've seen ammonia now come back into balance from a from a value on an end basis with urea and <unk> and we do expect good.
Fall applications here across the nitrogen complex as we move through the rest of Q4 and I think the setup looks pretty good pairing.
Peering into Q1 next year.
Okay.
Your next question comes from the line of <unk> <unk> from Wells Fargo. Your line is now open.
Great. Thank you. So I just wanted to circle back to potash demand in sort of your expectations going forward. So 2024, basically around 67 to 71 million tons of demand.
Then on the supply side potentially at least one to 3 million more tons or supply from eastern Europe.
Just wanted to know your thought process in terms of how you think about the expansion plans and when we should think about maybe you're starting to move forward more quickly on the 14 to 15 million tonne target.
For mid cycle and also just on the follow up.
Is the Capex guidance for say two to $2 5 billion going forward include any spend for growth either in potash and nitrogen or is that.
Essentially sustaining capex. Thank you.
No. Thanks for the questions rich so yeah with respect to.
2024, and our potash expansions when we talk about in the mid cycle in our business. I mean, we would say that that's 14 to 15 million tons of capacity that we have available to put into the market and as it relates to 2024, yes, we expect demand to continue to grow we expect it to continue to grow.
<unk> 2024 of course, and then as it grows we're going to we'll maintain market share will continue to meet the needs of our customers and as our customers are calling for volume. So we will get those volumes into the market. So we absolutely believe that.
We're on a growth trajectory here and that will be able to deploy our.
Additional low cost tons into the market as we talked about the two to $2 5 billion.
On the Capex side and absolutely as we look at the investments that we're making in potash today, we feel comfortable with the volumes that we've had hence we talked about the pause in deploying capital toward increasing expansion in this moment of course, we can return to an expansion trajectory.
With low Capex to go beyond the 40% to 50 million tons as we watched the market evolve and as our customers are calling for those tons, but again for today, we feel comfortable with the investments we've made where we are deploying capital in potash is the ongoing work with associated with automation associated with predictive maintenance in advance.
Process controls of course, the automation work in addition to having the big safety benefits has productivity benefits and where we are.
We're in the process of realizing those benefits actually as we speak as we deploy automd.
Automated mining machines, and our five underground mine. So so certainly that part of that.
500 million that we talk about investing capex growing our business part of that is in the automation work that we're doing in our in our potash network.
Your next question the line of Josh Spector from UBS.
Good morning. This is Lucas Beaumont answer Josh So just sticking with potash.
Tough I mean, six to 7 million tons of capacity there.
Cost catheter accelerates pretty rapidly in terms of the cash cost for sales are 250 range. So with the incremental capacity coming from the two sizes with HP plus a roar back in that set of Russia and Belarus.
The end of the decade.
Yes, I mean, it's pretty much equivalent to kind of what would be <unk>.
10 years of demand growth kind of historically and that's not counting any of the other smaller projects at <unk> diagnostics.
Come on line so.
Do you think that top portion of supply is going to get pushed off at Costco.
And if that.
I mean that would seem to imply that pricing support is really kind of.
Back at 2016 to 2019 wise versus sort of what you guys are assuring that figure at mid cycle pricing.
Which is quite a bit higher than that so if you could just kind of curious your thoughts there on the dynamics and how you see that evolving and it'd be great. Yes. Thank.
Thank you Lucas and I think you've described just a number of moving parts there that yes.
Yes, I would say have a lot of unknowns and risks associated with them again, we would.
A lot of conviction around the fact that we're in a market that just continues to grow and we can we can continue to talk about the reasons that it's growing but.
For disease resistance drought resistance yield.
Potash is going to continue to be used in.
Again, we've seen that those growth rates over the last few decades and looking forward. We just have a lot of conviction that that's going to continue to be true. So taking that assumption and then looking at the supply side. We do know that some of this FSU planned new plant production.
As in the pipeline to come to the market is delayed it is in fact delayed and.
It's delayed probably measured not in months, but in years and so as that new volume is pushed out of course that creates room in the market. Yes. There is an announcement of phase one into phase II at a new Saskatchewan mines, but I'll just say again.
We are we've looked through our risk lens associated with bringing on those types of volumes in soft rock mining and soft rock mining is a lot different than hard rock mining I have done both.
And.
Those are those are challenging mines to bring on stream. There's always unknowns, then theres always some surprises so.
As we we factored in a phase II from BHP into our plants, all along but as we factor in these new volumes, we are applying our own lens, which would say.
At the end of this decade, the start of the next decade that you put it all together and certainly we believe there is room in the market for these tons. There is room in the market for our <unk>.
Growth with our customers in the market and we're not talking about knocking somewhat off the high end of the cost curve.
There are no further questions at this time I will now turn the call back to Jeff Holtzman. Please continue.
Thank you for joining us today, the Investor Relations team is available if you have any follow up questions.
Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.