Q3 2024 CF Industries Holdings Inc Earnings Call
Speaker Change: Good day ladies and gentlemen and welcome to CF Industries first 9 months and third quarter 2024.
Speaker Change: All participants will be in the list in only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
We will facilitate a question and answer session towards the end of this presentation.
Speaker Change: The pose of question at any time, please press star then one on your touchdown phone.
Speaker Change: I would now like to turn the presentation over to your host for today, Mr. Martin Jarosick with CF Investor Relations. Sir, please proceed.
Martin Jarosick: Good morning, and thanks for joining the CF Industries earnings conference call. With me today, our Tony Will, President and CEO, Chris Bohn, Executive Vice President and Chief Operating Officer, Bert Frost, Executive Vice President of Sales, Market Development and Supply Chain, and Greg Cameron, Executive Vice President and Chief Financial Officer.
Martin Jarosick: CF Industries reported his results for the first nine months and third quarter of 2024 yesterday afternoon. On this call, we'll review the results to discuss our outlook and then host a question and answer session.
Statements made on this call and in the presentation on our website that are not historical facts, are forward looking statements.
These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements.
Martin Jarosick: More detailed information about factors that may affect our performance, maybe found in our filings with the SEC, which are available on our website. Also you'll find the reconciliation between gap and non-get measures in the press release and presentation posted on our website. Now let me introduce Tony Will.
Thanks Martin and good morning everyone.
Tony Will: We are an organization that pride itself on parallel operational excellence, our asset utilization, and our safety statistics are truly world-class.
and so it is with great sadness that I have to report in early October. We lost a member of our team at Donald's movie, Sienna, due to a fatal vehicular accident.
Martin Jarosick: and Arthur Whiff and our hearts go out to his family, friends and colleagues.
This is a tragic reminder about why we put safety first and the importance of not being satisfied, who are becoming complacent with historical performance, but are need to remain focused on the present in everything that we do.
Martin Jarosick: and Confin in our team will learn from the strategy as we work together to ensure all our colleagues remain safe every day.
Martin Jarosick: i
Turning to earnings, yesterday afternoon we posted results for the third quarter of 2024 in which we generated to just a 511 million dollars. This private just to give it to us for the first nine months of the year to 1.7 billion.
Additionally, already but thought of catflow conversion efficiency remains strong, and we ended the quarter with more cash on the balance sheet than we began with. Even after returning $580 million to shareholders through shared purchases and dividends.
We are very pleased with where our businesses today. Our team is operating well, global nitrogen demand remains consistently strong, and we continue to make progress on our strategic initiatives.
with Adelton to the over to Chris to provide more details on our operating results. Chris.
Chris Bohn: Thanks Tony, our manufacturing and distribution teams managed operations well through an event filled third quarter as we performed our highest level of plan turnaround activities for the year. We also experienced minor production impacts in Louisiana from Hurricane Francine in September.
are Donaldson Bill and Wagman teams didn't outstanding job safely shutting down and starting up those facilities, limiting the downtime from the storm.
Despite these events, our ammonia utilization rate for the third quarter was 93%. For the full year, we continue to expect to produce approximately 9.8 million tons of gross ammonia.
are strategic initiatives continue to advance.
Construction of the Dehydration and Compression Unit for our Donaldsonville Carbon Capture and Squestion Project is on track. Start up for sequestration by X-on mobile and 45Q tax credit generation. It's expected in 2025.
Additionally, commissioning of our Green ammonia project that Donald some Bill continues.
Finally, our evaluation of a Greenfield Low Carbon Immunip plant is advancing well.
Chris Bohn: with a final investment decision expected in early 2025. We are a nearing completion of our auto thermal reforming ammonia plant feed study, giving us greater clarity on the capital required to construct new capacity.
Alongside this, we continue to have productive discussions with our potential equity partners, other interested parties that continue to emerge and prospective long-term offtake partners.
We continue to assess where the global nitrogen supply demands balance will be when a new plant would come online.
As we look at it today, we expect a tightening global market over the next few years, as projected new capacity growth does not keep pace with demand growth for traditional applications, much less for new clean energy applications.
Speaker Change: with that. Let me turn it over to Bert to discuss the global nitrogen market.
Thanks, Chris. Our team at an active quarter that is positioned as well for the rest of 2024. Our UAN and ammonia Phil programs were well received by customers and achieved our targets.
We then continued to take new orders as global prices rose, pushing the order book well into fourth quarter. This result is in much lower than normal inventory in our system, and we believe inventory is low throughout the North American nitrogen channel as well.
Strong Uptake, and our Phil program suggests good demand for nitrogen in the months ahead, including for follow-in-one applications if weather cooperates.
White U.S. crop prices that are under pressure from projected large harvest. Today's nitrogen prices continue to represent good value for farmers. As a result, we currently expect North American plant at acres in 2025. Across all major crops will be similar to this year.
Globally, the nitrogen supply demand balance continues to be constructive. Yuri exports from China are 90% lower through September than the prior year, and as unclear when Chinese producers will be allowed to resume exports.
Speaker Change: Additionally, lack of natural gas for nitrogen producers and trinidad in Egypt reduced available supply in the third quarter, at a time when we typically see lengths in the global market.
At the same time, demand has been robust. Brazil and India both appear to have significant area import requirements to be met through the first quarter of 2025.
We also have seen strong demand from smaller importing countries. These include Australia, Thailand, Mexico and Turkey among others that have increased consumption over their three year averages.
Against this backdrop, our manufacturing network remains firmly positioned below and the global cost curve.
Orward Energy Curves, continues to suggest substantial energy spreads between North America and Europe, where the industry's marginal high-cost production is located.
As a result, we expect attractive margin opportunities globally for our business in the near and longer term. With that, Gregory cover our financial performance.
Thanks, Bert, for the first nine months of 2024, the company reported net earnings attributed over the common stockholders of approximately $890 million. We're $4.86 per diluted chair.
EBITDA and adjusted EBITDA were both over $1.7 billion.
The third quarter of 2024, the company reported net earnings attributable to common stockholders of approximately $276 million, or $1.55 per day, loaded chair.
Iberda and I just did Eberda, we were approximately $510 million.
As you can see on 5-5, our third quarter results benefited from higher average selling prices.
Speaker Change: which were driven by our Monus segment.
Speaker Change: and Lower Realized Gas Costs when compared to the third quarter of 2023.
Over the past 12 months, our net cash from operations was $2.3 billion. And free cash will was approximately $1.5 billion.
Our free cash flow to adjusted you without conversion rate remains strong at approximately 65%.
This cash flow enables us to return substantial capital to our shareholders through share purchases and dividends.
Speaker Change: Since the start of 2024, we have repurchased nearly 15 million shares for more than $1.1 billion. Reducing our share count by 7.5% over that time.
Speaker Change: We have just under $1.5 billion remaining on our current share, repurchase authorization, which we intend to complete before its expiration in December of 2025.
Based on our current market capitalization.
This gives us the capacity to reproduce about 10% of our outstanding chairs through the end of next year.
with that Tonya provides some closing remarks before we open the call to Q&A.
Thanks Greg, before we move on to your questions I want to thank the entire team here at CF for the hard work and contributions in the third quarter.
In what is typically our seasonally lowest volume and price quarter, their efforts enabled us to generate enough cash to cover capital expenditures, return nearly $600 million to share holders through shared purchases and dividends, and end the quarter with more cash than we hit.
We remain positive about the near and longer term outlook for the company.
Global Nitrogen Dynamics Remain consistently strong.
Speaker Change: Longer term discipline investments in low carbon ammonia production, provided a robust growth platform for the company.
and the United States. Taking together, we expect to continue to drive strong cast generation and create substantial value for shareholders.
with that operator we will now open the call to questions.
Speaker Change: Thank you.
People now begin the question in answer session.
and you may press star, then one on your touch tone phone.
The first question comes from Chris Parkinson with credit suede. Please go ahead.
and Chris Lee. So, sorry guys, you know, why do you just set that and look at the supply to Ben Dynamics?
You've lovely supply out of China, Europe, some gas issues and try to get you just a sort of demand for the solid. Tony, when you take a sit back and look at the current dynamics in the 2025, your perspective cash flow.
versus, you know, obviously someone's certain dealer card in USL and G because party on G towards the end of the decade.
How do you calibrate your own fall process in educating that capital? In terms of your task, you can perspective the gender in the next six to twelve months. You know, to basically build a new network for the rest of the decade, just any fall for it would be very helpful.
Yeah, Chris, I would say, you know, we have a bias towards deploying capital back into the business for growth. If we find projects that we think can earn a rate of return that's above our cost of capital.
Speaker Change: and so our bias is definitely toward growth as a first step and then certainly returning excess cash to shareholders.
As Greg said during his remarks, we have just under $1.5 billion left under a Sherry purchase authorization, and we expect to be able to complete that.
by the next year and that should drive an incremental, you know, approximately 10%.
and Christian in terms of our shares. And so we're excited about.
Both the growth aspect, as well as our ability to take shares out of marketplace and both of those things we think will drive value for shareholders.
I just said quick follow once again, just taking a step back. The first quarter obviously is in which it turns a third quarter, obviously her cancer.
Speaker Change: and I'm a boy at the time, if you see, you know, when I look at the 2025 and you know, the 2025, the 2025.
Speaker Change: Do you think Twitter and I activity will be at the same level, so I think it will be lower in terms of how much more can you have maximized profitability based on a current nitrogen price tax without all those obliges and how we should think about that framework ahead of the end of the next year.
Speaker Change: Well, I mean, certainly our hope is that we don't repeat the winter storm freeze off that we had in the first quarter or the hurricane outages that we had in the third quarter. But the operations team...
Speaker Change: Tries to manage.
Arturner Out Activity, to be relatively consistent year on year on year.
Speaker Change: So we're not.
Speaker Change: You know.
Throwing the system way up and way down, but we're trying to level load it. Now that's not always possible because...
of the timing of when things come and we do have a couple of larger plants that when they go through turn around have a unnoticeably big impact. But I would say...
We pretty much year in and year out going forward should be producing in the neighborhood of about 10 million tons of ammonia and then will upgrade, you know, as much that as our upgrade system can manage.
Speaker Change: Um...
Speaker Change: and then the other piece of it to think about as we get into next year is we'll begin generating
Speaker Change: Under the annualized basis, an incremental roughly $100 million of cash through the 45 Q Tax Credit as we start squestering CO2. So that's on top of the base business. And again, we're pretty excited about what that looks like.
Speaker Change: Thank you so much.
Speaker Change: Thank you.
The next question comes from Steve Bern with Bank of America. Please go ahead.
Yes, thank you. You're press released for by this gross margin, creating tons of product.
Always very interesting in the one that just jumps out is...
Speaker Change: is your DES.
Speaker Change: and was just curious whether...
you know what your view is on the outlook for.
Speaker Change: for DEF and maybe more specifically this problem that occurs with crystallization and so forth is that is that.
Speaker Change: You know, poor quality DF is that all DF did, does that affect you and is there a resolution of that down the road?
Good morning, Steve. This is Bert and regarding your question on DEF and the opportunity for CF
We've continued in the Western Ed business since we acquired Terran 2010 and it has been an exciting path and growth vehicle for us.
where we're projecting to be close to 800,000 tons of Yeria equivalent product that trades at a substantial margin increase over granular Yeria.
So what we've done is when we looked at our platform we have capacity in several replants Court-Right, Gaza City, Woodward and the substantial capacity in Donald's of Bill, and which we're augmenting and added to the system with real cars.
The exciting part of a DEF is the dosage rate because when we first acquired this business
It was at a fairly low percentage and what it was cutting out in terms of pollution.
where today the projections on dosing rate increases to 5 and even higher than that percent.
Just looks at the doubling where we're projecting that the DEF can demand just a North America to be an excess of 3 million Eriah equivalent tons, and that's from 0 in 2010.
So for us, this is a good platform that works very well into our system.
and we're going to continue to grow with it. Regarding the crystallization, all that Chris made for that. Yes, the related to that, there's very high specs required for DF and the product. And we have an experience that many of that I think.
The one thing that we've seen is we've always been very diligent about our testing requirements for that. So the issue you bring up, we're not all that familiar with because it hasn't affected any of our product.
Speaker Change: Very good.
Speaker Change: and...
Speaker Change: I'd like to ask a little bit about the Donaldson's Bill project.
that you're working with, Exxon, and do you have any visibility on when they can get a class section well? Is that just an unknown and does that prevent you from...
Essentially lining up customers for this and or do your customers.
You know, need to invest on their own sites, see their first storage or to use it as a fuel. I'm just curious if something...
is this moves forward in some time in 2025, or are you going to be in a position where you could start loading a marine ship in other words. Thanks.
Yeah, so we are confident that in 2025 we'll be one sequestering CO2 and to receiving the 45 Q Tax benefit, you know, one of the reasons
Speaker Change: We chose Exxon as our partner is really just the vast flexibility and alternatives say have. If you recall their acquisition of the former Denvery pipeline, which is...
Almost a thousand miles of CO2 pipeline.
gives him quite a bit of access to more than a point to point storage wealth so they could have wells that they have in the queue right now from Louisiana all the way to Texas and all along that route.
So our confidence level still remains very high. As I said, we're doing a lot of work on our side of the fence and exons actually doing a lot of work and piping on their side of the fence to connect.
So our confidence level remains high there. As far as being prepared to load vessels and ship out, whether it be to Europe or Asia, we expect that to be occurring next year, based on what Bert's team decides is the best use for that particular low-carbon product.
and I would add to that Steve that
On the system side, we've spent a lot of time and effort putting in place all of the necessary system and controls and accounting.
and St. John, for St. John's to be able to not only get the right cue credit but be able to accurately.
Speaker Change: [inaudible]
Speaker Change: Thank you.
We have Josh Spectrum from UBS with the next question.
Josh Spectrum: Yeah, hi, good morning. I wanted to talk a little bit about current nitrogen dynamics, so we're some comments the other day about warmer weather being an issue for ammonia applications in the US later in the quarter and some comments that activity today is as well.
I don't have any different characterization of the market today. And when you talk about tighter inventory in North America, is that something we should expect to materialize in higher prices in the spring or do you have any different view about how that impacts the market? Thanks.
Speaker Change: [inaudible]
Speaker Change: is a 3 to 5 million tons pull which could be up to 10% of global seaborn traded product.
and then you go through different places that have experienced gas issues or high cost gas issues like in Europe where we've seen Yara and others.
Take production offline. You have, I would say, an appropriate or limited supply base is right now. And then when you look at demand with India stepping in for another tender and asking for a million tons to be shipped by Middle December.
and then continued to manned in South America and Brazil and Argentina.
Daniel Rollin, the Q1 for the Northern Hemisphere and we believe that the US and Europe are behind. And so where we are as a company, I mentioned in my prepared remarks that our inventory is limited. It is. When you look at...
Speaker Change: What has been imported and what has been exported for a net balance.
and then work.
and we think others lost in production. We think the nitrogen supply and inventories, whether that be with retailers or with producers, is limited. And so that sets up a positive environment as we head into application season.
Speaker Change: for the spring. Regarding your question about Paul application, that is a due to start about now, Paul application of ammonia.
and the Ambulance temperature and soil temperature around 50 degrees. We're hitting close with that in the northern tier.
Speaker Change: We've had a very good season in Canada and that has a move to the weather, move south and get to cooler. We'll see those applications pick up. The commentary about limited or limiting applications possibly has been soil moisture, not necessarily temperature.
and so what you need for a healthy, I'm only a season is appropriate soil moisture for the ammonia to bind in the soil and that is what we're looking for as these rain patterns sweep across the northern tiers and Iowa then you'll see applications take off.
Over the last several years, applications have gone well into December, and that's the case. Our order book, which we believe is in a very good position. We've positioned product in our terminals, the Ready to Go.
Speaker Change: That will have a good season, probably a better season than last year, and so, and we have those orders already in the system.
Speaker Change: Thanks for your support for context, I'll pass it on.
Thank you.
The next question comes from Joe L. Jackson with BMO Capital Markets. Please go ahead.
Just a couple questions first, a little short term, maybe.
Speaker Change: and I'm telling you this last question. Typically you do more sales in Q4 than in Q3, I think it's in 5 years in row of a higher Q4 than in Q3. Any reason not to expect that this year?
In terms of how we take orders and then move that ton, those tons through the system and as sales.
Speaker Change: Echir is different. So the Phil programs, Tentake, Placy, they're in late Q2 or early Q3. This year was early Q3.
Speaker Change: We built our order book and then continued to take additional orders on top of that bill program. So today our order book, as I said in my prepare remarks, is healthy through Q4 and we're going to start taking Q1 orders shortly based on our price expectations.
and so regarding whether it's bigger or smaller Q4Q3, we don't look at it that way, we look at what we've got, production rates or allocations to tons and we move the tons out in an orderly fashion.
and then on the Greenfield Blue and the Money Project, you're expecting the feed cutties down by the end of the year, any color you can give, maybe higher level.
you know what you need to still to get this approved, your partners capital running through it for a billion, you think that's still reasonable. Anything sort of take up an incremental last couple of months, give us an idea of what we could expect early next year in some or decision making processes.
Yeah, I think the number in the neighborhood of $4 billion on land is an approximate number work.
Finalizing the feed study and that should narrow the range a little bit to a kind of a plus minus 10%.
Speaker Change: Range, but I think as the numbers are kind of rolling up with a bit more uncertainty ranging 4 billion is where we think it's going to come in.
Speaker Change: and at that kind of number, we do think that, you know, that it is a project that makes sense particularly given what Chris was saying about.
Speaker Change: Longer term, the projected growth of nitrogen demand, even in traditional applications exceeds what the new capacity brought online is.
and that's before you get into some of the capacity shut down so we're expecting to continue to happen in Europe and some other places.
and the partners that we're having conversations with. I think are similarly comfortable being able to invest in a project in that kind of range.
and look at a return profile that is, you know, it's this favorable.
So for us to get there, you know, we need to finish up the feed study, we need to try to get...
the Partnership Agreements and all of the ongoing governance and everything kind of put together and then it's going to be a decision for the board ultimately to make. But we're targeting kind of, you know.
Middle First Quarter of next year.
and Tobian position to make that decision.
Chris Bohn: Yeah, the only thing I would add to that, Joel, this is Chris, is that, you know, as we look at our partnership selection, you had brought that up in part of the question
Chris Bohn: We actually have a lot of benefits related to that. Our Japanese equity counterparts that we're in discussions with.
But as Tony mentioned, you know, recently even more industrials primarily due to some of the energy, you know, issues going on primarily in Europe are also stepping into understand the project dynamics.
and in all cases, sort of the capital number range that Tony's putting out there, they'll seem ready to move forward with a project as well on those type of capital parameters.
Speaker Change: Tony Fekkin, get one more in on that. I may have missed totally misunderstood that, but are you suggesting that the economics of the plant around $4 billion might be justifiable even if...
Some of the clean ammonia, a map, and that offense weren't there. I mean, it misunderstood that it's that's what you're trying to get at.
Yeah, I think the way that we're looking at it, Chris, is Joel, I'm sorry, is that with a...
Average sale price in the neighborhood of 450 a metric ton, along with the 45 Q benefit that we would expect to be able to generate.
Speaker Change: That should earn a reasonable rate of return on the kind of investment that we're looking at making here.
Speaker Change: and we believe, I mean if you look at the market today it's well above that now it is, you know, it does move around and when you see a new plant come on like Gulf Coast ammonia or whatever.
Speaker Change: There is going to be some lumpiness and some volatility, but as we project forward, we expect a tightening in the S&B balance even in traditional applications.
and we think the market is going to support that kind of a price. And so even before you get to new applications for Queen ammonia, there's an argument to be made that that plant is just viable.
I think if we are successful in bringing on a couple of potential partners that we are deeply in discussions with that want to take some of that production into brand new applications.
and even justified as it further. So again we're very optimistic about the return profile of what this plant looks like.
Thank you.
Speaker Change: Thank you.
Speaker Change: We have the next question from Richard Garquidoreno with Wells Fargo. Please call it.
Alright, thanks, Gimory. First question, on the United States market outlook, you pointed out county's direct towards basically now expected less than a million tons.
Speaker Change: this year.
What do you think is going on there in terms of how the giant government is thinking? Is this something that you may be extended? It definitely, and you know that.
The Gorts here are comments on the much more tighter outlook going forward, maybe that's the first question.
Speaker Change: We'll be looking at China over the last 20-25 years. We've seen many different China in terms of being the world's largest importer of Urea and the 90s.
Speaker Change: to entering the export market nearly 2000s, to overwhelming the world market with almost 14 million tons of exportable tons.
Speaker Change: in 2015-16.
to slowly ramping that down to 9 to 7 to 5 to 3 to 2.
Speaker Change: Now eliminated.
Speaker Change: and it's been a surprise and something is not easy to predict because as many things are happening in China some of those are opaque or governmental decisions.
Today, the expectation is at least from the investor communities then the next quarter they're coming, the next quarter they're coming, what they have and I think part of that's a reflection of what's going on in China
You're seeing a growth in demand. Today it looks like demand for industrial and ag applications are close to 60 million tons, that's 6,000. That's a gigantic consumer of yurea. And most of that is produced using coal or domestic coal or imported coal.
So I think for the Chinese government they want to keep that product available for their consumers, their farmers, to make the food that they want to make and make that at a reasonable cost.
Speaker Change: To me, that's a rational decision-making process when you're exporting for almost zero value to the world or at least the China and subsidizing the world with cheap yorea. And so another...
Speaker Change: So, a parallel path on this has been the exported tons of ammonium sulfate out of China that have grown substantially from several million tons, I think, close to 1617 million tons, a lot of that going to Brazil.
Speaker Change: and secondary markets.
Speaker Change: That's a lot of nitrogen that's still going out of China. And so I think it's...
Well, the market is seeming to project that they'll be able to export tons in 2025. That remains to be seen and will cross that bridge when we come to it.
Speaker Change: Great thanks and then as a follow up just on the clean energy project. I was just curious you know how you work through the feed studies and you look at the environment right now. What's your view in terms of you know the announced?
proposed capacity that's supposed to be coming out from various different companies and startups, you know, the, the, the.
and most of the past years, both be out there for a million years. What do you think is a life we could that maybe half that comes online in a quarter or any kind of level of views on that. Thank you.
Yeah, I think as we look at those announcements, you have to look at them and assess probabilities related to them.
Two years ago we ran all the projects that had been announced globally that were low carbon and there was over 107 projects.
Speaker Change: of which.
We thought maybe less than 10 would actually be built. I would say, out of that list, I would say it's probably even fewer than that going forward.
So those projects, the nice thing about our industry is you have pretty good visibility into new projects starting given the engineering firms that have worked on them. And then also the timeline to build one is 4 to 4.5 years, so that also provides you an understanding of what happens with the S&D balances that develops.
Speaker Change: and really what we're seeing between now and when we would have a new project come online is there is a limited...
Net Amonia production that's coming online. You're seeing here in the US you have the Gulf Coast Amonia that Bert mentioned, which is not a low carbon, but you have the Wood side OCI plant, which we're expecting early 26.
Speaker Change: and then outside of that it's really not until 2028 where Qatar has a project that's announced.
Long way to say we don't believe that the true projects that are moving forward.
is really building that supply side. And that's why Tony talks about is we see longer term tightening in the S&D market, just under traditional application, let alone if we add in any type of clean energy demand to that.
Speaker Change: Great weather.
Thank you. The next question comes from Ventura with Barkley. Please go ahead.
Ventura: Good morning and thanks for taking my question, congrats. I'm a very strong quarter and just a quick follow up as you think about the ammonia segment and the strengths that you add in the quarter which kind of was a little bit of a surprise on the Williams side.
I think at least there is an hours in consensus estimate. So how do you think about just that segment itself, like not the first reprocess, but the ammonia piece and the demand for that as you go into the fourth quarter, and maybe a little bit related to Joel's question, just like the revenue piece that then translates into four cue and as you move into it, how much volume can you actually produce and sell as ammonia now that you have vagabond?
Well, I would compare our products among you, your rea, UA and DEF, ammonium nitrate.
We love all our children and so I've got to give a shout out to the ammonia team of the man to the bomb and try to tell you that I've done a great job and the rest of the sales team this year.
The interesting thing about CF and I think this is one of the undervalued aspects of our company is the flexibility we have in our production locations.
The flexibility we have with our modes, which is truck rail, pipe, barge vessel, and then our distribution system. And so it's by leveraging all those points, then you could become agnostic on the product and focused on the margin. And what product creates the most margin at that time?
because our team is rewarded on the company's performance.
Speaker Change: We've moved tons freely between the segment.
and if that segment is property more than the other and that's what you saw in ammonia with good demand globally. So we've been a fairly large exporter of tons out of Donaldsonville and then that creates, again, optionality for the rest of the team. So our volume...
Speaker Change: I think it's the exported time that's the incremental increase.
and then as we go into Q4 that is the ammonia application season and whether permitting our volume will be higher than Q3. We have a substantial book already built.
and those values are in the publications were well within those ranges.
and I think this year could be a fairly big year for fall in the world. It's a very good agronomic product for a corn farmer in these dense organic soils of the Midwest.
I think the ammonia position for CFS is solid and how much product can we put in that segment? It's traditionally been around 4 million tons but it could be 3 to 1 to 4 million tons Any given here?
Perfect, thanks for that clarification.
Speaker Change: Thank you.
The next question comes from Andrew Wong with RBC Capital Market. Please go ahead.
Andrew Wong: Hey, good morning, Christopher, take my questions.
Speaker Change: So today we look at Europe generally as the marginal cost producer, but we also seen some changes in that region. Now there's capacity that's maybe shutting down.
and that could reduce how much you contribute to that cost curve, but there's also C-BM that gets implemented in 2026, which raises your cost position. So I'm just going to curious how you think about Europe as that marginal cost producer as you kind of go forward and look out a couple years from now.
Speaker Change: here.
So Andrew, as we talked about before this past summer we did a pretty in-depth analysis of what's happening in Europe because we're seeing it much the way you described it that
given the cost of energy in the differential which now sits at $10 and really goes there through 2026.
Speaker Change: That it's going to be very difficult for European producers who are not integrated to continue to produce ammonia. And you saw that last week with one of our pure shutting down in ammonia plant just to do up parade, very similar to what we did with our UK ammonia plants.
Speaker Change: So we expect that to continue in by 2030.
Speaker Change: We would see that there'd probably be another 3 to 4 million nutrient tons of imports required in Europe
Now some of that will take the form of upgraded products. Some of it will be just gross ammonia that's going over there for upgrades through their termling system into those products.
So we see that specifically with our low carbon because with the sea damage you mentioned.
Speaker Change: If we have low carbon product and we're competing against conventional, the conventional cost is going to be higher and that will provide us a margin advantage as the C-BAM goes into effect at the end of next year.
and really by 2034, you know, where there's no free allowances offered anymore, you could see that differential between someone who has an ATR that's a questering 95% of the conventional.
is something that could be $150 per metric ton benefit.
Speaker Change: So it's that really sort of look, although we don't build that into our modeling, it is something that provides us Tony talked about us being a fast mover and having that carbon arbitrage opportunity as we see Europe begin to contract some on production.
Okay, that's really helpful in your opinion, I guess.
and that kind of brings in another question on just how does that global cost look like three or four years from now with? Now the changes in Europe, Chinese exports, impacts in the economy and ammonia.
and give him how to listen. He looks like that change because he's seen it.
with different changes in the past decade or so, how does it look like three or four years from now?
Well, if price doesn't bid in that higher cost production and there's new demand coming on, you'll see.
Probably a lowering of the cost curve to some extent and that's really why when we look at our particular project we wanted to be integrated because we think having the lowest hop-ax.
Related to some of these projects where you're buying hydrogen.
Over the fence and then upgrading it later, still puts you in the third or fourth quartile of production, so you're no different than a European producer.
But we do see that demand growth, so you're going to continue to need to see new supply come on and we do not believe that new supply meets demand. So some of these high-cost facets that you may think are going away are probably going to remain on mind until we have some sort of balance between us and these.
Speaker Change: Okay, thank you.
Speaker Change: Thank you.
The next question is from Vincent Andrews, with Morgan Stanley, please come.
Vincent Andrews: Thank you and good morning everyone. Tony, just wanted to follow up with you on the perspective of Blue ammonia facility. Just get your latest thoughts in terms of what you're seeking in terms of terms. I recall your, you want to own at least 50% of it, but is anything changing in terms of you
Vincent Andrews: How many partners you want to bring in, in terms of the amount of equity they would want to provide or do you have more of a willingness now maybe to fund it yourself But just have off take for a very large percentage of the plans or is there anything evolving through your own thought process or what the other or what the counter parties are interested in doing
Speaker Change: Yeah, I would say in general we have more interest than probably
for the percentage of equity to do it out. Initially we were focused on.
or structured an agreement around 52% equity. I could see a scenario that would have us take less than 50% total equity based on the desires of a couple of the partners we're talking to.
Speaker Change: We would want operating control and voting control.
and that joint ventures scenario.
but it's entirely possible that we would end up, you know, kind of, add or below 50% of the total equity.
Speaker Change: I wouldn't want to go too much lower than that because we are putting our organizational expertise and effort to really take on the design and the build and the construction and then the ongoing operation of the plant. So we want there to be enough.
You know, but kind of participation in a project like that, make it worthwhile to put all that time and effort into it. But I think from a standpoint of having...
Speaker Change: Strong Partners that want the off-take that bring good expertise and capital into the project and reduce our risk profile. We're really optimistic about this project and what it looks like going forward.
and just as a follow up, how are you thinking about Henry Hub prises, you know, not much the next 12 months, but you look out, 2012-2436.
Monks, you know, you got all the ZLNG coming in the US with electricity increasing demand why I can data centers and everything else. Any thoughts there?
When you look at the spreads or actual of the strip
Speaker Change: You're well into 2026 and you're still at $3. And so the differential to the world not necessarily the Henry Hub price, because if the Henry Hub goes to $6, but the spread goes to...
Speaker Change: to 10 or 50 or continue to attend to $15 range.
That just makes those other producers that are having a views in Port del NG.
That much more expensive.
and so when you look around the world where gases, where gases available and how that gas is going to move.
The United States plays a substantial role in that.
Speaker Change: and we've demonstrated we as a country that when it was going from 70 to 90 to 105 BCF per day of production, that there's additional capacity out there to grow as the LNG demand grows.
Yes, LNG is going to go from, let's say, 14, 15, 16 BCF a day up into the 20s
and we anticipate that supply to be there as well. And the cost structure today to tap those wells into bring that production online is still very attractive.
and so yes, I think energy to man you're seeing that spread apart or spread across whether it's renewable or now bringing new to our back. So it's going to be something interesting to watch, I think more as we get later in the decade.
Speaker Change: Thanks guys.
Speaker Change: Thank you.
Speaker Change: The next question comes from Jeff Zikoskas with JP Morgan, please go ahead.
Speaker Change: Thanks very much.
When you think about the Donaldsonville dehydration and compression unit and the 45 Q credits that you might get in 25, it is your base case that the credits would come from enhanced oil recovery.
Speaker Change: So our agreement with Exxon is for CCS, so it is not for enhanced oil recovery, so it's for a classics permit in which it would be sequestered and we would receive the $85 permit return.
Tax Grant related to that.
Speaker Change: and as I said earlier.
Speaker Change: We still feel confident that next year we'll be sequestering in class six permits given the flexibility and really the alternatives that X-on has across both Louisiana and Texas with different sequestration permits veteran process right now.
Bolton State of Louisiana, but also the EPA in the federal government.
Speaker Change: So I don't think Exxon Mobile has.
Completed any permit, violence in Louisiana, just yet. So why are you end?
You know in Texas you need EPA approval.
and this is just for the permits itself. I mean there have been no class experiments that have even been issued.
Speaker Change: Are you really so confident that you can?
A cheapness in 2025. I would leave on the OR area. Yeah, so what I would say is Jeff is, as you point out, you know, there is in Texas it is federal, and they do have sequesteration wells that they have permits.
Speaker Change: Put in place for Texas as well, and that's really where the optionality of that almost thousand mile CO2 pipeline that Denver, the acquired from Denver, allows them to work different...
Different paths and different alternatives to get there. All our discussions with Exxon suggest that they will have classic permitting, so that's what I'm basing it on.
When you contemplate the building of a new blue ammonia facility and you look at an ATR versus an SMR with gas capture.
are those very different costs.
Like it is there I don't know a billion dollar difference between doing wand or doing the other or is it much smaller?
Speaker Change: It's much smaller by the time you add on a potential flu gas capture. I think what you end up seeing is numbers of would be in the proximate range of each other. I think one of the big differences that you end up with is...
Mortonage of production coming out of an H-R in general, and the SMR, you know, the largest on your planet in the world.
is Dallas andville member sex.
and even though it's nameplate is the same size as...
A number of other plants that are out there, we're getting about 10% or a little over 10% additional production above name plates. So that is currently the largest plant in the world.
and the H.R. would be quite a bit larger than that plant even. And so one of the benefits is...
of the HTR is compared to the SMR with flu gas. This is on a comparable capital basis. You get more tonnage of production and all those incremental tons are really at variable cost. And so the return profile looks.
Really attractive against those incremental tons.
So that's kind of the direction we're targeting.
Speaker Change: The other part I would add Jeff is based on that incremental tons which could be 10% higher than our ammonia's sixes.
You're now also capturing.
Probably about 50% more CO2 than you would.
Speaker Change: and a comparable conventional SMR.
and you'd be attaining the 45Q, whether it be through the quiet 6 or an ELR, you'd have a benefit that would be significant.
Speaker Change: Over what a traditional SMR plan would be.
Speaker Change: and K-grade. Thank you very much.
Thank you.
Speaker Change: The next question comes from Edeline Rodriguez, where Missuho, please go ahead.
Speaker Change: The End
Speaker Change: The End
Edeline Rodriguez in online has been unmuted, you may proceed with your question
I guess I'm about that. Good morning everyone. Don't you have a quick one for you. Can you talk about changes?
Speaker Change: If any you seen in flammers or retailers behave you're given to more challenging quadplices we have now and how has a change? How do CF's go to market behave you have change accordingly?
Yeah, I'll give a real quick high level answer now, he handed over to Bert to give some additional color but in general because...
Speaker Change: Nitrogen is a non-discretionary nutrient. We've sprained strong demand for our product globally.
Speaker Change: Even though crop prices are a little more muted today than they were a year ago or two years ago. I think generally where you see farmer behavior.
looking to be different in a, you know, involving crop price marketplace has to do with some of the other inputs. So what weather it's.
Speaker Change: P&K that you might cut back on a little bit or you end up going with a generic fuzz bead.
and Kamergol's as opposed to some of the ones that are still on patent, etc. You see that.
The Reduction and the End, Clause and other places, but nitrogen.
really doesn't provide an option for farmers to reduce otherwise you see in a direct year one impact on yield. And so that's why we continue to see very strong demand for our product.
The I agree with Tony and some of the interesting things that are going on in the farm community and we're very well connected with our customers. We don't sell to farmers, but the co-ops.
that we work with ChromeArch, CHS.
Speaker Change: Windfield and some of the others, as well as our public companies and private companies have been in the plot and ADM and people like that. We have a lot of conversations.
and I think one of the issues is that needs to be managed on the farmer's side is debt and cash management. And so you're seeing delayed purchases, delayed app, delayed purchases and positioning for the spring.
Speaker Change: and I think one of the things like Tony talked about all the ancillary issues of products that are used for planting.
Speaker Change: and growing across its land values as well.
So we're going to watch that over time, but for us.
Speaker Change: It's we focus on what we can control and as lowering our costs keeping our costs.
A tractive is related to the market in terms of our production, next running the plants very well and efficient, and utilizing the export capabilities that we have for a global participant, or active in Brazil, Argentina, Australia and Europe, and that gives us insight into global farming practices and needs.
and then we manage our book. We always have a healthy book on and a manager of the pricing that's available to us.
So we're capturing a good value and the gas team and keeping our gas costs low.
have been a very good job. So in conjunction with our insight in the market, our relationships in the market, our capabilities that we were able to leverage.
We're positioned very well and I think the farmer...
with some of the droughts that are going on in Brazil and some of the demand and blow prices tend to help demand increase. The pricing will recover hopefully in the forward market.
Speaker Change: Okay, that makes sense and a related question. As we exit 2024 and enter in 2025, again, it seems like the way you talk about the outlook for nitrogen, that's very encouraging. Is there anything that concerns you at all, like anything that makes you think, keeps you awake?
Speaker Change: I'm very well, but there are things in this market that I do think about and I'm always looking over the horizon on. I think there are issues with currencies on what countries are devaluing. Their currency in order to participate. I think some of the things that are coming out of China with export policies and industrial policies have ramifications into the commodity markets.
I think some of the concerns with Europe and gas were a participant or a producer in the UK. And so we're following that mark we have good customers and what they're long term.
Speaker Change: Opportunities are or challenges and then it's geopolitics or the geopolitical environment that we're currently in with what's going on in the Middle East, what's going on in Ukraine.
You know, you have impacts on real people and real decisions on not just how people eat, but how they live and then how do we play in that world. So yes, there are concerns. I think we always have to be mindful of those things in the energy markets and how we're on our business.
Thank you very much.
Speaker Change: Thank you.
The next question is from Demetri Silverstein with Water Tower Research. Please go ahead.
Demetri Silverstein: Good morning and thanks for taking my questions. Most of them have been answered, but I do want to follow up on the more near-term outlook for pricing.
Demetri Silverstein: We've seen Christ counting down you over your first half of the year and then you reported a price increase here in a third quarter. How do you look at the market dynamics and the tightness and the market that you identified and talked about? What do you expect for pricing is you get into the 2025 Nickel Shading season?
Speaker Change: Well, a lot of things that drive pricing drive, it's applied to man, it's energy spreads, it's again some of the issues I just articulated.
We did have some weakness going into Q1 and then coming out of Q2, or pricing for Yeria, for example, fell to $290 and then recovers to $230, excuse me, $335.
Demetri Silverstein: and we're currently trading around 320.
and so the trends in pricing.
Speaker Change: We're reflective of the lack of Chinese availability, the lack of North African, principally Egypt, and then some other gas constrained areas. And we see that positive environment continuing into Q2 because of those dynamics are not going away. And so...
Speaker Change: You know, you have these episodic moments of bootment surprising, but the trend we believe through at least the first half of 2025 is positive.
Speaker Change: That's helpful. Thank you. And then one final question you mentioned the modest hurricane impact from fame scene. I'm hoping that nothing else was impacted as far as your operations concerned with the
Nor with answer with the East Coast Strike.
Speaker Change: Anything we should be thinking about in terms of cause.
Delta going forward as far as logistics costs, you know, the barge traffic and the Mississippi is still kind of slow because of the low water levels after a couple of years of droughts. Anything that we should be keeping in mind as we look towards 2025 on your gross margin line.
Yeah, so what I would say is a lot of those we were able to mitigate those.
Issues that you mentioned with the porch strike and then also the hurricane without really much financial cost related to that. I think just in general with any type of logistics movement what we're seeing is just the inflation area.
Boats from you know, barge prices or whether it be rail. So that I would say is the one area we continue to monitor and look at alternatives.
Speaker Change: and the one thing that we have flexibility that differentiates us from other companies is our ability. Specifically out of Donald's ability to move product through five different modes, whether it be vessel, barge, truck, rail or pipe.
and that gives us a lot of flexibility to go to alternative transport methods. So I would say it's just, you know, Bert's team and the supply chain doing a little bit more thought-provoking just to keep costs down versus what we're seeing inflation wise.
I'm just so, thanks very much, it's all the questions I had.
Speaker Change: i
Speaker Change: Thank you.
Ladies and gentlemen, that is all the time we have for questions for today.
I would like to turn the call back to Martin Jarosick for closing remarks.
Speaker Change: Thanks everyone for joining us. We look forward to seeing you as upcoming conferences.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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