Q2 2025 CF Industries Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the CF Industries. First half and second quarter of 2025 earnings conference call.
Today, all participants will be in a listen-only mode.
Should you need assistance during today's call, 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 today's presentation.
To pose a question at any time, please press star then 1 on your touchtone phone.
I would now like to turn the presentation over to the host for today. Mr. Martin josk with CF investor relations, please proceed sir.
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.
CF Industries reported its results for the first half and second quarter of 2025 yesterday. Afternoon, on this call, we'll review the results. 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.
More detailed information about factors, that may affect your performance, may be found in our filings with the SEC to available on our website.
Also, you will find reconciliations between gaap and non-gaap measures in the press release and presentation posted on our website.
Now, let me introduce Tony Will.
Thanks, Martin and good morning everyone. Yesterday afternoon, we posted results for the first half of 2025, in which we generated a just stipa dive of 1.4 billion dollars.
These results reflect outstanding operational performance by the CF Industries team against the backdrop of a type Global nitrogen Supply demand balance
We are also executing well, on our strategic initiatives.
The balance of Bill carbon capture and sequestration project began operating in early, July and is running. It designed rates.
And progress on the new bluepoint joint venture is well underway.
And we continue to return substantial Capital to shareholders.
Over the last 12 months, we have returned approximately 2 billion dollars. This includes repurchasing more than 10% of our outstanding shares since last July,
Even with our world-class operating performance, the favorable global nitrogen industry dynamics.
The financial benefits we generate from our strategic initiatives in our ongoing Capital return programs.
We are well positioned to create value for shareholders over both the near and longer terms.
With that, I'll turn it over to Chris to provide more details on our operating results. Chris
Thanks Tony for the first half of 2025, we continue to differentiate CF industries from peers, through safety and operational excellence.
This is particularly impressive given our scale and level of activity in the first half.
Through the end of June. We produce 5.2 million tons of gross. Ammonia representing a 99% utilization rate.
For the full year, we expect to produce approximately 10 million tons of gross ammonia.
The third quarter as is typical for CF, will have lower production volumes than the first 2 quarters due to plant maintenance activity,
Turning to our strategic initiatives, we started up our Donaldsonville complex, carbon capture and sequestration project in July.
The carbon dioxide dehydration and compression unit has ramped up very well, and we achieved full nameplate capacity within the first week.
in addition to reducing carbon dioxide emissions, by up, to 2 million metric, tons per year, or in a significant return from this project,
We are generating, 45 Q tax credits, and selling low, carbon ammonia for a premium.
For the Blue Point project. We along with Geron mitsui, have been building out the project team and have begun ordering long lead, time items.
We also continue to evaluate opportunities to further de-risk the project by leveraging best-in-class capabilities.
For example, the joint venture signed an agreement with industry leader Lindy to build and operate their separation unit, which you'll find nitrogen and oxygen for the ammonia production process.
We remain excited about the compelling growth opportunity at Blue Point.
Given the tightening of a global nitrogen Supply demand balance, and the interest that has been generated in the ultra low carbon ammonia, that will be produced there.
With that, let me turn it over to Bert to discuss the global nitrogen Market.
Bert.
Thanks. Chris throughout the first half of 2025, the global nitrogen Supply. Demand balance continued to tighten
strong Global nitrogen to demand led by North America and India have
10 with low Global, nitrogen inventories and production disruptions and Key Supply regions.
This included a geopolitical events late in the second quarter that temporarily halted production in each of the Iran as well as 2 facilities in Russia.
EF Industries team navigated these dynamics exceptionally well, especially as the North American Spring application season lasted longer than normal, backed by strong production. We leveraged our leading logistics and distribution capabilities to capture incremental opportunities well into July.
For example, last month we continued to make spot UAN sales at in-season prices, as supply from other sources was largely unavailable after the strong spring application season.
As a result, our uan inventory. At the end of June was the lowest we have seen entering the third quarter in the last decade.
This led us to delay, our uan, Phil program until next week which is the latest we have ever launched.
The delay is giving us time to bet, understand customer requirements. And communicate, that fill prices will be significantly higher than 2024 given the tight Global supply and demand balance.
The farmer economics in North America have been an industry concern as the price of corn. Has not kept kept up with the price of inputs.
However, we expect nitrogen demand in the region to remain robust.
The corn soybean ratio favors corn and farmers will be incentivized to optimize yield supporting resilient demand for this. Non-discretionary nutrient, in fact, our ammonia fill and fall prepaid programs which were closed at the beginning of July saw a strong uptake from customers.
And the deer and medium-term, we believe the global nitrogen is supply and demand balance will remain tight.
Global nitrogen, inventory is low, and the global demand is expected to be strong.
Brazil and India alone are likely to acquire more than 8 million metric tons of urea imports through the end of the year, while the Northern Hemisphere, which will begin purchasing for 2026 applications.
The global industry even with the needed Yura exports from China does not have excess capacity to easily meet this demand.
In fact, India closes its most recent tender at a price much higher than expected.
Additionally, natural gas availability in Egypt, Iran, and Trinidad has become a chronic problem for their nitrogen industries.
And high natural gas prices in Europe and Asia continued to challenge nitrogen producer margins in those regions.
These structural challenges are further exacerbated by the uncertainty, created by geopolitical events.
Longer term, we expect the global nitrogen Supply, demand balance to tighten further through the end of the decade as projected new capacity. Growth is not keeping Pace with demand growth for traditional fertilizer, and Industrial applications.
We also believe demand for low-carbon ammonia for new applications, such as power generation will only further tighten the global Supply demand balance
We are seeing this transition now.
with the Donaldsonville CCS project operational, we will ship our first cargo of low-carbon ammonia in the coming weeks and that a premium
We have steady demand today and growing interest in Donaldsonville low. Carbon pneumonia volumes for new applications, in addition to the longer term demand for ultra-low, carbon volumes from bluepoint,
With that, Greg will cover our financial performance.
Thanks, Bert. For the first half of 2025, the company reported, net earnings attributable, to Common stockholders of 698 million or $4.20 per diluted share.
Ibida and adjust. The ibida were both approximately 1.4 billion dollars.
For the second quarter of 2025, we reported net earnings attributable to common stockholders of $386 million.
Or 2.37 per diluted share.
Ibida. And adjust ibida were both approximately 760 million.
As you will recall we have begun. Consolidating the blue point joint venture into our financial statements.
This is reflected in both our first half and second quarter 2025 financial reporting.
On a trailing 12-month basis. Net cash from operations was 2.5 billion and free cash flow was 1.7 billion.
This includes a net benefit in the second quarter from the blue point project as capital contributions from our joint venture Partners exceeded the Project's Capital expenditures.
This will be the case for some time. As we build cache in the joint, venture ahead of expenditures.
We returned to 280 million dollars to shareholders in the second quarter of 2025, including 202 million to repurchase 2.8 million shares.
We remain committed to a balanced capital allocation strategy, investing in growth through the Blue Point joint venture, while returning substantial capital to our shareholders.
With the nitrogen and oxygen agreements with Lindy that Chris mentioned, the cost of the Blue Point project is expected to be 3.7 billion.
If the industry's portion of the project, along with the wholly owned common facilities, is expected to total approximately $2 billion over the next 4 years.
Over that same time frame, we have 2.4 billion dollars, authorized for share repurchases.
We expect to complete the 425 million remaining on the current authorization before the end of the year.
At that point, we will begin the 2 billion authorization.
finally, with the startup of the dawnsonville CCS project, we will deliver incremental ibida and free cash flow beginning in the third quarter,
We expect ibida and free cash flow to be north of a hundred million dollars annually from the tax incentives and product premiums.
This is a significant step towards the 2030 mid-cycle projections we shared at investor day of 3 billion in ibida and 2 billion dollars in free cash flow.
With that Tony who 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 CF team for their contributions to an outstanding first half of 2025.
We are delivering world-class operational performance across all aspects of our business and most importantly doing so safely.
I want to acknowledge Ashraf Malik, our senior vice, president of manufacturing and distribution who recently announced his intention to retire in the spring of 2026.
I recruited that Ashraf into CF from our growth how joint venture in 2011
He was my right-hand person when I ran Manufacturing.
As he also was for Chris when he ran it.
Appropriately, Ashraf took over as head of manufacturing when Chris moved into the CFO role in 2019.
Ashraf is an experienced leader who has helped Drive our culture of safety and operational excellence.
We're fortunate to have him with us for the next 9 months.
But I do want to take this opportunity to personally thank him for as many contributions and to congratulate him on a tremendous career.
Will be marking the 20th anniversary of our company's IPO.
Over the last 20 years CF Industries has built. An extraordinary high margin focused business where we consistently execute at the highest levels.
A global leader in every sense of the word.
Our balanced approach to Capital allocation.
Driving disciplined growth while executing consistent sharing purchases.
As increased shareholder participation in our assets and the cash flow they generate.
As you can see on slide 13, we have driven a nearly 3-fold increase in nitrogen capacity per share since 2010.
And this approach has led to Superior shareholder returns compared to all industry, participants and even broader comparison groups
See if Industries is, well, positioned to build on this track record in the years ahead.
In the near and medium term industry. Dynamics remain, very favorable for our low-cost, North American production Network,
longer term, we are investing in much-needed, low-carbon ammonia capacity and have 2.4 billion dollars authorized for continued cheer repurchases.
Taken together. We expect to continue to drive strong, cash generation, and create substantial, shareholder value.
With that operator, we will now open the call to your questions.
Thank you.
We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone,
if your question has been addressed and you would like to withdraw it, please press star, then 2
We will now pause momentarily to assemble our roster.
In today's first question comes from Richard Garcia Reena with Wells, Fargo, please proceed.
All right, thanks for taking my question. Uh, you know you're you're progressing on the Blue Points. Uh obviously we've Consolidated results. My question is on the outlook for um returns. Yeah we had the big beautiful Bill come out. I think there's some, you know, treatment of depreciation which may be changing and can you talk about how that impacts potentially you know the return uh calculations and and how that may impact taxes uh for bluepoint as for CF thanks. Yeah, yeah so it's Greg I I'll take that 1 first. So when we look at
The joint venture, there's a number of items that are going to run through that uh pnl from the tax side that we're going to need to be coordinated with uh with our t with our JV Partners on. It, not only will our depreciation of the assets uh be important the timing of the earnings to make sure we're maintaining our basis in the assets as well as the monetization of the 45 Q credits. So we're in the process uh with our partners and with our advisors of modeling out those different variables. But what I could tell you in particular, to as we look at the depreciation, uh, what we had in our original expectation, within the model was already in an accelerated basis. So if you get to day 1, uh complete uh amortization depreciation of the assets, we don't expect it to materially change uh the overall returns of the project that we've shared with you before but we'll continue to model that out over the next few years and make sure that we've understand how all these variables interplay against each other.
In the next question, Ed Lane, Rodriguez with Mizuho, please proceed.
Uh uh thank you. Good morning everyone. I mean Tony just kind of like when you look forward into 2026 and and Beyond I mean again giving work crop prices or and where fertilizer prices are like what are you thinking there? I mean again kind of there's a disconnect between uh prices and and input costs for Farmers. Uh, so how do you see that? Uh, develop over the course of of next year.
Hey, good morning. This is Bert. And that is the question in the industry. Today is how do uh, how does a farmer solve the the the the calculus of planting. And, and, and at the end profitability
Fertilizer represents about 25% of the input costs for a crop.
We believe in that calculus. We're a global product, globally traded, globally moved, and valued in the context of urea, uan, and ammonia. And so we compete for imports and exports with the world. And so the U.S. farmer, in the same vein, competes for corn, soybeans, cotton, wheat, whatever product.
Has to compete. And I think there'll be some economizing with different sub parts of that calculus that I gave.
But nitrogen is the non-discretionary nutrient and we'll have to be applied and I think then Farmers plant and apply for yield. And they earn their way out of this difficult Market.
Bird, I I totally agree on that, which is I, you know, I think once you've gone through the all of the other expenses that you talked about, you are going to go ahead and try to optimize yield, um, because the, you know, it's the last couple of bushels that'll actually make the difference in terms of profitability or not. And so, at least with respect to nitrogen, we continue to see and expect um full application rates because that's really how you're going to get profitable. It's not trying to save a couple of bucks by reducing your nitrogen application. Now p and K is a different story, but at least nitrogen we expect to go down
Okay, thank you so much for your insights.
In the next question is from Joel Jackson with BMO Capital markets.
Please proceed.
Uh, good morning, everyone.
Um, can you talk about a report that came out yesterday around the time you reported it seems like maybe if it's true. Um you've got a few days or a week of no loading happening at dville is that about demand that. You're you had a huge quarter of course, in Q2 volume so good, demand, so good your out of inventory. Um, does that speak about the strong Dynamic for yourselves in the market? Is there any production problems that you can? Elaborate
Yeah, so, uh, Joel, this is Chris healthstart. So the report was incorrect In, in the sense that it said, that it was an operational issue with our loading at the, uh, Donaldsonville facility. We continue to have full access to loading, uh, production and not utilization there. As you could see. In second quarter, continues to be outstanding, I'm going to know what, Bert talked to some of the inventory levels. And, uh, and some of the the customer direction that we've done, that was probably more the source of that than it was operational. If several figures that were issues that played Joel with, uh, the dynamic nature of this spring application and into the summer, we just did not have the inventory, be due to high demand. And some of the previous remarks of being 1 of the last,
He's standing with available Supply. So every day we had pull
and in Donaldsonville, this is a reflection of Team, Dynamics and discussion and how we work collaboratively. But the urea product manager, along with the production and allocation and Logistics folks work together. We had 2,000 tons of inventory yesterday, we produce 7 and a half thousand tons per day and Donaldsonville and when you throw in for Neil and and medicine. Now, we produce about 14,000 tons a day. So to have that low of an inventory and your loading 4 to 6 bars, a day at 1,500 tons per barge,
you want to have inventory for consistent and reliable loading. So this was just a reflection of Team coming together, making a decision and saying, let's build the inventory over the weekend and then we'll be able to load barges more seamlessly than being sporadic. That's just good management and safe management for the team.
And our next question comes from Lucas bomo. It's with UBS please proceed.
I see that is the saw some, uh, cost pressure in the first half this year, both like on sg&a and your controllable numb gas production costs, uh, which were both sort of higher year on year. So could you please just kind of talk us through what the drivers were there? If there's anything that was kind of more 1 time and try to think about that you
Directory there. Going forward into the uh second half of next year. Thanks.
Yeah, I'll start. And then I'll pass it to Chris. So let's start with SG&A. Um, listen, I've been here now 13 months and continue to be impressed by the organizational structure we have and the operating efficiencies that the business has. When I compare our SG&A to any benchmark in the industry, we are a very lean organization. So any small movements in the number will, uh, small number will move that number on a percentage basis.
Two discreet items to talk about. One was around our legal fees associated with us closing our Bluepoint joint venture, not only with the partner but also all the other agreements we had to put in place. That was about half of the difference versus last year. The second part of the difference was almost all of the employees here at CF are on some type of variable compensation.
And given what we're seeing from the operating performance of the company, as well as the market pricing, that is there we made an adjustment within the quarter for our expectation and how that variable incentive will pay out in the year. So those are the 2 main items that explain the sgna difference year-over-year. And as you think about it, going forward, third quarter, fourth quarter, probably look more similar to what we saw within the first quarter now on the cost side. I'll let Chris talk to it in particular, but just to make a couple points is is is we try to analyze it 1 and and you're right to do it X gas. When you look at it, any 90-day period within the company. It's going to be impacted by timing of Maintenance, either planned or unplanned. So we tend to look at things over longer periods of time. If I look at it over the first half, in fact, our controllable costs were down minimally low single digits uh versus last year. If you look at it in particular on the second quarter, you remember, in the first quarter of last year, we had maintenance events associated with weather.
They drove an acceleration to our maintenance, uh, from the second quarter into the first quarter. So, if I look at the variance in the second quarter of 2025, it has more to do with what happened in 2024 than 25. In fact, first quarter to second quarter, uh, when you adjust for, uh, maintenance events is is fairly similar.
Yeah and just to add on to that. So it's Greg mentioned we do look at a longer uh time frame because it could just be timing when something hits. But during the quarter we had really 2 events that drove up some of that controllable costs and 1 1 was unplanned outages at um a couple facilities even though we had very high utilization throughout the rest of the uh, Network. There were 2 facilities that had some extended unplanned downtime and what that resulted in, you know, bringing it back to what Bert talked about with tight inventory, we had tight inventory at all our locations and as a result to meet some of the customer commitments, we had, we had an increase Logistics costs making those Moves In order to uh service and uh, provide the customers with their products. So a little bit, sung by some unplanned outages and then also the logistical moves just given how tight inventory is in the industry.
And our next question comes from Jeff Zakas with JP Morgan.
Please proceed. Thanks very much.
um on the CCS project you talked about 100 million benefit and I I think I get that, you know there's an 85 dollar a ton tax credit
And maybe it's costing you.
$35 a ton or, you know,
Various isolation of the CO2.
And so, that gets you to an annualized rate of 100 million.
Um, in general. Um, the these are tax credits.
When does the cash come in and how do you account for it? That is. Do you take the tax credits on an ongoing basis? You know, when when do you get paid from the government? How how how does that work? Yeah, so Jeff it's Greg, I'll answer it. 2 ways.
1 is from our financial statements and then from our from our tax cash payments. So on our financial statements, we will begin um our crew in this into our ibida as the gas flows, um, and we've talked about that being an 85, 455 Q Credit that, we'll net about $50 on up to 2 million tons and you'll begin to see that in our third quarter reported, uh,
Reported financials as part of our ibida calculation. Now in the cash side, obviously we won't settle up on our cash uh tax position until uh the later part of 2026. But we will begin to withhold our expectations around. What we're going to receive back for the 45 Q Credit, as early, as our September payments, that we make in our estimated September payments, uh, that we make into the IRS. So you'll begin to see the cash benefits of that almost immediately. And then obviously, at the end, when we file our final return next year, it'll all be part of that return.
Great and and just 1 follow-up.
Captured.
You know, sometimes when you read the literature, it seems that the...
Eo2 captured should be much more um in tonnage than the ammonia made, and what you have is something that's pretty close to 1 to 1, C. Can you describe what's going on there?
Yeah, Jeff. Let me uh, let me start off with that and then I'll turn it over to Chris. But um,
All of our existing ammonia plants today are conventional steam methane reforming and in general. Um, you end up with about 1/3 of the, the natural gas used to drive the process from an energy, and heat perspective and about 2/3 of the natural. Gas goes into um the the actual process and the synthesis of ammonia.
And so the the total amount of of gas, you know, about 32 on average MMB to use per ton of ammonia.
Will generate about, kind of call it, 1.8 is 1.7, 1.8, 1.9 depending upon the, you know. Um, the plant in question, tons of CO2 per ton of ammonia with with the existing process though, because we're not doing flue gas capture on smrs, you can only capture about 2/3 of that which is related to the process side of the equation.
And then, you know, Donaldsonville is one of our large upgrade facilities. And when you're making urea,
either as granular or as part of deaf or or going into uan, you have to use a lot of that process. CO2 to make Yura. So you you know you you actually have to use it um Downstream in the process and therefore it's not available for CCS when we move to Blue Point um because it's a different process. Autothermal reforming we can capture a much, much higher percentage of the CO2 in that case, probably close to like 95 to 98%.
Oh yeah, I'm not certain there's much, I can add to that.
Um,
uh,
Okay, okay. Um, uh, thanks very much. That's pretty clear. Pretty clear.
In the next question is from Chris Parkinson. With wolf research, please proceed.
Great, thank you so much. Um, I'd love to hear your thoughts on the current supply side dynamics, you know, into the second half and into 2026. I mean, there's been essentially everything—there have been, you know, attacks on Russian facilities, geopolitics, gas shortages in Eastern Europe and Trinidad. I mean, there's literally been everything, but ultimately demand has been, you know, stable to solid on the other side of that. But how should investors...?
To be thinking about the sustainability of these dynamics, you know, into 2026. And if you have seen actually anything improved? Or are we still essentially at the status quo? Thank you.
Yeah, good, good morning Chris. This is Bert. And this has been a, a, an incredibly interesting market for the the aspects that you articulated tax, geopolitical tax being terrorists.
Uh, gas, shortages and and just issues in high demand, then on the opposite side. So, starting with the tariffs, uh, we've been in this discussion since March was going to be April. And so that delayed uh, in for
Imports into the North of the United States for Q2, and we are exiting Q2 and entering Q3 with incredibly low inventory that needs to be rebuilt in the United States and Canada.
And so, we are doing our best at CF in terms of running, as we do, as at very high rates and being efficient and moving our product. But as I mentioned in an earlier, comment, nitrogen. And fertilizer is a global commodity that moves based on price and based on needs. And we're now entering the peak season for the Southern Hemisphere, and you're seeing India step in yesterday, closing 2 million tons. That's the first time they've been able to close that tan. But at at prices in the 52530 range, very attractive.
Uh, compared to historical values.
Entering 2026 for Europe and, and North America. And I think that's going to be a very hard or very difficult, uh, calculation to to close because of our inventories and the needs to Imports and the disruptions of tariffs
And then you go to the gas shortages that were created during the conflict in Iran. And the cut off of gas to Egypt, the low gas supply in Trinidad, just between
I'd say those 3 areas just regarding
what we lost just between Egypt and Iran over a million tons. And so then you have China entering the market with an additional supply of a million times. It doesn't close the balance. This is why we're, uh, constructively positive.
the market for 2, 3 and Q4, but into 2026 with the current pricing Dynamic that we're experiencing
Uh, a couple of that with the low gas prices that North America that we're seeing at 3 dollars makes for a very attractive position.
For CF.
And just, you know, if I met parlay that question into another, you know, the second half of setting up pretty well in terms of asps and obviously we'll see we'll have to have our own views on, you know, operations and ultimately volume sold. But you know if you we tend if you set up you know favorably on the Free Cash Flow side, just even giving you the historical you know 60 70% of times. How should investors be thinking about the uses of cash? Cuz on 1 s
You see, a lot of people are going to be looking for buybacks at the other. You are entering a, you know, a capex cycle with blue point. And there have been some debate on basically de-risking the, at least the beginning of that cycle. So how should we be balancing those 2 views under the presumption that free cash flow should be a little bit better as we progress throughout the year. Thank you.
Yeah, I would say in general. Chris, you know, we we do have, you know, 2.4 billion dollars open to buy on share repo. And we have a, you know, I think a pretty good view of, uh, what expenditures look like, um, for bluepoint going out initially and, you know, these kind of projects. They start off a little on the slower side and then start accelerating. And then the big spend is really kind of year 3 and 4 as your as your paying, for all of the deliveries of the large modules, and, and doing the construction work to to put them together and get the plant kind of commissioned. Um, but in general, as we're generating kind of more cash um, than you know what uh what what maybe a an lrp would look like, um, or even what the expectation of, you know, in certain, uh, market segments look like then, uh, we we will
Probably go ahead and deploy that capital, um, against the share repurchase, you know, more expeditiously than otherwise. We might pace it out.
Thank you.
The next question is from Kristen Owen with Oppenheimer, please proceed.
Good morning. This is Mason Manor on for Kristen. Uh, I just wanted to follow up on the carbon capture at Don dawnsonville. Question in particular, the contributions of the credits in 3Q understanding that the 45 Q for hands oil. Uh, recovery is different from the permanent, uh, sequestration credit. Can you just help us understand the economics of the e r credit? And is there any additional cost to it to that process? Which we just think about the similar flow through just off that lower credit value.
Yeah, thanks. This is Chris. Um, Mason. I would start with that our base case assumptions for not only the Donaldsonville, but also the Blue Point in our Yazoo City is that it goes to Class 6 permanent sequestration. As far as the tax law, that particular allocation of the $45 Q8 $85 per metric ton did not change. Uh, the EOR did go up from $60 to $85 for metric ton.
This week. And so it's our expectation. That, you know, we'll be moving to that class 6 relatively soon here before the end of the year.
Awesome. Thank you.
The next question is from Vincent Andrews. With Morgan Stanley. Please proceed.
Uh, thank you and good morning everyone. I'm wondering. Uh, you know, I think the press release talked about an expectation that China will not export further uh this year at least uh after 3 Q. So, just curious, what's, what's driving? That view? If it's anything in particular, you're picking up on the ground uh, with your sources in China.
So we've been fairly consistent with our Chinese expectations that there are exportable tons available.
The issue with China today is a lot of those tons are thrilled urea. And thrilled urea, is not desired by many places outside of India, Mexico, a few other, uh, issues
And so what they offered it, the initiate or initial.
Volume Target was 2 million tons through Q3 and then they start building for their spring season, uh, through Q4 and q1 of next year.
Uh, subsequent to that, they announced an additional million tons. And again, our commentary is that those are tons that are needed with the losses that have taken place in different parts of the world.
And the high demand position that the world is in bringing those Chinese tons of additional million. So to hit 3 million tons. But so far, they've been underperforming in terms of those exports out in June and July. So we'll see if they're able to hit those numbers. There was a rumor that India might, uh, be able to buy some Chinese tons. Those were, uh, I would say forbidden but they were, uh, not to be exported to India that might still happen. And so, constructively positive for World Supply, not impacting. I think. Pricing they have since raised the minimum price in China, uh, for both the pearls, and the granular product. So, we'll see what happens over the ensuing months.
What about for the fourth quarter? It sounds like you don't expect it for the fourth quarter.
Further announcements, that's all I'm going on. Is no.
Okay, thanks very much.
And our next question comes from Matthew Deo with Bank of America, please proceed.
Yeah, thank you. Um,
Okay, I know you made some comments about insufficient nitrogen Supply editions. But what do you make of some of the larger capacity functions for urea that CU is kind of noted or flagging come into the market, the next 5 years, in China. It's kind of the prevailing assumption that China won't build that or just it just won't get exported given some of the current, uh, policies.
You have several factors going on in in World supply and demand and focusing on the supply side, there are plants in Russia, Iran and turkey totaling about 2.7 million tons. And then the 4 plants in China, I think you're referencing targeting 2.6 million tons, that are scheduled to start up in the ensuing. I'd say this year and next year, and and then some ongoing Construction.
But you've had plans to take an offline and then the gas issues that we've talked about in different parts of the world. So as you look at overall growth and the 1 to 1 and a half percent growth
Each year that we see and the need for yuria against. If that's a 200 million ton Supply you need 2 world scale plans to 3 per year to be built just to stay steady with the growth. And so again coupled with the restrictions whether that be Europe or Trinidad, or different parts of the world that have gone offline, we don't see that keeping pace and you're seeing that
Reflected today and continued strong demand. Brazil is a great example. Brazil is going to be 9 million tons. It is steadily growing year after year, with yield accompanying that, whether that be corn, wheat, or cotton yields improving. They're going to need additional, and they don't have any urea plants coming on. They're talked about in with petrol broth.
Bringing several of those plants back online. That's going to take some time and we're seeing India even though they built these new plants, they're not operating to expectations. And so they're underperforming in terms of their total production based on expectations. So, you go world around the world. Ukraine's not operating. Uh, Pakistan is not operating. So you got different uh, parts that are driving the supply shortage.
Productions going on. A lot of times, that replacement of old, less efficient, or higher particulate matter plants that are going offline. So it's a bit of a replacement. Additionally, you know, our view on the tightening and balance from a nitrogen perspective, specifically ammonia, is based on there's a lot of upgrades to urea plants that are going in to consume that ammonia. So as we see this tightening of the ammonia market, part of it is just new upgrade plants going in, both here in the U.S. and globally, that are consuming that ammonia and tightening that market even more. And then coupled with what Bert said, you know, with European production continuing to be challenged, we expect that to continue as well. So I think it's still going to be a very tight market as we move through the end of this decade.
I appreciate that. And and 1 more, I guess, if, if we think about the blue and green ammonia Market, how much do you think ultimately could get moved into say, Asian energy, markets or shipping right? Like, what's the, what's how much tonnage can that can that ultimately be?
Yeah, I would say the base case right now, between now and 2030, we're looking at is probably 3 million tons of low carbon ammonia would be moving in there, primarily for power generation. However, with that, I think what we're seeing with our announcement actually moving forward is more interest from...
Other parties who are contacting, not only Bert, but also um bidding uh through different areas for low, carbon production both in powergen. And then you're also seeing a little bit more starting to grow in the Marine side. I still think the Marine side's a bit, uh, farther out than 2030. But you are beginning to see ammonia. Uh, engine vessels uh being constructed.
Thank you for that.
And the next question comes from Ben th with barklay please proceed.
Uh yeah, good morning and uh thanks for taking my question, just wanted to understand a little bit better. Uh the sequential Dynamics and ammonia. If we take a look at uh 2 keywords is 1 Q, it it feels like the gas price came down, but at the same time, gross margin was actually significantly worse in the sequential basis. So just want to understand what's been happening here and how we should think about the back half of the year, as it relates to, um, assuming gas prices, where they are right now, um, what what that should, uh, do to your, um, to your new gen, adjusted, gross margin per ton.
Yes, no, no. I I I'll start and pass it over to Chris. This is Greg. So uh, as we talked about before and Chris talked about in particular with some of the unplanned outages we saw, as well as the distribution costs of moving product around to meet customers. Needs that ran through particularly in the ammonia segment, uh, into the second quarter.
Yeah, in the back and we also as Greg mentioned earlier, you know we look at it more than just on a quarter by quarter given some of the timing. And now as we look at the back, half of the year, as we mentioned in our prepared remarks, Q3 is generally a little bit heavier of a, a turnaround period. So we may see a couple hundred thousand tons less of gross production of ammonia during that period as well. And on the movement of the product, Q3 is generally an industrial export quarter with Q4 being more a based. We built the a very solid order book for uh Q4 for now, that's weather dependent but the weather always cooperates with CF Industries. So we're going to see that be a positive time of and the pricing has been uh very positive and the demand uptake very positive.
Yeah, perfect. Thank you very much.
The next question is from Andrew Wong with RBC Capital markets. Please proceed.
Hey, good morning, thanks for taking my questions. Um, maybe a topical question for today to start what's your view on how a Russia Ukraine, truce, or some sort of Peace settlement could impact on the snack, gas prices and and also on the Nigerian markets,
Yeah.
For Russian friends.
Hi, I am.
I would take it to piece, I would love to see peace uh, break out and this situation ends and I it bothers me that we take it economically.
and that I I, I, I understand that the reflection of our business,
With me that we are sending.
Bombs and missiles there and but bringing fertilizers here. So I I would hope that that is addressed in some form or fashion.
But uh the impact on that natural gas. That's not going to come back anytime soon. At the nordstream system is not going to be rebuilt anytime soon.
Uh, the frustration, I believe, with the European NATO allies and the purchasing of Russian products, whether that be gas or in the form of nitrogen, probably is not going to come back anytime soon. There are tariffs and sanctions coming that are only increasing on Russian products.
and so,
I think for the world, you're going to see much more North American natural gas moving to Europe and other places. And we're going to see on a uh
On a BCF-type basis, we are probably going from 15 in the United States up to the mid-20s in the next several years.
On a nitrogen basis. Um, you know, again, it's a, it's a world. It's a global lead traded commodity, I think that the pricing and the product moves as relation to products needs, as well as, um, you know, the values communicated and Russian product is traded at a discount to Brazil and India. I expect that to continue for a while and then we'll see what happens with these peace talks but hopefully that progresses before we have to talk about other issues. Yeah I would I would just add just on the energy front anything, you know, it would have to be solved relatively quickly to stop.
Up some of the pressure that's already in motion. Specifically for European. Producers given, you know, the the maintenance activity that these plants require the working capital, and the demand timing as you're building, uh, production for 2 points of the year of demand. So I think, um, you know, from our perspective, what we see from a European, uh, curtailment and shutdown is expected to continue, no matter what happens. Just given the time frame, it would take in order to, you know, build back nordstream or bring in more Russian LNG through that time frame.
Okay, I appreciate all that um and then maybe just switching over to Europe uh with the coming Implement implementation of cban and you just talk about how you see that impacting the markets, um, both in Europe and globally and how does that change the role of Europe as a marginal cost center?
Yeah, so I'll start and I'll see if anybody else wants to add in. But right now, just to put in context, CBS is in a transitional phase where right now importers have to report their carbon intensity. So, it goes into place in January of next year, and there are quite a few details that are still being worked out. Our hope is that by the end of the year here, the specifics to that particular program are put in place. But what it will allow us, based on today, where it's roughly an 80.
Per metric tonne carbon tax on producers that we should begin to see with our low carbon ammonia coming out of Donaldsonville, something that's probably in the $25 per metric tonne benefit that continues to increase through the years, that by 2030 would be equivalent to a $100 per metric tonne advantage that low carbon production out of Donaldsonville would have. So, from our perspective,
It's, it's going to be something that, you know, we haven't really worked into all of our models of upsides, and that's why we feel confident that we've been probably overly conservative. But it will be something that will be an advantage in almost a carbon arbitrage opportunity for CF as we're able to move our product in there.
Yeah, I agree with Chris in terms of how we're looking at cban, but also working with our existing, you, uh, operating units in the UK and planning to send low carbon ammonia to produce low. Carbon ammonium, nitrate for that market as well as other customers Industrials as well as
Fertilizer producers. We see a a tremendous opportunity in the in the near term with the products that we're already making the due to our ccs and longer term with the blue point uh operation.
Objection, but also, um, because I'm on top of, you know, the the 45 Q, we're getting paid incrementally, um, up differentiated product margin, um, for, uh, for the attribute. So the, you know, this is just another step up as, you know, as Chris said, which will add to that, um, with the cban that that wasn't worked in or expected in any of the initial um, calculations around bluepoint,
And maybe just the other part of the question, like, just on the nitrogen market itself. What is the impact there and on the EU?
In its marginal cost role.
The impact I assume what you're asking for is, what is the impact on low carbon product to the market? Uh, no. No, just in just in general. Like you you right now is a marginal costs that are kind of right with with the high cost and that cost is it does that raise the cost profile? Does it does it change like how the market works and maybe there are a different part of the market. Now, like, how does that
Yeah, I think I think what it's going to do is it's it is going to raise the cost of the product going into Europe. Obviously as you're having to pay for that carbon tax, that's there. But I don't think it changes anything with with European production. So as demand grows here and you're seeing that constraint, that's why we're very strongly believe that you're going to have to incent new production, Glo.
To be bid in, and what we've seen recently, with the exception of our project, a lot of these other projects that were in FID state have either deferred those FIDs or canceled the projects altogether. So we see the back half of this decade just getting tighter. And that's at the same time that we'll be bringing on our production. So we think the cost curve, from that perspective, given demand growth, will probably move up along with some of these other carbon initiatives globally.
Thank you.
In the next question, we have Aaron Cesari with Baron Berg. Please proceed.
Hello. Hi, good morning. Um, what is CF's perspective on nitrogen fixation products? Do you see these products as a growing risk to traditional nitrogen producers, or do you expect farmers to adopt them as a complementary solution?
And perhaps, additionally, would CF be interested in entering the nitrogen fixation market? Thank you.
This has been a topic: nitrogen fixation microbials, biologicals, different applied products.
For years. And I've been following this space for a couple decades, and there have been many new entrance and we have a lot of access to, uh, Farmers. We have paid attention to the, the studies from the various universities and I would say today, it's a, a questionable segment. It, they haven't performed as advertised, they've been tried and there are variables. I've talked to 2 Farmers. Most recently with all the variables, controlled being water, the only variable being weather but water seed, crop protection, fertilizer being constant and the variables being the these additive products and at times they work and at times they don't are we interested. Well, we follow these things because it has an impact on our business. We want to align with the retailers and Farmers that are uh, doing best practices and so far. We haven't seen uh, the performance.
As advertised.
Yeah, the other thing I would just add to that is, um, our, our expectation is that the value associated with, um, any kind of, as bird said biological, or, or, or other approach is really to drive increased yield as opposed to a um a cost reduction based on nitrogen. You know if if you think about a couple hundred pounds of
Nitrogen going down per acre. Even at, you know, relatively strong values for nitrogen, it's worth a lot more to.
Uh the grower to increase yield by, you know, 3 or 4% than it is to try to take 5% of the nitrogen off the field. There's just more dollars associated with the with the end grain and so we don't really see this as a, you know, necessarily as a competing technology, more of a, you know um, value enhancement to the to to the grower.
Interesting, thank you very much.
All the time. We have four questions today.
I would now like to turn the call back over to Martin Jarosick for any closing remarks.
Thank you, everyone, for joining us. We look forward to seeing you at future events.
The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.