04 June 2001 00:00 [Source: ICB Americas]Demand in the nitrogen-based fertilizer market has slowed in recent months, due to a number of factors, including high fertilizer pricing, low grain prices and adverse application conditions. Overall nitrogen volumes were down while product prices were up significantly in the first quarter 2001 compared to the year-ago quarter.
The sharp rise in natural gas costs in December and January led to a temporary shutdown of roughly 55 percent of US capacity of nitrogen operations during that time. However, most of this capacity reopened within 30 to 60 days. These production curtailments added to an already tightening global nitrogen supply/demand balance for the period, producers say. As a result, nitrogen prices for the first quarter were significantly higher year-over-year. However, rising gas prices at the beginning of the quarter supported product price increases as plants shut down, according to analysts.
Although prices differ depending on producer, average first quarter 2001 prices for nitrogen products were in the range of $174 to $220 per short ton, compared with roughly $101 to $150 in the same quarter last year.
The delayed application season, resulting from unusually wet conditions in many areas of the US, also negatively affected the results of producers. For example, in Northwest Iowa, "snow was on the ground until April 15, so hardly any fertilizer was planted in the first quarter," says Mark Rosenbury, chief administrative officer of Terra Industries.
But despite high energy costs and a late spring planting season, producers generally showed improved operating income for their first quarter nitrogen operations. Agrium Inc.'s first quarter showed improved results for the third consecutive quarter year-over-year, reflecting the turn in the nitrogen cycle, the company says.
"Historically, our first quarter results were largely determined by the timing of the spring planting season in North America, which this year was delayed until early April, later than recent years. Despite this, our results improved significantly year-over-year due to the increase in our international nitrogen sales following the acquisition of the Kenai, Alaska, facility and the commissioning of the Profertil, Argentina, facility," says John Van Brunt, president and CEO. Margins in areas, such as Bahia Blanca, where Profertil is located, fared better because of their long-term gas commitments, the company notes.
Record nitrogen sales revenue due to significantly high nitrogen prices and a stable cost base were the main contributors to Potash Corp. of Saskatchewan Inc.'s first quarter net income of $62.4 million, the company says. In that period, potash, the most profitable of the company's three nutrients, was down, but gross margins in nitrogen expanded almost five times to $60.7 million, more than the decrease in potash and phosphate gross margins.
Potash Corp.'s average natural gas input cost in its nitrogen operations was $3.53 per million BTUs, an increase over first quarter 2000, but far below the Nymex average of $7.09 per million BTUs. The company says its hedging policy reduced its first quarter natural gas costs in the US by $47.7 million, compared to the market.
Mississippi Chemical, which reported a 14 percent increase in net sales for its third fiscal quarter, ended March 31, says its nitrogen operations showed improvement as higher product prices offset the 89 percent increase in its average natural gas price and lower sales volume. "Nitrogen prices continue to benefit from more favorable global supply/demand fundamentals compared to last spring," says a company official. This improvement was further enhanced by the shutdown of various domestic plants, he says.
Terra Industries recorded a loss of $5.2 million in this year's first quarter, compared to a $19.6 million loss in the year-ago quarter. "The improvement was due solely to higher selling prices--natural gas costs increased 156 percent, and nitrogen sales volumes were nearly 50 percent less than the year-ago quarter because of adverse applications conditions in most of Terra's market areas," says Mr. Rosenbury. Terra is largely exposed to domestic nitrogen markets, leaving it among the most sensitive to US farmer incomes and natural gas prices, according to a recent Merrill Lynch fertilizer report.
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