During the company’s 4Q15 conference call, CF Industries Holdings (CF) stated that the operating rates for Chinese urea producers had dropped to 66% in January 2016 from 73% in December 2015. However, the management stated that Chinese producers got a lift from China’s devaluation of the yuan, from declining coal prices, and from the softening transportation costs caused by a weakness in the ocean freight. These situations have not reversed but have made the marginal coal-based Chinese producers more competitive, thus continuing to put downward pressure on urea prices in 2016.
CF expects urea prices to be lower in 2016—between the price range of $225–$270 per ton in the US Gulf region. In 2015, the expectations were between $260 and $300 per ton. Below are a few key takeaways:
- The company expectations for urea shipments in 2016 are at 16.5 million tons, up from 16.3 million tons in 2015.
- The price floor of $225 per ton will likely put pressure on Chinese producers, and the market may see supply easing in 2016.
- The company stated that it expects nitrogen fertilizer demands to “remain steady” in 2016 in North America.
- The company expects the crop planting to increase by 2.5 million acres to 90.5 million acres in 2016.
During the 4Q15 earnings call, the company stated that it expects to have capital expenditures of about $600 million for the maintenance of existing projects and $1.2 billion for capacity expansion. This capacity expansion will likely put pressure on Potash Corporation (POT), Agrium (AGU), and CVR Partners (UAN).
Because this fight for market share affects individual companies, you might, alternatively, consider the iShares US Basic Material ETF (IYM), which invests about 12% in agricultural chemical companies.
Continue to the next part for a look at CF Industries’ dividends.