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Perfect Timing for CF’s Nitrogen Capacity Expansion

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Nitrogen demand

Over the years, North America (XLB) has been a net importer of nitrogen fertilizers despite the presence of agricultural giants such as CF Industries (CF), Agrium (AGU), Koch, Terra Nitrogen (TNH), and PotashCorp (POT). According to CF Industries, in 2017 about 29% of North America’s nitrogen demand will be fulfilled through 7.4 million short tons of nitrogen. Ammonia and urea will account for more than 80% of the imports.

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CF’s opportunity

CF’s Donaldsonville project added another 1.2 million tons of capacity. It will help CF capitalize on its unique position. The Donaldsonville site is connected to major nitrogen demand regions through the 2,000-mile NuStar Pipeline. It’s cheaper than importing to the continent.

Earlier this year, Chinese producers shut down almost 27 of their urea facilities. The facilities produced about 7.6 million metric tons annually, according to CF Industries. These were primarily anthracite-based producers. With some Chinese producers selling below cost, the closures were expected.

Positive for CF

CF’s expansion completion couldn’t have come at a better time. In its press release yesterday, the company said, “The Donaldsonville complex has flexibility to switch production from merchant ammonia to upgraded products.” The flexibility gives CF the ability to upgrade to urea if it sees the rationality in demand and margins in its markets.

We’ll get more updates during CF’s 3Q16 earnings call. Read What Do CF Industries’ 3Q16 Earnings Have In Store? to learn more.

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