update on ammonia shutdowns / terra chemical high prices force chemicals to sell gas , futures
chemical companies , forced to shut in operations because of high natural gas
prices , are nevertheless making money - - - by selling gas futures contracts .
terra industries and mississippi chemical corp . became the latest companies
to announce cutbacks related to current natural gas costs .
iowa - based terra industries said it had sold off a portion of its december
natural gas purchases , and shutdown 50 % of its verdigis , ok , ammonia
facility . the company had previously reported that it would not operate its
bytheville , ar , and beaumont , tx , facilities during the month of december as
well .
in a similar maneuver , mississippi chemical corp . , a producer of nitrogen ,
phosphorus and potassium - based products in mississippi , louisiana and new
mexico , reported the sale of all of its natural gas futures contracts from
january forward , in order to take full advantage of the opportunity uncovered
by soaring natural gas prices . mississippi chemical said it expects to
realize a pre - tax gain of $ 16 million in its second fiscal quarter ending
dec . 31 from the recently sold contracts .
the problem lies in the fact that escalating natural gas costs are not being
mimicked by chemical prices . an overabundance on the market has kept chemical
prices relatively low , while gas prices , a feedstock for some chemicals ,
continue to climb . the difference in the latest shutdowns is that the
companies involved have openly announced they have sold their gas contracts
off because it is more profitable than manufacturing their products , said ron
phillips of the fertilizer institute .
duke energy ' s ken nyiri , divisional director of strategic planning and
research , commented on mississippi chemical ' s transactions , " i guess they
probably made about a $ 4 / mmbtu margin on the gas , which is significantly more
than they could make on the ammonia ; in fact , they would have lost $ 30 / unit .
their ammonia was probably costing them about $ 205 / ton to make ( with gas
bought at $ 5 / mmbtu in november ) and the market today is at $ 205 so basically
they would break even on their ammonia production costs . by selling the gas
at around $ 9 / mmbtu they made $ 4 / mmbtu . it was just a question of do they
convert the gas to ammonia and make nothing on it , or do they sell the gas
and make $ 16 million . "
michael l . bennett , executive vice president of terra , said , " the natural gas
price increase since our december requirements were purchased for verdigris
permitted us to sell a portion of those purchases and generate higher gross
profits than could be realized from selling the products manufactured with
the natural gas . we will evaluate the economics of bringing verdigris back to
full production near the end of december when january ' s natural gas purchase
commitments must be made . "
terra estimates the idled facilities represent 40 % , 30 % , 77 % and 88 % of the
company ' s north american ammonia , uan , urea and methanol manufacturing
capacity , respectively . the production of all four chemicals are heavily
dependent on natural gas . phillips said " the latest data we had in october
was that of the companies that we survey , which is not the entire ammonia
market , but a good bit of it , we were looking at operating rates of 76 % . "
currently , a total of 4 - 5 million tons / year of ammonia production capacity is
out of service out of about 20 - 21 million tons / year of production capacity .
" clearly some of these folks have been selling their gas [ rather than
producing ammonia ] , " said nyiri . " it ' s the prudent thing to do , i think , in
this marketplace . buy your ammonia if you can . at $ 9 gas , that costs you
$ 350 / ton to make the ammonia , which is $ 145 more than the current market is
willing to pay . "
a spokeswoman for mississippi chemical said the company held on to its
december gas contracts , and has been operating at varied levels of capacity
throughout 2000 ( see daily gpi , june 30 ) . " depending on what the gas prices
are , and what our product prices are around the january - february time frame ,
we will make decisions then on our operations rate [ capacity ] , " said melinda
hood , a mississippi chemical spokeswoman .
charles o . dunn , ceo of mississippi chemical , said , " we remain committed to
the nitrogen business and our customers , but we also have to take advantage
of opportunities to optimize cash flow during these challenging times . it is
our belief that the current unprecedented natural gas prices are unlikely to
be sustained during the intermediate term , " stated dunn . " as a result , we
felt it was in the company ' s best interest to sell our futures positions to
lock in the substantial gain afforded by the recent increase in natural gas
prices . going forward , we will continue to determine operating levels for our
plants based on the relationship between natural gas prices , nitrogen product
prices and our customers ' requirements , as we have been doing for some time . "
international imports are also hurting u . s . producers . currently , there is a
surplus of ammonia in the international market , which is holding ammonia
prices down . u . s . fertilizer producers can ' t compete with the international
market . gas prices are 46 cents / mmbtu in russia , 50 cents to $ 1 / mmbtu in
argentina and venezuela , and $ 1 / mmbtu in trinidad . the u . s . imports 5 . 5
million tons of ammonia each year . fertilizers represent 80 % of the demand
for ammonia in the united states .
terra industries said its facilities would resume production as soon as it
became economical again - - - whether from gas prices declining or nitrogen and
methanol prices rising , just as long as " prices reach levels allowing
positive cash flows . "
nyiri said he believes relief is in sight . he pointed out that the ammonia
market has been sitting around the $ 205 / ton level for the last several
months , but believes ammonia prices will have to increase entering the next
planting season . " i ' ve got my model peaking out around $ 250 / ton in april or
may and at that time i have gas costs coming down . " at that point , the 1 - 2
bcf / d of demand from the fertilizer production industry should begin
returning to service .
- -
update on ammonia shutdowns / terra chemical
high prices force chemicals to sell gas , futures
chemical companies , forced to shut in operations because of high natural gas
prices , are nevertheless making money - - - by selling gas futures contracts .
terra industries and mississippi chemical corp . became the latest companies
to announce cutbacks related to current natural gas costs .
iowa - based terra industries said it had sold off a portion of its december
natural gas purchases , and shutdown 50 % of its verdigis , ok , ammonia
facility . the company had previously reported that it would not operate its
bytheville , ar , and beaumont , tx , facilities during the month of december as
well .
in a similar maneuver , mississippi chemical corp . , a producer of nitrogen ,
phosphorus and potassium - based products in mississippi , louisiana and new
mexico , reported the sale of all of its natural gas futures contracts from
january forward , in order to take full advantage of the opportunity uncovered
by soaring natural gas prices . mississippi chemical said it expects to
realize a pre - tax gain of $ 16 million in its second fiscal quarter ending
dec . 31 from the recently sold contracts .
the problem lies in the fact that escalating natural gas costs are not being
mimicked by chemical prices . an overabundance on the market has kept chemical
prices relatively low , while gas prices , a feedstock for some chemicals ,
continue to climb . the difference in the latest shutdowns is that the
companies involved have openly announced they have sold their gas contracts
off because it is more profitable than manufacturing their products , said ron
phillips of the fertilizer institute .
duke energy ' s ken nyiri , divisional director of strategic planning and
research , commented on mississippi chemical ' s transactions , " i guess they
probably made about a $ 4 / mmbtu margin on the gas , which is significantly more
than they could make on the ammonia ; in fact , they would have lost $ 30 / unit .
their ammonia was probably costing them about $ 205 / ton to make ( with gas
bought at $ 5 / mmbtu in november ) and the market today is at $ 205 so basically
they would break even on their ammonia production costs . by selling the gas
at around $ 9 / mmbtu they made $ 4 / mmbtu . it was just a question of do they
convert the gas to ammonia and make nothing on it , or do they sell the gas
and make $ 16 million . "
michael l . bennett , executive vice president of terra , said , " the natural gas
price increase since our december requirements were purchased for verdigris
permitted us to sell a portion of those purchases and generate higher gross
profits than could be realized from selling the products manufactured with
the natural gas . we will evaluate the economics of bringing verdigris back to
full production near the end of december when january ' s natural gas purchase
commitments must be made . "
terra estimates the idled facilities represent 40 % , 30 % , 77 % and 88 % of the
company ' s north american ammonia , uan , urea and methanol manufacturing
capacity , respectively . the production of all four chemicals are heavily
dependent on natural gas . phillips said " the latest data we had in october
was that of the companies that we survey , which is not the entire ammonia
market , but a good bit of it , we were looking at operating rates of 76 % . "
currently , a total of 4 - 5 million tons / year of ammonia production capacity is
out of service out of about 20 - 21 million tons / year of production capacity .
" clearly some of these folks have been selling their gas [ rather than
producing ammonia ] , " said nyiri . " it ' s the prudent thing to do , i think , in
this marketplace . buy your ammonia if you can . at $ 9 gas , that costs you
$ 350 / ton to make the ammonia , which is $ 145 more than the current market is
willing to pay . "
a spokeswoman for mississippi chemical said the company held on to its
december gas contracts , and has been operating at varied levels of capacity
throughout 2000 ( see daily gpi , june 30 ) . " depending on what the gas prices
are , and what our product prices are around the january - february time frame ,
we will make decisions then on our operations rate [ capacity ] , " said melinda
hood , a mississippi chemical spokeswoman .
charles o . dunn , ceo of mississippi chemical , said , " we remain committed to
the nitrogen business and our customers , but we also have to take advantage
of opportunities to optimize cash flow during these challenging times . it is
our belief that the current unprecedented natural gas prices are unlikely to
be sustained during the intermediate term , " stated dunn . " as a result , we
felt it was in the company ' s best interest to sell our futures positions to
lock in the substantial gain afforded by the recent increase in natural gas
prices . going forward , we will continue to determine operating levels for our
plants based on the relationship between natural gas prices , nitrogen product
prices and our customers ' requirements , as we have been doing for some time . "
international imports are also hurting u . s . producers . currently , there is a
surplus of ammonia in the international market , which is holding ammonia
prices down . u . s . fertilizer producers can ' t compete with the international
market . gas prices are 46 cents / mmbtu in russia , 50 cents to $ 1 / mmbtu in
argentina and venezuela , and $ 1 / mmbtu in trinidad . the u . s . imports 5 . 5
million tons of ammonia each year . fertilizers represent 80 % of the demand
for ammonia in the united states .
terra industries said its facilities would resume production as soon as it
became economical again - - - whether from gas prices declining or nitrogen and
methanol prices rising , just as long as " prices reach levels allowing
positive cash flows . "
nyiri said he believes relief is in sight . he pointed out that the ammonia
market has been sitting around the $ 205 / ton level for the last several
months , but believes ammonia prices will have to increase entering the next
planting season . " i ' ve got my model peaking out around $ 250 / ton in april or
may and at that time i have gas costs coming down . " at that point , the 1 - 2
bcf / d of demand from the fertilizer production industry should begin
returning to service .
- -