CF工業控股 (CF) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2013 CF Industries Holdings earnings conference call. My name is Rachel, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation.

(Operator Instructions)

I would now like to turn the presentation over to the host for today, Mr. Dan Swenson, Senior Director of Investor Relations and Corporate Communications. Sir, please proceed.

Good morning, and thanks for joining us on this conference call for CF Industries Holdings Inc. I'm Dan Swenson, Senior Director, Investor Relations and Corporate Communications. And, with me are Steve Wilson, our Chairman and Chief Executive Officer; Dennis Kelleher, our Senior Vice President and Chief Financial Officer; Bert Frost, our Senior Vice President of Sales and Market Development; and Tony Will, our Senior Vice President of Manufacturing and Distribution.

CF Industries Holdings Inc reported its first quarter 2013 results yesterday afternoon as did Terra Nitrogen Company LP. On this call, we'll review the CF Industries results in detail and discuss our outlook referring to several of the slides that are posted on our website. At the end of the call, we will host a question-and-answer session.

During this call, and in the associated slides and our earnings press release, we make reference to certain adjusted or as adjusted financial results. These adjustments relate to the modification to the selling price methodology used for products sold by Canadian Fertilizers Limited, or CFL. This modification impacts the comparability of the financial results between the 2012 and 2013 periods. To facilitate period to period comparisons of the company's underlying operating performance we are presenting certain financial information on an adjusted basis, as if the modified selling price calculation methodology had been in effect on January 1, 2012. Please refer to the exhibits and reconciliation in the press release, or on slides 12 through 14 of the presentation accompanying this call. These adjustments impacted revenue and gross profit but did not affect CF Industries economics, EBITDA, net earnings, or earnings per share.

As you review the news releases posted on the Investor Relations Section of our website at cfindustries.com, and as you listen to this conference call, please recognize that they contain forward-looking statements as defined by federal securities laws. All statements in the release and on this call other than those relating to historical information or current conditions are considered forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the Safe Harbor statement included in yesterday's news release and the slides accompanying this call. Consider all forward-looking statements in light of those and other risks and uncertainties and do not place undue reliance on any forward-looking statements. Now, let me introduce Steve Wilson, our Chairman and CEO.

Thanks, Dan, and good morning, everyone. Yesterday afternoon CF Industries reported record first quarter net earnings of $407 million, or $6.47 per diluted share, compared to earnings of $368 million, or $5.54 per share, in last year's first quarter. Our net earnings and earnings per share set first quarter records as our employees did an exceptional job operating the business.

Last year, we had unusually early start to the fertilizer application season. In stark contrast, this year we're experiencing an unusually late start to the season. However, it is our same set of core business strengths of manufacturing flexibility, nimble transportation and logistics infrastructure, and significant end market storage assets all operated by the best team in the business that have enabled us to post outstanding results under vastly different market conditions. The first quarter of 2012 was characterized by an abnormally early start to field preparation work throughout North America, most notably in the upper Midwest United States, which is an area of significant demand for preplant ammonia application. The year ago quarter also was characterized by relatively low urea imports, which set the stage for very strong urea prices throughout the spring season. This year we saw a more normal weather result in a later start to ammonia applications. During the first quarter of 2013 we also had a higher volume of urea imports which, along with the late start to the application season, has weighed on urea prices in North America.

Despite these diverging market trends, the effective management of our business enabled us to generate 10% growth in net earnings and due to our share repurchases, 17% growth in earnings per share. As you know, nitrogen is a nutrient that must be applied on corn every year to generate the yields that allow farmers to maximize their profitability. In the first quarter we saw clear evidence of strong demand for nitrogen in the volume of UAN that we shipped to our customers. And, we have a very strong UAN order book, which indicates our customers' desire to have product available as the season gets up to speed. During the quarter we sold 3.5 million tons of our products, a decrease of 6% compared to the exceptional first quarter of 2012. But, also 6% higher than the same period in 2011 when we experienced comparable weather conditions.

In the nitrogen segment, we had a year-over-year increase in the average price for each of our major products except urea. And, strong product volumes considering the later start to application compared to last year. Ammonia's the product that experienced the greatest year-over-year change in volume. In 2012 we sold 672,000 tons of ammonia, an unprecedented amount that reflected the exceptional weather conditions that allowed farmers to get into their fields to start application in early March. This year we sold 334,000 tons of ammonia, a more typical amount. The cool wet weather prevented farmers from starting ammonia applications in the corn belt during the quarter but we did experience good movement in the southwestern states.

Pricing for ammonia was quite strong throughout the quarter. The average price per ton was about even with the first quarter 2012 reported average price, and increased about 6% compared to the adjusted average price. This year-over-year increase in the strength of ammonia prices in the corn belt demonstrates the market's strong demand expectations for the spring application season. Urea sales volume and average prices both declined from the first quarter of 2012. Our sales volume was very strong in 2012 given the early start to the application season compared to this year. And, as I noted earlier, prices declined due to the delayed demand and the higher volume of imports that has come to the US this year. This season's price movements, compared to the very strong spot market prices last year, remind us that this is a dynamic market with sharp price movements in both positive and negative directions. To be a reliable supplier in this market, companies need to have the infrastructure to store the products during periods of market slowness, a distribution system to be able to move product to market quickly, and the financial strength to weather periods of slow demand and relatively modest prices. I emphasize the word relatively because, as we know, even at the most recent published Gulf urea spot price of $330 per ton CF Industries still earns very attractive margins.

UAN has been an area of robust demand and attractive prices for us this year. This lead us to increase our production of UAN relative to urea in order to capture the enhanced earnings opportunity. Since UAN can be stored in downstream customer locations, we saw strong movement to dealers and distributors as they sought to build their inventories in preparation for a very robust spring application. To put this in perspective, our UAN volumes set a first quarter record and was the second highest we've delivered in any single quarter. We managed our UAN pricing and order book very well during this period of robust demand. As a result, we realized an average price of $329 per ton. With the importance of UAN to our company, this was a key component of the strong results we generated this quarter.

Our cost of natural gas increased slightly from the year prior levels. Although weather early in the quarter was relatively mild, this March proved to be among the coldest on record and natural gas prices experienced an associated rally. Our long-term view is that natural gas prices are sustainable in a range of roughly $3 to $5 per MMBtu and that production increases should limit any sustained price rally.

Our phosphate business generated $28 million of gross margin on sales of $239 million. While export volume and prices decreased due to a slow International market, we experienced healthy volume and prices in a domestic market given prospects for a strong, albeit delayed, spring season. As we noted in our earnings release and the press release we published April 22, we bought back 2.5 million shares during the quarter. And, with purchases subsequent to the end of the quarter we have bought back a total of 3.8 million shares for the year to date, representing approximately 6% of shares outstanding as of the end of 2012. These repurchases totaled $750 million for an average price of approximately $197 per share. We believe the repurchases represent exceptional value. With that, I'd like to turn the call over to Dennis for a few more comments on our financial performance.

Thanks, Steve, and good morning, everyone. During the first quarter of 2013 the company reported net earnings attributable to common stockholders of $407 million or $6.47 per diluted share. This compares to $368 million, or $5.54 per diluted share, in the first quarter of 2012. Our first quarter 2013 earnings per share included an unrealized gain on natural gas derivatives of $0.23, a loss on foreign currency derivatives of $0.12, and an after-tax net benefit from the recognition of net operating loss carry forwards from prior to our IPO of $0.33. First quarter of 2012 earnings per share included a mark to market loss on natural gas derivatives of $0.52.

Our nitrogen business had a very good first quarter, which you can see on slide 6. We delivered 3 million tons of nitrogen products and achieved a gross margin of $648 million compared to $662 million in 2012. The decrease in nitrogen gross margin versus the prior year reflects the more normal timing of shipments this year compared to the early movement last year. Gross margin as a percent of sales increased from 52% to 59% due to the gain on natural gas derivatives in 2013 compared to the loss in 2012. During the first quarter of 2013 we sold 334,000 tons of ammonia at an average realized price of $600 per ton, compared to 672,000 tons in 2012 at an average reported price of $598 per ton, or an average adjusted price of $567. Ammonia sales volume for the first quarter of 2012 benefited from an exceptionally early start to the application season while volume in the first quarter of 2013 reflected the impact of more normal weather conditions. Ammonia prices increased due to anticipated strong demand for the spring planting season and tight supplies throughout most of the quarter.

Granular urea sales volume was 643,000 tons in the first quarter of 2013 compared to 758,000 tons in the first quarter of 2012. The average price was $410 per ton in the 2013 period versus an average reported price of $461, or average adjusted price of $436 in the prior year. Sales volume decreased due to the later start to the application season compared to the unusually early start in 2012 while the average price decreased due to higher imports than the prior-year period. During the first quarter we sold approximately 1.6 million tons of UAN compared to 1.4 million tons in the first quarter of 2012, an increase of 17%. Average UAN prices were $329 per ton, a 9% increase from the first quarter of 2012. Our sales volume was higher due to robust demand for movement of product into dealer storage in anticipation of a strong application season and our decision to increase UAN production relative to urea production due to the attractive margin opportunity. UAN prices increased due to the strong demand and our effective management of pricing structure and our order book.

Ammonium nitrate sales were 208,000 tons in the first quarter of 2013, a decrease from 247,000 tons in the first quarter of 2012. Average prices were $264 per ton in 2013, an increase from $259 in 2012. With more normal winter weather in 2013 compared to the very warm weather in 2012, the average daily market price of natural gas increased to $3.49 per MMBtu for the first quarter. Our realized cost of natural gas was slightly higher, at $3.57 per MMBtu, reflecting the premiums we paid to cap our cost of natural gas and the use of call options. As of April 30, 2013, we had 90% of our projected natural gas needs capped through July.

As shown on slide 7, our phosphate segment achieved total revenue during the first quarter of $239 million, down 7% from the first quarter of 2012. Total sales volume for DAP and MAP was 495,000 tons, 4% lower than in the first quarter of 2012, with domestic volume up from 325,000 to 382,000 tons due to strong demand associated with expected spring planting. Export volume was down from 191,000 to 113,000 tons due to our having more attractive options in the domestic market. Although our average price per ton for the products diverged, with MAP prices increasing while DAP prices decreased, it is worth noting that domestic prices for both products increased due to healthy US demand. International prices, however, decreased due to lower demand than last year. The phosphate segment generated $28 million of gross margin, down from $50 million reported a year ago due to lower revenues and higher cost of production.

As discussed in the release, during the first quarter we recognized a net after-tax benefit of $20.6 million resulting from a closing agreement with the IRS related to net operating losses from periods prior to our IPO when the company was operated as a cooperative. Our $750 million of share repurchases was funded through cash on hand. As we reported on April 22, we increased the size of our revolving credit facility from $500 million to $1 billion and extended its maturity by a year to 2018 beyond the timeframe within which we expect to complete our capacity expansion projects. We filed an automatically effective shelf registration statement that enables us to access the capital markets quickly if we should decide to take advantage of the attractive rates at which we could issue debt in investment-grade credit market. These actions demonstrate our financial capability to execute our strategic initiatives. And, we are of course pleased with the ratings upgrade we received recently from Moody's.

Finally, we expect to spend between $600 million and $800 million during 2013 on our capacity expansion projects. This range is approximately $400 million lower than the range we communicated previously due to the refinements in estimated timing of expenditures. These refinements have no impact on project schedules which are progressing according to plan. Capital expenditures for existing facilities are expected to be approximately $450 million. Now, let me turn it back to Steve.

Thanks, Dennis. With a team of employees who have exceptional focus on operational excellence, we're confident that we will be able to capitalize on the opportunity that this very attractive, albeit late starting, plant nutrient application season presents. The late season will require utilization of the strengths of our business, production mix flexibility, transportation and logistics infrastructure, extensive end market storage assets, and global presence with export options.

Our product mix flexibility is a key capability in dealing with varied markets such as last year when urea commanded a price premium due to the tightness of its market and this year when attractive prices have made increasing UAN production a valuable option. Incidentally, our flexibility to shift between urea and UAN will increase substantially when our Donaldsonville expansion is complete. While farmers will make every effort to use ammonia prior to planting this spring, we expect they will reach a point where they will forgo preplant application, plant their crop and come back later with ammonia and/or UAN. We have been producing UAN at high rates in order to meet the demand and to realize the very attractive margins that come along with those sales.

While urea prices have been under pressure due to the late season start and the volume of imports, our transportation and logistics system has allowed us to move our urea into the corn belt where we believe we will realize the best net pricing. And, having significant end market storage, in particular for ammonia, is of critical importance as is being demonstrated this spring. With a compressed time period available to farmers for applying ammonia, having in market availability of product and the ability to load customer trucks quickly is vitally important. The vast volume of spring ammonia application often occurs in a period as short as 10 days.

We have organizational insight to global trends and the ability to market our products to export estimations when price opportunities are attractive. This enables us to identify and take advantage of sales opportunities around the world for all of the products in our production mix. We anticipate these opportunities will include selling significant volumes of phosphate into South America and India this year as those markets are expected to have robust phosphate demand.

Our share repurchases to date in 2013 bring the total cash we have used to purchase shares since 2011 to $2.25 billion for 17% of our outstanding shares at an average price of $168 per share. And, we have authorization in place to purchase another $2.25 billion worth of our shares. During that same period, we have paid $182 million in dividends and spent nearly $800 million on capital expenditures. And, last week we completed our Medicine Hat interest acquisition for about $900 million. In total we have deployed approximately $4.1 billion of capital since mid-2011 to sustain the business, invest in future growth, and return cash to shareholders. This has all taken place since our $4.6 billion acquisition of Terra in 2010, which was clearly a timely value creator for our shareholders. We are committed to continuing this record of disciplined cash deployment as illustrated by our capacity expansions and by our remaining share purchase authorization.

So, in conclusion, I'm extremely pleased with where CF Industries is today. Continuing to post very strong operating results and doing what we said we would do in executing strategic initiatives that we believe will create even more value for our shareholders. With that, let's open the call to your questions. Rachel, please explain the Q&A procedure.

Thank you.

(Operator Instructions)

Kevin McCarthy, Bank of America Merrill Lynch.

Steve, in light of the late planting in North America, could you comment on the likely impact on the quarterly cadence of your earnings? And, perhaps discuss how late in the growing season growers can apply ammonia and UAN and your anticipated mix effects there?

Well, in terms of the quarterly cadence of our earnings is frankly not something that we spend a lot of time worrying about. We look at our season from early spring through the beginning of summer. And, we move as much product as we can into the marketplace when it's demanded.

And, the split between Q1 and Q2 ends up being whatever it is. But, having said that, we have a very good order book. We're very optimistic about the amount of product we're going to move into the market and the economics associated with that. Bert, I'll ask you to handle the second one.

Regarding ammonia application and how late or how long that will go we're seeing good movement throughout our system today and we have throughout the last week. And, that's distributed around where we have our terminals on the pipelines and on the river and we anticipate that to continue. The area that we're most affected by not applying ammonia last year were in the North, North Dakota, Minnesota, and Canada.

And, that's the area where we believe significant ammonia needs to go down and that area also has a little bit more of a window to put that product down. And so, we anticipate that area to start this week. And, if you look at North Dakota on the weather map, which we seem to follow every day, they've got an open window probably for the next week with appropriate temperatures and lack of moisture.

On ammonia, you can apply ammonia for preplant and have it cure as short as three days as long as seven days. And so, it takes an average of five. And so, you need a window to apply and then wait for the product to cure and then plant the seed.

But, don't forget that the side dress season can continue until the plant is up to 3-foot tall -- let's take an average of 3 feet tall. And so, I would expect that side dress, due to the late planting, will continue into July. So, we will see positive movement of ammonia. Even though we've recognized that some ammonia areas may move to UAN, ammonia still will be going through to early July.

Very good. That's helpful. As a second question, can you comment on the reasons behind the deferral of $400 million in your capital programs to the new range of $600 million to $800 million for 2013? Why was that reduced? And, also, why, given the reduction, is there no impact on your expected time line?

Kevin, there's actually no deferral involved in this. When we put our estimates together early on in terms of these projects, we tend to err on the conservative side, in terms of the timing. So, that we're prepared to handle liquidity needs that could come up. As we move forward in the projects and we begin to negotiate for individual pieces of equipment and individual pieces of work, we're going through contract negotiations with suppliers.

And, the resulting terms of those contracts then determine the cash outflow pattern. So, what we have is much more visibility into the actual outflows that will occur. So, it is simply a refinement in our estimate. And, obviously, it's good working capital management if we can manage it in this fashion.

Steve, just to clarify, is the total expected cost of the project any lower at this juncture?

It is not. We're comfortable with our estimate and things are going along in a way that has at least worked in the direction of increasing our confidence level.

Understood. Thank you.

Matthew Korn, Barclays.

This is Kimberly Teller sitting in for Matthew. I was just wanting to know, has your willingness to hedge additional natural gas over the rest of the year changed at all?

We've announced that we have in place call options that cap our cost of natural gas for 90% of our expected usage between now and the end of July. And, we visit this opportunity on a regular basis. Should we find the right opportunity to do more, we certainly will. But, we've made no decisions at this point.

Great. And then, just one other question, could you speak a little bit about whether or not you see continued high Chinese export levels for urea? Being concerned just because they've had a weak demand season, what the potential is for that over the course of the year?

Well, the early signals are that we might experience urea import levels similar to those that we experienced last year. We don't really know until the window opens up. But, in terms of our own planning, we're assuming another strong year of Chinese urea exports.

Okay, great. Thank you, very much.

Don Carson, Susquehanna.

Steve, question on your forward order book. It's up considerably year-over-year, $700 million. I think you've made some comments that it's primarily UAN. So, what drove the increase year-over-year? Was it more demand from growers for UAN or was it just your decision that the economics of UAN were more attractive this year than they were last year?

Don, I'll turn it over to Bert in a second, but remember that we had very, very strong movement in March of last year. And so, last year may have been artificially low as a basis of comparison. But, Bert, do you want to elaborate?

Regarding UAN, we identified early in Q1 some friends that we thought were positive for market for UAN. And, we executed several decisions regarding sales, sales prices, production increases in UAN that actually took place late in probably Q4 2012. And so, we believe that we identified correctly where the market would be and executed that and worked with our customers to take sales into Q2. And, we're now executing against that.

Bert, just to follow-up, the with urea pricing down where it is, it's -- basically UAN is trading at a 30% premium to urea on a nitrogen equivalent basis. Are you seeing any latent interest on the part of growers to use urea or is it just that the convenience of UAN is -- makes it more attractive despite the price?

It's interesting, we talk about these issues -- it seems every year this comes up on what product customers or farmers will switch to. And, do they switch and will they switch? Last year, even at urea at $700, those who use urea, traditionally use urea, stayed with urea.

Even though UAN was trading probably close to $320. And, this year we're seeing UAN priced, as you've mentioned, probably 30% premium. And, we're experiencing, I would say, robust demand for UAN. But, we also expect urea to pick up as customers look to maximize their end applications as they progress when they're planting.

Thank you.

Vincent Andrews, Morgan Stanley.

Steve, can we talk a little bit about what could happen to pricing if we look out 2016, 2017, 2018, whatever the period is when all the US plants come online? And, if we assume the US has to become a net exporter, do you think you can use the Donaldsonville facility as a valve to keep the US market balanced in a premium priced market in the way that it is today? Or how do you expect those dynamics to play out?

First of all, Vincent, I think it's extremely unlikely that the US will be in a net export position by 2016 or 2017. I would be quite surprised if that were to happen. But, I will just go on to say that one of the principal reasons we're investing $2.1 billion at our Donaldsonville location is that it is on deep water. And so, we will be in a position to take advantage of the best available economics, whether the economics are offshore or onshore.

And, I think we're frankly in a unique position with that big footprint that we have in Louisiana. We have lots of flexibility domestically, in terms of the way we move the product. And then, we have the ability to load ocean going ships and move it to whatever region of the world can give us the best net back. So, I think we're ideally suited for handling whatever circumstance evolves.

Okay. And, just secondly, could you talk about what would cause you to decide to issue debt? Obviously, you talked about the rates being attractive. So, maybe the question is why haven't you done it yet? What would cause you to do it or not do it?

Yes. I guess, Vincent, I would just go back to strategy real quickly. We've announced $3.8 billion capacity expansion projects. We just completed Medicine Hat and we've got a $3 billion share repurchase program of which we've already done $750 million. So, we're very committed to making sure that all of those things happen, as Steve said in his speech, before the end of 2016.

You will have seen also we've filed a shelf registration statement, we increased the size of our revolver. So, obviously, it wouldn't be surprising given where rates are today that we would go out into the market looking for debt at some point. When we have something to report on that that's definitive, we'll let you know. But, I think we've got, as I look at our strategic plans, I think we've got a very capital efficient financing plan to deliver on those things over the next three years.

Okay, great. Thanks, very much.

Joel Jackson, BMO Capital Markets.

Just circling back on UAN, is it a foregone conclusion that Q2 is going to be a record Q2 for CF for UAN? And, maybe I'd ask the same question for Q3 as well please.

Joel, I will say I have an idea that it will be a very good quarter. Whether it will be a record quarter for UAN is way too early to project that.

Okay. Also want to ask you, with the urea prices coming down, hopefully getting to floor prices here, do you have a sense that the floor price will be closer to the Eastern European high-cost production cost or some of the Chinese costs?

Well, Joel, I don't think they're all that's different. Certainly, our recent experience over the last couple of years has been that when prices get down into this range that the capacity -- the production that reacts is the production in Eastern Europe. And, we'll see what unfolds.

And, finally, looking at phosphates, do you expect a little bit of demand destruction at all this spring because it keeps pushing out on phosphates? And, do you expect summer fill prices to be lower or do you think price has come off enough?

Bert?

Regarding demand destruction, what we are seeing, this is anecdotally, that farmers are eager to get in the fields and may forgo a PNK application in certain areas thinking they can probably pick that up in the fall. How big that is or how small that is, we'll have to wait and see. Regarding summer fill, we have an interesting scenario taking place in the world of phosphates with India delaying their purchasing. We expect that they have 3 million to 4 million tons to purchase.

But, having a phosphoric acid negotiation at a rate that's closed, it puts a higher floor on phosphate DAP imports into India. So, you could see an increase in phosphates demand in India for DAP as well as the South Americans delaying their purchases of -- right now, it looks like all their products. And, at the same time, that will come into the market as are summer fill. So, you could paint a scenario that the markets will improve over the next several months as all of these demand points come at the same time.

Thank you.

Jeff Zekauskas, JPMorgan.

When I look at your share repurchase history, you've historically tended to buy back shares below $180 a share. And, now you're buying them into the $200 and you're buying them at substantial -- in substantial quantities.

And so, I was wondering whether there was a philosophic change on your part in terms of the way that you relate to share repurchase? That is why the prices that you're willing to buy stock back now are so much higher than in the past? And, what was the highest price that you paid for your shares over the last few months?

Jeff, our philosophy on share repurchases has not changed.

Yes.

We by our shares back when we believe they represent good value. I think I made that comment earlier that we believe the shares we have repurchased represent good value for our shareholders. And, the average price at which we bought -- have bought shares back recently, the $750 million was at $168 on average. And, we noted an average of $1.97, roughly, for the -- for what we did in Q1.

Okay. And then, lastly, are there any changes in your tax rate going forward given some of the issues that arose this quarter? And, on your income statement, there was, I think, a $54 million expense, nonoperating expense. I was wondering what that was?

Yes. The $54 million nonoperating expense, if you go back to the discussion in the press release, and also in our script, we had a settlement with the IRS with respect to net operating loss carry forwards that were generated during the time when the company was a cooperative before our IPO. That's allowed us to reduce our income tax provision in the quarter by $75.8 million down to $107 million, as you see there, which is what it is on the income statement.

In addition to that, we had an agreement with the pre-IPO owners, that is other cooperatives and pre-IPO owners of the company, that we would share the benefit of that with them. And, the sharing of that benefit amounted to $55.2 million. That $55.2 million is the major component of that other operating expense net.

Okay. And, is there any change in your tax rate going forward or this was all one quarter?

No, this was a one-time thing. If you were to subtract out the effects of both the agreement with the owners and also the settlement with the IRS the tax rate wouldn't be 20% as you see here it would be 31%. And so, we still see our effective tax rate going forward more or less in the range that we've seen it in the past.

Okay, good. Thank you, very much.

Chris Parkinson, Credit Suisse.

Given that Chinese exports in the US are a relatively well-known theme, can you comment on your expectations for pricing trends for both UAN and ammonia given the International supply dynamic? And, in particular the respected producers in North America, Trinidad, and Eastern Europe? Thank you.

Bert?

You were a little bit quiet on your question. I understood your question to be with Chinese exports being what they are, what we expect them to be, what do we expect for pricing for our products? Is that correct?

Yes, for UAN and ammonia out of the other respective producers.

Okay. Well, when you figure out China, let me know. But, we did not expect a volume of exports to come out of China last year. And, it ended up being substantial. And, in Q1 they continued that trend and we expect that for the full year 2013, that they will mirror last year more or less. Again, we don't have a plus or minus factor there.

We know that there are substantial quantities already positioned in the ports for the July 1 export date. And, that's hanging over the market. That, and the combination of Iranian exports to India that seem to take -- or dominate those tenders, that then has pushed the Arab gold tons and other Egyptian tons to the United States and to other markets, in excess. And so, we have this 2 million-ton hangover hanging over the market right now for this current period and some of that will bleed into the third and fourth quarter.

So, what we're seeing is what's being played out in a rational market, of urea being priced down to where the Chinese may not be encouraged to export. So, the impact on UAN, we've seen a divergence. UAN has been demanded and has been priced, we think, appropriately. We've captured that. The market is eager to utilize the UAN and as well as ammonia is at probably a higher rate.

Going to the third and fourth quarter we will have a natural, and just like historically we have had, the reset. We call it the fill period in the United States. Those prices for UAN and ammonia will moderate to a level where farmers are encouraged to contract with their retailers and we will then sell to the retailer. And so, I don't think we're going to have a substantial drop outside of a historical norm for that period and then we should trend well in the third and fourth quarter.

That's great color. Thank you. And, just a quick follow-up on the CapEx reduction for Donaldsonville and Port Neal. Is the remaining $600 million to $800 million still mainly equipment prepayments? Basically, is there any other color you can offer there?

I'm sorry, I couldn't hear your question, Chris.

Regarding the $600 million to $800 million in remaining CapEx, is that primarily equipment prepayments?

Tony, do you want to comment on that?

It's a combination of for this year for $600 million to $800 million, it is a combination of equipment prepayments, there's engineering and procurement services costs in there. And then, our expectation is that we're going to begin civil work in construction sometime in the summer. So, there's earth moving and construction activity in there as well.

Great. Thank you.

Mark Connelly, CLSA.

Steve, you've obviously demonstrated what the flexibility of your system can do in terms of responding to changes in demand. Do you think it's going to be harder for you to exit the season with nitrogen inventories where you want them? Obviously, flexibility helps you get stuff where it needs to be but is it going to be tougher to manage inventories as you exit this year?

Well, my general comment on that, Mark, is that every year everybody has the same objective. There never seems to be such a thing as a normal or average season. Some products are in higher demand than others. And, at the end of the year we inherit whatever is there. We're seeing very strong UAN movement.

Bert talked about an ammonia season going into July. A lot of nitrogen is going to end up going to the ground. And so, should we move as much as we think we'll move I think our overall inventory position will be just fine. We may have a little more of one product than another but that's really the case every year.

Okay. But, no overall -- no greater challenge to the overall nitrogen, is what you're more or less saying, right?

Right.

Okay. And, just one more question, if I tie together a couple of your comments, the US won't be a net exporter by 2016, your comments about China perhaps selling quite a bit again next year. Do you think there's a trend -- looking at your own outlook, do you see a trend in US imports over the next couple of years or is it actually getting more unpredictable?

Bert?

Yes, predictable or unpredictable, what has happened this year is some traders and producers were long. The US is a liquid market, NOLA specifically. And, we saw product from Milan and other places that may not normally come on a routable basis begin coming on that on a monthly level, as well as some other locations like Indonesia.

And so, we became the fallback position, or the backstop, at some points for the market, the world market. Will that continue? I think nobody likes to lose money. So, if your a trader or a producer like this floating China vessel that stopped in Panama for a couple months vacation and then came to NOLA to discharge, those people lost a lot of money.

And, that's what people in those positions need to decide what they want to do and how they want to market their products on a consistent basis. We will have a demand for urea over the long-term. We'll bring it in from Canada as well as from other producing locations. But, at some point it will get to a competitive market where we in the US will have a substantial increase in production. And, we will compete with those producers at the various distribution points. And, I think that will moderate itself, the market will moderate itself.

That's very helpful. Thank you.

PJ Juvekar, Citi.

You finished 25% of your $3 billion buyback that runs through 2016. It seems like an accelerated buyback. So, are you seeing opportunistic or do you see this delayed CapEx and so maybe you pulled your buyback forward? Can you just comment on that?

Sure, PJ. I think we've been very consistent in our comments about capital deployment. All of our initiatives are important to us. We are committed to doing all of them. And, we will execute them month by month, quarter by quarter as it seems appropriate. Nothing has changed in our attitude towards either the CapEx or the share repurchases.

Okay. And, a question for Tony. Tony, there was a recent tragic blast in West Texas. Do you think that changes the debate between the communities where these new plants are being built? And, do you expect any delays as a result? And, are you seeing more inquiries on your project from communities? Thank you.

PJ, obviously, our thoughts are with those affected in West Texas. And, it was a horrible tragedy. The hallmark, I think, of CF Industries and the rest of the producers in the industry is a focus on safety and working with the communities to put in place appropriate first responder response plans and to run drills and exercises and to make sure that all parties know how to respond. But, our first and primary focus is on maintenance and safety and ensuring that we don't have issues in the first place.

And, I think the communities in which we operate appreciate what we bring to those communities and respect our operating practices and culture in that regard. And so, while clearly this is a topic that is getting a lot of media attention, rightfully so, we believe the way in which we conduct ourselves and operate our facilities is appropriate. So, at this time, we don't see a significant impact in terms of our ability to move forward on these projects.

Thank you.

Michael Piken, Cleveland Research.

A follow-up to what PJ's question was. How do you see the tragedy in West Texas potentially impacting the EPA approvals, maybe, for some of the other Greenfield projects that are being discussed? Or do you think that will have any bearing? As an addendum to that, what does that mean for the future of ammonium nitrate sales here in the United States?

Well, Mike, we obviously -- I certainly echo the comments that Tony made about this event. And, our industry is very, very highly regulated today. Particularly our end of the industry. We work closely with DHS, OSHA, the EPA, local and state authorities. We certainly will wait for the full report coming back about what happened.

There are initiatives, frankly, that have been under way for quite a while related to the safe storage and handling of ammonium nitrate. And, in our operation, safety is number one every place, every day. And, I think we do safety well, but any part of our business can be improved, even that part of our business.

I can't predict what's going to happen among regulators in Washington. We have constructive relationships with those entities, both as a company and as an industry through the Fertilizer Institute. And, we'll be absolutely cooperative and helpful in any way we can in making sure that everybody in the chain of making, distributing, and using all of our products is following the best safety practices available.

Great. And then, my second question is if you could just quickly walk through -- now that you've completed the purchase of the remaining 34% of CFL's production, what that might mean for your ammonia price realization going forward? And, you had to sell -- some of those contracts were on a cost-plus basis. But, if you could walk through how we should think about your average ammonia prices going forward? That would be helpful.

Mike, I think the best way to think about this acquisition of the one-third remaining capacity at Medicine Hat is to think about how we did Terra. We put all of the production coming from all of the entities into our portfolio. And, we go through a process of rationally selling all of it into the marketplace in an attempt to maximize our overall margin.

It's important to remember, of course, that this piece of production is already in the marketplace. It's already been going someplace, so it's not being added to the market. We will add it to what our offering is and Bert and his team will go out every day and market that in the same effective way that he markets everything else.

Mike, I guess I'd add one thing to that comment and that is certainly one of the things that will happen in a quarter or two is it will be much better visibility into what our actual pricing is, because we will be past the point of having to go through this adjustment process. And so, while the main driver of this transaction of course was having the economics associated with this production, simplifying the accounting and reporting of it will be a benefit to management and a benefit to investors and analysts.

Operator, we're ready for our next question.

Tim Tiberio, Miller Tabak.

I have a question more on the demand side. I know a few months ago, people were more concerned that the drought conditions may trap more nutrients in the soil and that could diminish spring demand. But, it seems like in this current environment where spring planting has been delayed there's been significant moisture replenishment.

We've heard anecdotal concerns that farmers are more concerned about nitrogen leaching in this environment. Putting that into context, is this an environment where even though demand has been delayed that we could actually be in a situation that in some regions farmers may actually have to increase applications to replace some of the fall ammonia that potentially could have been lost during this delayed spring? Thanks.

Bert?

Regarding leaching and the movement of nitrogen during the period -- from the period of fall application to spring planting, that is also more anecdotal than factual. And, we're not exactly sure and I can't give you a percentage. What you will see is what we believe is a maximization of nitrogen as they plant the corn and as they look to have the yield uplift and the right feeding of the crop.

You will see various applications, if spring preplant of ammonia was not able to be put on you'll probably see two to three applications of UAN, especially the irrigated areas. And, possibly a top dress of urea in more of the northern areas. And so, on total end demand, we are very positive that this year will be similar to others and maybe a slight increase to achieve a maximum yield with a shorter growing cycle.

Great. And, just one follow-up question on Trinidad, I believe one of your peers indicated that natural gas supply had improved versus previous quarters. Are you seeing any improvement in that situation? And, how should we how should we look at that going forward in 2013? Thanks.

Well, I think there's a lot of talk about how the supply should become more reliable. I'm not sure we've seen it yet, although the impact on us has not been all that significant over the last couple of years. It's been an aggravation. But, I don't think it's been much of an economic penalty to us.

Great. Thanks, for your time.

Adam Samuelson, Goldman Sachs.

My question on the phosphate business, and just wondering maybe a bit more color on the higher production cost that were experienced in 1Q and the decline -- the higher per ton cost there? Any clarity would be helpful.

Well, Tim -- Adam, sorry, the biggest issue affecting our production cost was really the price of ammonia into DAP and MAP. Tampa ammonia was up significantly year on year and that drove the majority of the price increase.

Okay.

The cost increase.

That's helpful. And then, maybe, just finally, as you think about your -- I know we talked about your inventory, but thinking about the industry inventory exiting the spring, how do you foresee that impacting really your ability to just execute on a normal summer fill program and these excess inventories that have come into the country? How -- do you think that can delay any summer fill demand as you move into the third quarter?

Bert?

Summer fill is driven by a number of factors. One of those would be inventory. Two would be timing. Generally, the retailers and the farmers want to work through their current purchases. And then, where the crop is at a state where they -- where it's really left to rain and sunshine, then focus on the next period.

And so, with the late planting, we would expect that fall fill will also be delayed for ammonia and UAN until those applications are over. And so, inventory levels, again this goes back to the -- I don't want to comment too much on the industry, those numbers will come out. But, CF, we think will be appropriately positioned to begin the fill period.

And -- but, that's the benefit of our system with the distribution assets we have in place, with the capability we have to export products when we choose to participate in those markets. We will position ourselves to supply our customers at an appropriate level at an appropriate price when the time comes.

Okay. Thank you.

Thank you for your question. I'd now like to pass it back to Dan Swenson for closing remarks.

We would like to thank everyone who participated on the call today. If you need more information about CF Industries or our results, please contact me. Rachel, that concludes our call.

Thank you. Ladies and gentlemen, you may now disconnect. Thank you for joining, and enjoy the rest of your day.