CF工業控股 (CF) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CF Industries Holdings fourth-quarter and full-year 2015 earnings conference call. My name is Shannon and I will be your coordinator for today.

(Operator Instructions)

I would now like to turn the presentation over to your host for today, Mr. Dan Aldridge, Director of Investor Relations. Sir, please proceed.

Thanks, Shannon. Good morning and thanks for joining us on this conference call for CF Industries Holdings, Inc. I'm Dan Aldridge, Director of Investor Relations, and with me today are Tony Will, our President and Chief Executive Officer; Dennis Kelleher, our Senior Vice President and Chief Financial Officer; Bert Frost, our Senior Vice President of Sales, Distribution and Market Development; and Chris Bohn, our Senior Vice President of Manufacturing.

CF Industries Holdings, Inc. reported its fourth-quarter 2015 results yesterday afternoon, as did Terra Nitrogen Company LP. On this call we will 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.

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. Actual results may differ materially from those projected as a result of certain risks and uncertainties including those detailed on slide 3 of the accompanying presentation and from time to time in the Company's Securities and Exchange Commission filings. These forward-looking statements are made as of today and the Company assumes no obligation to update any forward-looking statements.

This conference call will include discussion of certain non-GAAP financial measures. In each case, a presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and coinciding reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided in the earnings release and the slides for this webcast presentation on the Company's website www.cfindustries.com.

Now let me introduce Tony Will, our President and CO.

Thanks, Dan, and good morning, everyone. Last night we posted fourth-quarter and full-year results for 2015. For the fourth quarter, CF Industries generated EBITDA of $254 million and full-year EBITDA of $1.7 billion.

After taking into account hedging losses and impairment loss on our Trinidad Joint Venture equity investment, costs related to both the CHS strategic venture and the OCI transaction and expenses related to the expansion projects, adjusted EBITDA for the fourth quarter was $451 million and adjusted EBITDA for the full year was $2 billion. Despite difficult market conditions, we generated gross margin of over 25% in the fourth quarter and over 35% for the year.

If not for the unrealized mark-to-market losses of roughly $100 million on natural gas hedges, our gross margin for the fourth quarter would've been approximately 34% and if not for the unrealized mark-to-market losses of approximately $175 million, our gross margin for the full year was roughly 40%.

Our quarterly and full-year results continued to demonstrate the cash-generating capability of this Company. We consistently deliver solid results because of our cost advantage position within the industry, despite the fact that the global fertilizer market is over supplied.

In several production regions of the world, currency devaluations and other factors have reduced cost for high-cost producers, some of which have continued to run despite negative margins leading to excess supply. As a result, there's been downward pressure on prices. Urea transactions have been reported at price levels not seen in a decade.

However, even against this backdrop, we still delivered full-year adjusted EBITDA of $2 billion. Our business is not like other commodities. It shares little to nothing with iron, steel, copper or coal. A country or region with a slowing economy may stop building skyscrapers, ships and highways, but its people still need to eat.

Global nitrogen demand remains strong and growing. To be sure, there is excess supply, but we occupy the lowest cost position in the industry and continue to generate significant cash. All commodities are not created equal, and it is critically important to keep a perspective on the underlying fundamentals of our business as distinct from others.

First, several weeks ago there were reports of urea trading in the US Gulf at or below $200 per short ton. While some business was done at this level, the volume was extremely thin because these prices were well below the replacement cost for the marginal producers. As we suspected all along, available volume was scarce and just two weeks later urea is now reported trading in the range of $250 per ton, up more than 25% from the beginning of February.

Second, we have seen a decrease in both Chinese exports and urea plant operating rates. The most recent industry publications for the Chinese fertilizer market indicate that operating rates for coal-based urea producers have declined to 66% in January from 73% in December. While that may not sound like a large amount, the seven-point drop in Chinese operating rates equates to a reduction of approximately 6 million tons of urea on an annual basis. These facts suggest to us that previously published prices are not sustainable.

Third, even at the $200 per ton price trough published in January, a typical US Gulf producer of urea generates roughly 50% cash margins. This is driven by low-cost North American natural gas, providing us a sustainable advantage versus producers in other regions further bolstered by the import-dependent nature of North America. So it should be obvious that the sky is not falling, that nitrogen is not like other commodities, and that our business remains highly attractive and continues to generate significant cash.

Turning to our strategic initiatives, we have made significant progress and are now in full delivery mode. Since our last earnings call, we amended our announced business combination with OCI's European, North American, and global trading and distribution businesses to incorporate in and become a tax resident of the Netherlands. We expect to close this transaction in the middle of 2016.

We commenced our strategic venture with CHS, receiving a $2.8 billion payment and have begun shipping product under the supply agreement. We have also entered the final stages of our capacity expansion projects. The Donaldsonville urea plant has been in production since November of last year. The UAN plant is mechanically complete and in the process of being commissioned, and we expect the welding and piping work on the ammonia plant, which represents the majority of the remaining work and cost, to be completed within the next eight weeks.

We also expect Port Neal to be mechanically complete in the second quarter of 2016, meaning all of our spending on these projects will very soon be behind us. The total cost for both projects remains in line with our previous estimates and, similarly, our projected returns for the projects have not changed.

I will now turn the call over to Bert and Dennis to go through the details of the quarter and then I'll wrap up with some perspectives on strategy and the longer-term outlook. Bert?

Thanks, Tony. The global nitrogen market continues to be supply driven with increased availability of internationally sourced product pressuring prices. During the fourth quarter, prices for all fertilizer products declined, including nitrogen. Excess supply around the world and new capacity coming online all helped to push the market lower. Urea prices declined throughout the quarter, decreasing from a high of $260 per short ton FOB NOLA at the beginning of the quarter to $220 per short ton FOB NOLA at the end of the quarter.

As Tony said, very little business was done at these low levels as the market was highly illiquid. During the fourth quarter, the Chinese government allowed the yuan to devalue further, continuing the trend that began in the third quarter of 2015. When accounting for the devaluation, along with a decrease in coal prices and continued weakness in ocean freight, cash costs of urea production for the marginal Chinese anthracite coal-based producer are now estimated to be near the seasonal low of roughly $225 per short ton delivered to the US Gulf.

As Tony mentioned, production rights in China are declining and some high cost producers have already curtailed production or shut down altogether. Exports out of China were 1.5 million tons lower in the fourth quarter of 2015 compared to the same period in 2014. For the full-year 2015, exports totaled approximately 13.8 million tons, which is slightly higher than the full-year 2014.

In the US, industrial ammonia demand was impacted by lower phosphate production and the fourth-quarter agricultural ammonia application season was negatively impacted by weather. Warm weather into early November, coupled with the combination of rain and snow later that month, limited most of the Midwest from getting applications completed. In addition, customers were reluctant to buy urea and UAN during much of the fourth quarter due to the prospect of lower prices in the future.

The weather-related disruption of the fourth-quarter ammonia application season, along with delayed purchases of UAN and urea during the fourth quarter, should lead to a larger-than-average spring demand and a corresponding rebound in prices as nitrogen fertilizer must be applied on an annual basis. Ahead of spring, the Company's well-positioned with inventory prepared to serve key markets.

Nitrogen fertilizer demand in North America is expected to remain steady in 2016 compared to 2015. Current projected returns for the 2016 crop, based on new crop futures, continue to favor corn plantings over soybeans. As a result, 2016 corn planting is expected to reach approximately 90.5 million acres, which is a 2.5 million acre increase from 2015. North America Natural Gas continues to provide the Company a substantial cost advantage compared to other global producers.

The North America Natural Gas market began the fourth quarter of 2015 with minimal price movement and lower volatility. However, that quickly turned into a sharp downward shift in prices in the latter half of October. Stronger-than-expected El Nino conditions brought warmer weather that continued through much of the quarter and was a large contributor to the significant decrease in gas demand.

Natural gas consumption in North America for residential and commercial uses during the fourth quarter of 2015 was 16% lower in the fourth quarter of 2000 and of the fourth quarter of 2014. Despite the continued decrease in rig count, gas production continued at record levels during the fourth quarter and the storage balance in North America reached a record level of 4 trillion cubic feet at the end of the injection season.

Now let me turn the call over to Dennis.

Thanks, Bert. In the fourth quarter, we generated $254 million of EBITDA and earnings per diluted share of $0.11. Included in these results were approximately a $98 million unrealized mark-to-market loss on our natural gas hedges; a $62 million loss for an impairment of our PL&L joint venture equity investment; $20 million in transaction costs related to the OCI transaction and the CHS strategic venture; $15 million in expansion cost for our Donaldsonville and Port Neal facilities; and a $3 million loss on our foreign currency hedges.

When taking these items into account, our adjusted EBITDA for the fourth quarter was $451 million and our adjusted earnings per diluted share was $0.76. For the year, we generated $1.7 billion in EBITDA and earnings per diluted share of $2.96. Our adjusted EBITDA was $2 billion and our adjusted net earnings per diluted share was $3.88. Our realized natural gas cost for the quarter was $3.07 per Mmbtu and consisted of purchased natural gas of $2.66 per Mmbtu and a realized loss of $0.41 per Mmbtu on our natural gas hedges for the fourth quarter of 2015.

Our natural gas cost has declined by 25% when compared to the fourth quarter of 2014. For the full-year 2015, our realized natural gas cost was also $3.07 per Mmbtu, a 28% reduction compared to 2014. During the fourth quarter, the Company did not enter into any additional natural gas hedges.

The Company completed a review of its equity method investment in Point Lisas Nitrogen Limited, PLNL, our 50% investment in an ammonia production joint venture located in the Republic of Trinidad Tobago. This review assessed the recoverability of the Company's carrying value of the investment.

During the fourth quarter of 2015, the Company recognized an impairment charge of $62 million relating to its investment in PLNL due to continuing gas curtailments from the government-controlled gas supplier and the expectation is that these curtailments will continue.

On December 18, 2015, the Protecting Americans from Tax Hikes PATH Act was signed into law and applies to tax years 2015 through 2019. One of the provisions of the act permits companies to deduct 50% of their capital expenditures for federal income tax purposes in the year qualifying assets are placed into service. As a result of this provision, for the year ended December 31, 2015, the Company recorded a federal tax receivable of approximately $120 million that is expected to result in a tax refund.

This receivable is primarily associated with the new urea plants and related offsites that were placed into service at the Company's Donaldsonville, Louisiana complex during November of 2015. In 2016, the Company expects to place into service the new UAN and ammonia plants at Donaldsonville and the new urea and ammonia plants at Port Neal. Most of these assets will also qualify for the 50% bonus depreciation for fiscal year 2016.

As a result of these additional assets being placed into service in 2016, the Company expects to have significant reduced cash tax payments for the year. For the full-year 2015, our total capital expenditures were approximately $2.5 billion. This consists of approximately $1.7 billion for the capacity expansion projects, plus approximately $600 million of sustaining improvement and other capital expenditures and $155 million of capitalized interest.

For 2016, the Company expects to have capital expenditures of approximately $1.8 billion, of which $1.2 billion will be for the capacity expansion projects and $600 million will be for sustaining improvement and other projects.

With that, Tony will provide some closing remarks before we open the call to Q&A.

Thanks, Dennis. Before we move on to Q&A, I wanted to review our near and longer term outlook and the significant benefits of our strategic initiatives. As we have already discussed, our business continues its strong operating performance delivering $2 billion of adjusted EBITDA in 2015.

Looking at the fundamentals, cash margins for North American producers are in the 50% to 60% range, even with today's market conditions. Against this healthy backdrop, over the next roughly six months we are about to grow significantly, adding 60% new production capacity to our portfolio with very similar margin structures to our current business. We are investment grade and have a very strong balance sheet, having just received $2.8 billion in cash.

Our spending on the capacity expansion projects is quickly coming to an end as we expect to be fully mechanically complete within the second quarter. Our business combination with OCI is expected to deliver roughly $500 million annually in after-tax full run rate benefits. And we expect our longer-term effective tax rate to drop from 35% into the low 20%s, making us that much more efficient at converting EBITDA into cash.

Finally, bonus depreciation will provide a significant cash flow benefit this year. The bright future we've been talking about is arriving now. This is a lot of very positive change all being delivered in a short period of time.

However, one thing is constant through it all and that is our focused strategy for driving total shareholder returns. Our goal is to grow cash generation per share and our capital allocation philosophy flows from that. We first look to grow our cash generation, the numerator in the equation.

We do that with investments that have risk-adjusted rates of return well above our cost to capital and only if they drive cash flow per share accretion. Otherwise we look to reduce our outstanding share count, thereby reducing the denominator in the equation. Consistent with our past actions, all excess cash will be returned to shareholders.

While we are fully committed to maintaining our solid investment-grade credit rating, as we look forward we believe there will be significant cash available for deployment. We will do that consistent with our singular goal of growing cash generation per share just like we have in the past.

I want to end today's call by thanking all of our employees who have worked so hard, not only on all of our strategic initiatives but also keeping the core CF business running so strongly on a daily basis while delivering our best ever safety performance. A truly remarkable accomplishment. Many of the steps we have taken are already showing results and I am excited that the next six months should see all of our initiatives move from planning and development into actually delivering cash flow to the bottom line.

With that, we will now open the line to answer your questions. Operator?

(Operator Instructions)

Ben Isaacson, Scotiabank.

This is Carl Chen stepping in for Ben. Thank you for taking my question. We have seen an incredible rally in the urea prices over the past weeks owing to the prospect of an early spring. Can you please also comment on your expectation for strength of the ammonia and the UAN pricing recovery given that Mosaic just started to curtail that production in Q1 and this early spring could reduce the need for UA and side dressing?

Carl, I'm going to ask Bert to take that question, but just one observation when you talk about an incredible rally in urea. The observation, I think, that a lot of us around the table would make is that the trough pricing that was reported in January was a little bit artificial. It doesn't really reflect where the market has any kind of liquidity or volume. And that's one of the reasons why it looks like it's come back because the minute there was any sort of demand it's rebounded to what the real value of the product is. But, Bert, you want to handle the --

No, I agree with you about the urea market, it has recovered probably to more of a normal price range and I think we had an anomaly like you said. Very few barges were traded at those lower levels and we know that because we entered the market to buy a few and they were not there.

I do anticipate we are seeing now probably the opportunity for an early spring. Applications have already begun in the Southwest, Texas, Oklahoma, and the temperatures this weekend are very conducive to continue that activity.

And I think as you see that warming trend move through, drying trend, throughout the Midwest, I would think that within a month in the upper Midwest, that being Nebraska, Iowa, we may even see applications beginning then. You're correct that a lot of the ammonia stays within the producers' hands and is available to the customers, those being the retailers, which then they'll sell to the farmers for application.

And I think the order trend has been a little bit different than in previous years, but the feedback we're getting from our customers is that there will be significant demand. We lost a lot of ammonia applications in the fall just due to the weather issues we articulated. And so that and it will still be needed to be applied and so as you move that to spring, we're going to need almost a record ammonia season in order to fill some of that nitrogen demand which I think will be difficult.

And so, per your comment on UAN, we believe that's going to fall either to urea or both the urea and UAN. And we're positioning our products in our terminals and with our customers for that eventuality that we are seeing a pretty healthy market going forward for nitrogen on the demand side and a parallel positive position for pricing going into and through spring and even on the back half.

Perfect. Maybe just a follow-up question. We have seen some reports indicating that Chinese urea producers are producing below cost and stockpiling in anticipation of a strong spring application similar to last year. If the spring application disappoints in China, do you have a sense of how this residual inventory could weight on urea prices abroad?

Today the indications we are getting out of China are that the terminal and the port inventories are lower than normal and that makes economic sense. As what we said in the comments with we believe that the Chinese producers, a majority of them, have been operating at or below cost. There's very little incentive then to push product to the ports. And so we are seeing the Chinese industry operate rationally and according to economic principles, eventually gravity does work even in China.

And so when you look at today what's going on in China, wheat topdress has begun in China, and you are seeing product move into those markets. Today the domestic price is better and the incentive then is for the Chinese producer, the urea producer, to keep that product moving to the interior and then they will probably look to the export market as we move through spring. Today, if you loaded a Chinese vessel, let's say, March 1 and were sending that to the United States to New Orleans, there would probably be a 45-day voyage and then discharge arriving in mid-to-late April. And you're starting to get a little bit late.

There have been some Chinese vessels sold for this spring and we think they will arrive in late March through early April, but once you get past April, it's difficult to have that product be applied for the spring and post-planting season.

Great. Thank you.

Steve Byrne with Bank of America.

Thank you. Bert, do you have an estimate of how much nitrogen inventory is in the retail channel now? And how does that compare to historical levels for mid-February?

Yes, Steve, good morning. It is a little bit anecdotal, but we do spend a lot of time trying to determine what the physical inventory position is, whether that be dry on urea or UAN in the tanks. Most of the ammonia is sitting with us or the other producers in the terminal system throughout the Midwest, and so what we know just based on imports and production levels of UAN, we expect that those levels are lower than historical due to the fact that we trended into fertilizer-year 2016 at a low level of inventory entering that season and then the production and imports together with that to build our number.

On urea, I think there's sufficient inventory to begin the season. You can look at the import numbers and then again at the production numbers and our production numbers, so there is enough probably in position but is in the right position? And then the second round of product that needs to be available, and I think that's why you've seen this rally is the scramble to get product in position.

And how would you characterize those customers of yours? Are they fully engaged now in rebuilding inventory for what you describe is that second round? Or are some of them still on the sidelines?

It's like a family. Everybody has a different opinion when you sit around and talk politics. Same thing about inventory on fertilizer. We participated in a TFI and met with a majority of our customers and we had the whole range of opinions of I'm not going to buy until the farmer comes in to purchase and they will pay the appropriate price of that time, to those who have prepared and were anticipating.

And so we are working with each of our customers at their risk level or their risk appetite and some of that inventory has stayed with us and we are quite fine with that, because we believe in the size of this spring application season and the need for this product will be probably very robust.

Okay; thank you.

Adam Samuelson with Goldman Sachs.

Thanks, good morning, everyone. Maybe a question on the UAN market, if I will. You've had a pretty big spike in urea in the last 10 days or so. And I know, Tony, you said, hey, those depressed in January and there was very little volume there. But at the same time, the UAN market trended down in conjunction with urea and if I look at spot pricing, I would say that urea is trading at a premium on an end-value basis to UAN which seems unusual.

So I'm trying to think about, A, how your order book on UAN looks prospectively given there's less dependence on imports there and, B, how you think about the balance between the two products on an end-value basis as we go into the spring.

Good morning, Adam. You did see a movement in UAN in January. We readjusted or adjusted our prices at that point. But the urea market stayed very steady July through into January and there was a reflection on an end basis at that time to move UAN more in line with urea. But as you've seen urea move up, we've seen a demand build for UAN and we believe that will continue through spring. UAN is a great product. It's so versatile in how it can be used, not only in wheat and corn. And so I do believe that you are going to see a price increase or a value increase going into spring for UAN as well.

And as you look at your own order book today versus prior years on UAN, would you say you're ahead of last year, behind last year? Or any comments there?

Every year is different. And so it's more of you can be ahead or behind. I'm not sure if that's as meaningful as what the value associated with the product and the gas price. So we are pretty excited about the level that we are able to buy our feedstock. And I would think that at these lower levels it's not as attractive to us to sell and so we would prefer to wait for some appreciation.

Great, thanks very much.

Vincent Andrews with Morgan Stanley.

Good morning, this is Neil Kumar calling in for Vincent. I was wondering if you could speak about some of the inputs you're assuming to build up to the marginal cost figure of $225 per short ton, specifically in terms of anthracite coal prices, freight? And also can you talk about how these inputs have changed from your 3Q estiminate of marginal cost of $250 to $285 per short ton?

Sure, Neil, this is Dennis Kelleher. I'm just trying to get to the slide you're talking about here in the deck. What we've done here is basically what we look at is basically all of the cost that exists at the plant site plus all of the cost -- and that includes cost to ship the coal to it. The costs at the plant site that are incurred and the cost to ship that product to the port. And then obviously to load it on the port so it can be loaded on the boat and shipped to the US Gulf.

So all of those inputs from the coal mine all the way through to the product arriving at the US Gulf are included here. And what we do is on a regular basis we are going to update that for everything from Chinese exchange rates to Chinese coal cost, in addition to that to freight rate. And we do this across the curve. And so what's happened, if you look at sort of where we've come to is you've seen a decline in coal prices, but you've also seen a decline in the RMB exchange rate and we've also seen a decline in shipping rates.

So that's what accounts for the shift to downward in what we call the seasonal floor-price range. And I want to be clear that this is a seasonal floor-price range because we are saying it's $225 to $270. And what we do perhaps differently from the way other producers look at it is we look at the fluctuations in monthly offtakes for urea. And so during low periods, you'll see lower prices like we've seen here in January and February. And then during high periods like when you get into the spring, it takes more dollars to bid the more expensive marginal producers into the market.

But that's basically how we do this. We look at each of the bars here in the cost curve and we will update that. With respect to China, we've got a lot of insight because studies that we've done on a plant-by-plant basis and so we will update the costs on a plant-by- plant basis for the various subsets of their producers.

But to be specific, we are assuming a $115 per metric ton (inaudible) coal and using an RMB exchange rate of 6.55. (technical difficulties)

(Inaudible) that's 6.51 this morning.

Great. That's pretty helpful. And there's a quick second question. I'm just wondering if your thinking has changed at all in terms of target leverage? I know previously you had mentioned 2 to 2.5 times.

On the leverage front we are still 2 to 2.5 times. I think as we get through the OCI transactions and reduce our effective tax rate, you could argue that the same amount of EBITDA actually goes farther because we are much more efficient at converting EBITDA into cash, so you could see maybe another half turn of additional leverage that we could take on so somewhere in the 2 to 3 times range is probably reasonable.

But we haven't socialized that necessarily with all of the rating agencies and so forth and our view is always we want to maintain solid investment grade rating, but have an efficient balance sheet, so we are going to thread the needle on those two constraints.

Great. Thanks.

Joel Jackson with BMO Capital Markets.

Good morning. Wonder if you could give a couple updates on methanol and the Natgasoline project where are you in your thoughts on that commodity and if that is something you want to keep in the deal? Thanks.

Good morning, Joel. As we've talked about the past, there is a closing condition for Natgasoline. It has project financing. It is a very difficult project financing marketplace out there right now. And so in the last -- that was able to satisfy the closing condition or we otherwise waive it, then Natgasoline would be excluded from the deal.

So we are not in a position right now where it's a decision time on any of that, but the closing conditions are pretty clearly spelled out. That's one of the reasons -- the lack of project financing was one of the reasons, along with comments that we received from the SEC, that in the last S-4 filing that we made what you saw was an assumption the Natgasoline was not part of the deal with the footnote that said it could be included. And that reflects just the status of financing on that project.

Okay, thank you for that. And a couple updates. Can you talk about Verdigris, some of the outages there? And also there's been a lot of trade journal reports that perhaps as the new capacity at D'Ville's come up, there's been some issues with that production. Are there any issues that you could speak of? Thanks.

We're very happy with the new plant at Donaldsonville. It's running well and I don't know how people drew that conclusion that the plant is not running well. I think as Bert mentioned, we saw the -- where pricing was trading on urea and thought, hey, at that level, we are buyers, not sellers. So our decision to go in and grab a few barges had nothing to do with production problems. It was all about intrinsic value of the product versus where it was trading. So, Chris, I'll let you talk about --

On the Verdigris, we have an ammonia plant. When we were doing the turnaround last year on the ammonia plant, we saw that we needed to replace some of the internals and catalysts and that's the work that we're doing right now on that plant.

It's just that some routine maintenance that we are taking care of.

Thank you.

Don Carson with Susquehanna.

Thank you. Question on your forward-order book. I noticed your customer advances were down almost 50% in dollar terms year over year. I assume your forward-order book volumes were down even more. And, Tony, you made a reference to some barges you are buying because of intrinsic value. It seems you've been more aggressive in buying up barges this year where you think the price is attractive. Is that an accurate assessment?

I'd say, Don, that we have not really done that historically and so even if were we to buy one or two barges, it would be, by definition, more aggressive than we've been in the past. But we just looked at the numbers and said this price makes no sense.

We have more than enough demand to account -- to accommodate us bringing on some barges, so we were in the mode of wanting to vacuum some of that up. I'll ask Bert to comment on the forward-order book.

Couple things on the forward-order book. Just on the overall price differentials for this spring compared to last spring you've seen probably $100 per product change. So that's just on the aggregate dollar term you mentioned. But having a forward-order book or not having a forward-order book to me is a reflection of your view of the market.

We are interested in selling forward. We have a plant and logistical assets that we need to maintain and move, so there is an incentive -- as a matter of fact there's a requirement to make sure that happens. However, that's also compared or contrasted against what the market is offering and the view that we think the market's going to improve. So the incentive to have a forward-order book in January and December just wasn't there.

And we have the capability to hold that product in inventory or change the production mix or export product and so we were able to maintain and move through those periods a lot better than I think we used to. And that's what you are seeing, to me, is reflected in that number rather than a desire to be out there and build the order book at low prices.

So most of this recent price fly up should be realized as you go forward in contrast to last year where you had locked in more forward business?

I'll let you make that decision, but we think the spring is going to be positive.

Okay, thank you.

Matthew Korn with Barclays.

Good morning, everybody. Let me ask this. What right now are the most opportune export markets for you today, both in geography and product? Wondering if the disarray in Brazil has allowed there for any development for foundations of a UAN market down there? And then just in terms of housekeeping, how much product did you actually send offshore this past quarter and this past year?

Yes, so when you look at the export markets, it's the marginal ton or the incremental ton for us at this point. We are in North America. It's an import market. We have our assets well-placed. And when I say asset, that's the whole base, production, logistics, terminals, pipelines, to serve the American or North American farmer.

So we want to be active participants in this market and monetize our position here. And then the next step is looking at the export market. As we're adding this new capacity to be a 12-month, 365-day producer of these products, you need to be able to move things out and at times move them out in large quantities. So that's when we look to the export markets. We are active today in France and Belgium, Argentina, Mexico, Brazil on UAN. We've opened up Columbia recently.

And so when we are focused on products, today it's predominately a UAN play, and then next step we've had some ammonia exports. We've worked with various people in that market as well as destination consumers, but urea is coming. As we brought up the new plant and as we moved to the spring, we believe that we will be active more in the world urea market. I think you'll see our export participation continue to grow and to be an integral part of our business.

The other thing I'd add to Bert's comment is that, particularly once we are through the OCI transaction and have that trading and distribution business as part of the [fold], our desire to export will likely increase. And that's one of the reasons that Bert and his team have been really developing some of these other market opportunities for us like UAN into Brazil and Argentina giving us ready demand and outlets for that product as we go through the OCI deal.

Great. Thanks, that's helpful. Let me ask this then. Everyone, of course, is focused on currency implications for price-floor risk, but on a different angle, is there any immediate risk you see as a function of China's removal of their crop-price support? Does that put their domestic planting, their nitrogen demand at significant risk or threaten its ability to absorb as much of its own supply?

Matthew, just on the currency devaluation issue, the Central Bank stepped in here recently and provided some exchange-rate pegging that's actually more favorable than where we thought things were likely going to go. We thought the exchange could get close to 7 and it's kind of pegged and holding steady at 6.51 or 6.50. From that perspective, I think there is, at least as we see it today, a little bit less risk on the exchange rate side. But, Bert, why don't you go ahead and handle the --

Yes, I think when you look at what is going on with corn-price supports and corn production, you've seen an interesting change over the last 10 to 15 years as China has outsourced their soybean production to Brazil, Argentina, the United States and has continued to grow and with that grow their end demand for corn and wheat and the stockpiles of corn aren't high.

That has created some perverse incentives. And so you see sorghum and DDGs and those substitute products coming in at a greater level into China. So I think with this release on pricing for corn, you're probably going to see -- you could see maybe a lower level of planting. But, again, it's at a pretty high price today with that subsidy. But they also have a fairly low yield.

So several things are changing in China. The move to acquire Syngenta, which we believe with the seed technology and the germplasm associated with that and the change possibly to GMO products in China, I think we have an evolving situation, coupled with the change in the economy that's currency devaluation, all these things together, I think, it's a little early to predict what that result will be to nitrogen. But we see each of these steps as positive opening steps and a greater participation in the global market which sustains the price of corn, soybeans and wheat going forward.

That's great. Thanks, gentlemen.

Mark Connelly with CLSA.

Thanks. Two easy questions. You mentioned the prospect of a stronger-than-normal back half of the year. I'm curious if you expect to carry out more inventory from spring or whether the ramp in new capacity is enough to take care of that?

And then the second question, I'm assuming you're still unhedged on the European business and I wonder if you could talk about how your hedging strategy is going to evolve as you pick up OCI?

So let me make one clarification and then I will ask Bert to pick up that one. I think when we're talking about a stronger second half of the fertilizer year, as opposed to a stronger half of the second half of the calendar year, because what happens is with the low level of application of ammonia in the fall or relatively lighter application, we still see total nitrogen aggregate demand in North America being roughly equivalent to where it was last year.

So corn acres drop a bit. Wheat acres we think are down a bit. Overall kind of the same amount of nitrogen. But with less going down in the fall, that means more has got to go down in the spring in order to get the same kind of yields. So that is why we are pretty bullish here on the spring application season. I think everyone says the second half of the year, once you get past July 1, that's a complete reset and you start all over again.

Okay, fair enough.

I don't know that we're taking a strong position on that one. Relative to Europe, yes, we are completely unhedged, both on the UK production as well as anything on the continent. And our view historically has been that we hedge in order to take out price volatility typically associated with weather-related events.

Recently here, as we got into last year, we took some longer positions in North America. Obviously those positions are upside down, and as we have stepped back and evaluated our thinking on this, I think you will see us head more towards our traditional approach, which is the hedging is really not to try to lock in any particular cost base over a long period of time, but it's really to take out seasonal volatility and possibly get rid of some basis risk.

Okay; very helpful. Thank you.

Chris Parkinson with Credit Suisse.

Perfect. Thank you. Can you comment on your longer-term expectations regarding the respective cost curves for ammonia and nitrates versus urea due to the regional differences of feedstock costs, FX, et cetera? And then based on this, how do you perceive the average price spread in terms of nutrient tons? Do you believe parities will hold or even potentially expand specifically in the potential event of further yuan depreciation? Thank you.

Let me start off on the long-term or how we view certain mid-cycle pricing, which is the way that we evaluate that is based on low-cost gas regions bringing on new capacity. New capacity will continue to be added until the next marginal plant only reaches its cost of capital return and that's the price at which we say it's the long-term mid-cycle prices. Even though feedstock costs have declined, as you've said, one of the things that's helpful in that equation is the fact that capital cost continues to increase and the lowest-cost gas region right now in terms of adding new facilities is North America.

And if you look at what the cost to bring new production on in North America, it is very high, as we know all too well. And the result of that is we have not seen a dramatic shift in our long-term view of where pricing has to be in order to support a healthy marketplace. It's moved a little bit, but not dramatically. And it's really -- the vast majority of the cost is in the ammonia-making step from a variable cost perspective. And so we believe that you will continue to have to have traditional increases in relative values the more upgrade you do, because you've got to pay for new capital. Even though there's not very much variable cost there, you have to pay for the new capital to put in each new step in the upgrade process.

And the functionality of UAN, as Bert was talking about earlier, is greater than urea or AN the whatnot. Each step in the process has to return appropriate capital. And also the farmer gets more utility out of UAN, so they pay a premium for it. So we don't see that there being a radical change in terms of the underlying margin or pricing structure between products. And, in fact, over the long term, we don't see a radical change in terms of where we expect product pricing to trend.

Specific though, Chris, to the cost curve, we've looked at the urea cost curve. As you know, that's the most widely traded globally fertilizer -- nitrogen fertilizer [there is]. When we look at the cost curve and dial ahead 2018, 2019, Chinese anthracycline coal production remains the marginal producer.

So from a cost-curve perspective, although there will be additions in between and subtractions, puts and takes, at the far right-hand side of the cost curve remains Chinese producers and at the far left-hand side of the cost curve, we believe, maintains North American production which is where we sit. So we don't see any major shift in terms of what the actual supply curve looks like going forward.

Perfect. Thank you. And just a quick follow-up. Now that's it's been roughly six months since the announcements of the OCI deal, could you give a little comment on regarding your confidence in the ex-tax synergy number across both the US and also European potential? Do you still feel just as comfortable as you did then? Or have their even been new discoveries for potential opportunities? Thank you.

Yes, Chris, as we continue to do meetings and integration planning with our OCI counterparts, we continue to find opportunities and other synergies that were not necessarily previously known. I wouldn't say that all of those are in the tax front. In fact, most of them are not. They are mostly on the operational side, but there hasn't been any change in law at this point and so our confidence level and projections are based on current law. So that remains as it was. And that's why we say, from an effective tax rate, we are in the low 20%s where we will settle out, we believe.

Perfect. Thank you very much.

P.J. Juvekar with Citi.

Good morning, guys, it's Dan Jester on for P.J. If I hear Bert correctly, we missed some application in the fall, the winter buying season was pretty slow, and there's a risk of maybe an early spring. In the past, that has been a scenario in which the supply chain has gotten pretty stressed. So can you talk if you're doing anything differently from a logistics standpoint this spring compared to the last couple springs?

Dan, I'll let Bert answer that, but I wouldn't say it's a risk of an early spring. I'd say that's nothing but positive news if, in fact, we start moving product here earlier than normal.

So we look at a number of scenarios and, like any Company, would be doing scenario planning and looking at our asset capability and then meet the customer demand, staying in contact with our customers, what they think they're going to see. And so I do believe you will have a stress system. That being said, we have set up with our barge service provider ample service in what will be coming out of the plant, mostly Donaldsonville on barge, and utilizing our terminals that are served from the pipeline as well as by barges, that being ammonia, and we are well-positioned for that.

And then it's UAN. So when you look at probably an early release on barges for ice lock, getting up into the upper Midwest to our furthest northernmost point in Minneapolis, we think we will be well-supplied, well-positioned. And as you see the weakening in the oil and the coal markets on rail, we are getting a lot better service from our rail providers. And we have 5,000 to 6,000 rail cars in our service, as well as extras if needed, and we are fully utilizing those assets to get product in position.

The other thing I would add to Bert's comments, Dan, is that given our broad base of in-market production and all the different major rail lines that we are on plus all of our storage in different locations, we are really able to deal with supply chain stress and disruptions on any of the rivers or rail systems, I think, better than most people because of the diversity of our asset base and our mix. And so in a lot of cases, when those discontinuities or stress points happen, it benefits us disproportionately compared to other people. So we are not afraid of it necessarily. It often times brings some benefit to us.

Okay, that's really helpful. Thanks. And then just quickly on Trinidad. Gas curtailments have been going on there for several years now, so is there something that changed your view about the outlook for Trinidad that forced the impairments this quarter? Thanks.

Yes, I think a couple of things, Dan. As you know, most of the Trinidadian-based gas contracts are indexed off of the underlying product. So in our case, for our one plant joint venture, it's indexed off of ammonia pricing. Some of them are off of methanol price, some of them are off of ammonia price and so forth.

So what's happened is as product pricing has come down, that means the gas price into the Point Lisas has stayed has also correspondingly come down. And it means there's less money going to NGC, National Gas Company. It's in a situation where, at the price that is currently being paid for the gas, that's below what we believe replacement cost of gas in Trinidad is. And so one of the things that is different today than maybe a year or two ago was we believe that curtailments may have been more temporary in the past and that new production was coming online.

As we sit here today, gas price doesn't justify the new investment needed to bring on additional production and at the lower product pricing in the marketplace, you can't make up for the lost production that we are losing. So it's that combination of factors that's really led us to take the impairment.

Thank you so much.

Andrew Wong with RBC.

Thank you. Good morning. Regarding the share repurchases, I know they are on hold because of the OCI transaction. How quickly can you resume repurchases after the transaction is complete? I know there's a blackout period and stuff like that. If you could just walk through some of that thinking? And then what sort of magnitude can we expect for this year?

Yes, so I would say, Andrew, we are focused right now on getting through close and as part of that process, of course, we are evaluating and updating our capital position. We believe, as I said earlier, that there's a lot of things that are really wind in our sails, so a combination of the CHS venture commencing and getting that cash in the door and the benefits that we're going to be receiving as a result of bonus depreciation means that we've got a lot of liquidity. And given where the share price is trading, of course, we are very anxious to start deploying that.

But we need to get through the close first and then we will make an appropriate announcement. It's going to require authorization by the new Board of Directors of the newly constituted Company before we are able to do anything. But I'm as anxious as anyone to get after it as soon as possible.

Okay. Maybe just switching to something else, the Chinese nitrogen production, I know that there has recently been some reports that they have lower operating rates. Do you have a sense of whether these are more temporary type curtailments or are we talking about more permanent type shutdowns?

I think our view is there's been a lot of new capacity coming on in China and the excess overhang is capacity that the world doesn't really need. These reductions in operating rates tend to be more permanent offsets against some of the new capacity that's come on. We don't think that it makes sense for all of that production to be running where it was. And so when you see operating rates come back, I think it's not because they are going to be producing more, it's because some of those plants are going to be permanently shut down and taken off of the capacity curve.

Okay. Thank you.

Ladies and gentlemen, that is all the time we have for your questions for today. I would like to turn the call back to Dan Aldridge for closing remarks.

That concludes our call today. I'm available for any follow-on questions. Thank you for your time and interest, everybody.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.