CF Industries Holdings, Inc. (CF) Q2 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the CF Industries Holdings’ First Half and Second Quarter 2020 Results and Conference Call. My name is Jenny; I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the presentation over to the host for today, Mr. Martin Jarosick with CF Investor Relations. Sir, please proceed.

Good morning, and thanks for joining the CF Industries’ first half and second quarter 2020 earnings conference call. I’m Martin Jarosick, Vice President, Investor Relations for CF. With me today are Tony Will, CEO; Chris Bohn, CFO; and Bert Frost, Senior Vice President of Sales, Market Development and Supply Chain. CF Industries reported its first half 2020 results yesterday afternoon. On this call, we’ll review the CF Industries’ results in detail, discuss our outlook and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you’ll find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now, let me introduce Tony Will, our President and CEO.

Thanks, Martin and good morning everyone. Last night, we posted our financial results for the first half of 2020, in which we generated adjusted EBITDA of $808 million. These results underscore the resilience of our business model and the outstanding performance of the CF team. In the midst of a difficult and uncertain environment, we maintained our focus on safe and reliable operations, worked closely with all of our partners to avoid disruptions due to the pandemic and delivered company record first half sales volumes. These efforts exemplify our team’s sustained operational excellence, which along with our position on the low end of the global cost curve drives our cash generation. On a trailing 12-month basis, we have produced more than 10 million tons of gross ammonia, sold roughly 20 million product tons and generated $973 million in free cash flow. Most importantly, we have done all of this safely. Our rolling recordable incident rate at the end of June was 0.31 incidents per 200,000 labor hours, which is a new record low for the company. Protecting the health and wellbeing of our employees, particularly during the COVID-19 pandemic remains our top focus. Our safety culture, along with the safety protocols we’ve put in place, have kept the number of employees, who have tested positive for the virus to a small number and we have not experienced any known transmission within a CF location. We continue to have in place numerous precautionary measures across our network to protect our employees and those critical contractors, who come into our facilities. In contrast to the uncertainty and challenges faced in much of the broader economy, the nitrogen industry has performed well, driven by robust demand and low energy costs. And over the past few months, our outlook for the next six to 12 months has become both clear and much more positive. As you will hear from Bert, strong demand in India and Brazil is supporting the global nitrogen market with urea prices rising significantly in recent weeks. We’re also more confident that 2021 corn plantings in the U.S. will be within a normal range. Chinese anthracite based production remains the high-cost marginal ton. And despite all the doom-and-gloom prognostication over the past 12 months, suggesting coal prices in China will fall that hasn’t happened. As you can see on Slide 13, the cost advantage per metric ton of urea remains robust for North American producers compared to the marginal production. Additionally, we expect that the cost curve, which had flattened due to lower energy costs for many producers, will steepen again going forward. Since the beginning of the year, U.S. LNG exports have declined significantly. As this works its way through the market, production cost for Europe and Asian producers should rise. As you can see on Slide 14, futures’ prices suggest to return to more normal energy differentials in Europe and Asia. As this occurs, we expect margins for North American nitrogen production to increase compared to producers in these regions, which is particularly important during periods when China isn’t exporting. Longer-term, we expect to remain on the low end of the global cost curve due to our access to low cost and abundant North American natural gas. That combined with the fact that we operate in regions, which are important dependent, should enable us to continue to generate substantial free cash flow in both the short and the long-term. With that, let me turn it over to Bert, who’ll discuss the market. Then Chris will follow to talk about our financial position and capital allocation outlook before I return for some closing comments. Bert?

Thanks, Tony. CF had a solid spring, then highlighted our team’s continued outstanding execution. We had strong production, record sales volumes, and navigated the uncertainty related to the pandemic extremely well. We had robust demand across all our products. This was supported both by higher planted corn acres than in 2019 and much more favorable planting conditions, which linked in the application season. Early in the second quarter, we did see a pandemic related decline in demand for industrial uses of our products, strong agricultural demand, and our production flexibility helped to mitigate sales volume impacts. Since June, industrial demand appears to have moved closer to normal levels, especially for products such as diesel exhaust fluid. As industrial activity is closely tied to the economy, we will continue to watch this area closely and are prepared to adjust our production mix again, if needed. Because of our heavy volumes during the first half, we ended the fertilizer year in June with very low inventories of all products. In July, we conducted our prepay and fulfill programs, all of which were in line with our expectations. We believe that those, who participated will see a good return in the future, given the rapidly changing and improving nitrogen dynamics in North America and around the world. The U.S. Department of Agriculture projects 92 million acres of planted corn in the U.S. for 2020, 5 million more acres lower than its earlier forecast. This should alleviate concerns of a substantial oversupply scenario. at the same time, demand for corn globally has increased significantly, led by purchases for China. Additionally, we have seen a good recovery in ethanol production and margins, supported by an increase in U.S. vehicle miles traveled. as a result, we believe planted acres in 2021 for the U.S. as well as total nitrogen use will be similar to the 10-year average. This improved North American outlook over a few months ago has been bolstered by a positive demand driven developments globally. Current global nitrogen market sentiment is being driven by India and Brazil. Imports of urea into Brazil are up 13% through the first half of 2020. And we expect continued strong demand through the remainder of the year and into next year. in India, urea sales from April through July are up nearly 50% over 2019 due to favorable growing conditions, which could lead to a second straight year of record urea imports. global urea prices have risen substantially with this demand as recent India – Indian urea tenders have secured lower than expected volumes. at the beginning of August, India issued its third urea tender in 22 days and it’s six since the end of March. we believe frequent urea tenders by India could continue through the end of the year. These positive demand developments have occurred alongside important with those smaller supply developments. We have seen some high-cost ammonia production in Trinidad come offline. We’re also seeing profitable delays in the startup of new capacity due to the pandemic. So, as we head into the second half of the year, we feel positive about industry dynamics and in particular, about the demand outlook. as always, we are prepared to leverage our manufacturing and distribution network to meet any challenges and capture opportunities that arise. with that, let me turn the call over to Chris.

Thanks, Bert. For the first half of 2020, the company reported net earnings attributable to common stockholders of $258 million or $1.20 per diluted share. EBITDA was $786 million and adjusted EBITDA was $808 million. These results reflect the impact of lower year-over-year global nitrogen prices, partially offset by lower natural gas costs and higher sales volume. Natural gas continues to be a strong tailwind for the business. for the first half of the year, our cost of natural gas and the cost of sales was lower by nearly $1 per MMBtu, or about 30% than in the same period the year before. management focused on strengthening our balance sheet and managing controllable costs responsibly, also continues to support our results and financial flexibility. As we have said before, our fixed charges for 2020 are approximately $190 million lower on an annualized basis compared to 2017. Additionally, controllable costs per ton were lower in the first half of 2020 compared to the first half of 2019, even with the special bonus we provided to operational employees from March through June. This continues to support our cash generation. on a trailing 12-month basis, net cash provided by operating activities was approximately $1.5 billion and free cash flow was $973 million. cash and cash equivalents on the balance sheet at the end of the first half were $563 million and our $750 million revolver is undrawn. As we look ahead, our approach to allocating capital will continue to be balanced. This is especially important given the uncertainty in the broader economy. first, we’ll continue to invest in our assets to support safe and reliable operations. As we noted in the press release, we expect capital expenditures to increase in the second half of the year, compared to the first half, because of the increased scheduled maintenance and turnaround activities. These activities will also somewhat reduce gross ammonia production in the second half, compared to the first half of 2020. We estimate that capital expenditures for the full year will be approximately $350 million. Second, our focus in the near-term is building liquidity. Given the uncertainty in the broader environment, we expect to be above our target liquidity level in the near-term. In line with this approach and similar to most companies, we did not repurchase shares in the second quarter in order to increase cash on the balance sheet. We believe this will give us the flexibility as a response to the pandemic continues. as conditions in the economy normalize, our approach will also give us additional capacity along with our free cash flow generation to continue to create long-term shareholder value. with that, Tony will provide some closing remarks before we open up the call to Q&A.

thanks, Chris. before we move on to the questions, I want to thank everyone at CF for a strong first half. our team continues to demonstrate both their focus and work ethic during trying conditions, as well as the resiliency and strength of our business model. We’re extremely proud of how our team has navigated the pandemics so far and that effort continues at all levels of the business. As I said before, in the short-term, we see a much stronger nitrogen outlook over the next six to 12 months than we did just a quarter ago. Global demand is strong and we project 2021 to have normal corn acres in the U.S. longer-term, CF remains among the best position companies in our industry. We have an unparalleled manufacturing, distribution and logistics network that underpins our consistent operational performance. We expect to remain on the low end of the global cost curve and benefit due to operating primarily in the import dependent regions. We are also the most efficient converter of EBITDA into free cash in the industry. We believe these factors along with our strong balance sheet will enable us to drive superior free cash flow generation through the cycle. This will allow us to continue to build on our track record of long-term shareholder value creation. with that operator, we will now open the call to your questions.

Thank you. [Operator Instructions] And we have our first question from Joel Jackson from BMO Capital Markets.

Hi. good morning, everyone.

Good morning, Joel.

Can you talk about what you’re seeing now for the setup of the fall season in the states, I guess in Canada too, a lot of moving parts going on, is it a normal order book what have you locked in where the cautious – where’s the caution, where’s the opportunities? Thanks.

Yes. So Joel, we’re seeing – it’s pretty interesting, because we’ve come off this year of 97 million. Now, it’s 92 million acres of corn, a little bit weaker kind of grain and oilseed market. But amazingly, we had a field program for ammonia, which is fairly small and then started billing the book for the fall application season. as you remember, those tons sit in our inventory. So, whether we sell them now or sell them in the fall, we’re very comfortable with our ability to move those tons and get them into position, had to navigate a few river issues, river closures, but we feel very, very good about the ammonia season for the fall, setting up one with how the current crop is maturing and will come off, and then have time for applications, both soybeans and corn and then just the pricing structure. So, what we think is a fair level for ammonia is out there and has been taken up. The next one is UAM, which is a bigger program and we’ve had different size fill programs in the past from a month or a month and a half worth of supply all the way up to maybe four, let’s say four to six months. And this year was right in line with the average, we had good uptake. I think prices were very attractive. And I had those in my prepared remarks about the opportunities available to some of our channel partners. And so you’ve seen us being active in the export market. So again, a balanced approach to the market and I think fall will kind of roll out in a good way. We’re expecting in 88 million to 90 million acres of corn for next year. So, there’ll be good application in the corn states. And we’re also seeing with, as I mentioned globally, what’s happening with the other large agricultural markets like India, Brazil, Argentina, the valuations coupled with support, and just good pool and good movement to China on the demand side for those products like corn and soybeans, as well as protein supports a nice global oven. That’s why you’ve seen urea bounce all the way up to now in NOLA, 250 or even 255 has been done for August. So setting up, I believe very nicely for the fall and then into 2021.

And our next question comes from P.J. Juvekar from Citigroup.

Yes. my question is a little different; companies like air products are getting into green ammonia as the means of hydrogen transport. And I feel like no one knows making in transporting ammonia better than CF. Just that you may not have experienced in green ammonia or green hydrogen, but is that something you would consider in the future, or is that not interesting to you? Thank you.

Good morning, P.J. As the world leader in ammonia production, we’re very focused on all potential applications and uses for ammonia and I think moving forward, particularly as the world is challenged with traditional hydrocarbon based fuels and looks for cleaner fuel solutions that a hydrogen-based economy using ammonia as a carrying plate for that is an outstanding solution. So, it’s certainly something that we are focused on and spending time on is. As you know, we have a pretty deep relationship with Tyson Crop OODA. They built our last two large expansion projects. I think they’re one of the world leaders right now in the electrolyzers. And so it is conversation and investigation, and we’re spending a lot of time on, and it would not surprise me to see us move into a situation, where we have a full slate of offering at some point here in the near future with anything from conventional ammonia to blue ammonia to green ammonia and some various combinations. But I think longer-term; it’s certainly the direction the world is moving and needs to move. And I think we are going to be a significant beneficiary of that, because we’re – we’ve already got all of the backend plus logistics and capability in place and it’s about modifications on the front-end. And again, we’re in the best position to capitalize on that. So, we’re pretty excited about that.

And our next question comes from Michael Piken from Cleveland Research.

Yes. good morning. just wanted to get your take in terms of what’s happening with Chinese urea exports. it looks like they haven’t been as active in some of the recent India tenders and just sort of wanted to get your sense in terms of how you see their production and operating rates playing out in the back half of the year and is there any kind of China in urea that’s in the market as well? Thanks.

It’s been an interesting year for watching China as we’ve gone year-after-year with lower, lower level than last year, a little bit of an uptick on their exports. We expected 3 million to 4 million tons for this year, and we’re trending lower than that through the first seven months of the year. So, their operating rates have been around, let’s say high 60s, low 70s percent, which we equate to about a 53 million to 55 million tons of available supply. Domestic consumption seems to have been higher. similar to India, incentivizing domestic production for a supply of corn and rice and other obviously fruits and vegetables are about 50% of their urea demand. But that is correlated well with internal demand and then not pushing product out to the international market. I think when the market hit on a metric ton basis 235, 240. We had expected more supply to come out of China. It did not. they’ve avoided the last two India tenders, just kind of on a perfunctory basis has participated. And so looking at this tender that will open early next week, I would expect some additional tons, but those tons now have been bid and sold in the $250, even up to $270 a ton FOB. So, very supportive to the international market, very supportive trend for the remainder of the year, which we believe will be probably fewer than last year export tons and at higher prices.

Thank you. And our next question comes from Steve Byrne from Bank of America. Steve, your line is open. Steve, please check if you’re on mute. And our next question comes from Ben Isaacson from Scotiabank.

Hi. this is Ziad on for Ben. Thanks for taking my question. How has industrial demand for ammonia progressed over the last quarter and how are you seeing that recovery over the rest of the year and then also into 2021, particularly with how it’s impacting your realized ammonia prices?

So, we had a – there are two sides to the ammonia equation. One, like you mentioned is the industrial side, which is you can include end upgrades for that segment, ammonium nitrate, urea, UAM, and then the industrial as a chemical intermediate or into nitric acid or phosphate production. And so we did see a dip in demand on the industrial side due to COVID, some of that on the phosphate production, but just overall industrial capacity declining. We’re seeing that recover and seeing a good pull from our customers for that part of our business, which is a healthy percentage of our ammonia business, it’s a 365/24/7 type business for us, where the agricultural applications are really a few weeks in November and then a month and a half, maybe in April and may and into June. for the fertilizer side, we saw a nice recovery for ammonia. We’ve had some difficult application years in 2018 and 2019 due to whether it was cold wet weather in the fall or cold weather in the spring, which delayed and moved some of that consumption to the upgraded products of UAN and urea. So, we’re pleased this year to see that and see our channel partners work with us on the custom application business. So, feel good about where we are and what that – or pushes forward for us is a healthy lower inventory level going into the fall and we expect to see, as I said earlier, a good fall application season.

And our next question comes from Adam Samuelson from Goldman Sachs.

Yes. Hi, good morning. I was hoping just on the – on capital allocation, I was hoping to get the views and while it would take that to restart repurchases, it sounds like the outlook on the market has improved. Cash position is good, liquidity position is good. Just help me think about the decision process from here on buybacks.

Yes, Adam. I think the big issue is just kind of the broader economic uncertainty. I think we feel very good about nitrogen and in our business, particularly, here in the U.S. and the UK. So, it’s not really an issue around anything to do with the fundamentals of our business much more so just kind of broadly what’s going on in the economy and I think during periods like that, holding more cash rather than last is the sensible thing to do. We always have the opportunity to then turn around and distribute that cash when there is a solution to this pandemic situation and we do have a little more clarity around broader economic certainty. And so – but I just think in the near-term, it makes all the sense in the world for us just play the long game here and not rushing to share repurchases. So, we’ll be building cash as you know and Chris talked about it, we’ve got $250 million coming due next year that we’ve committed to redeem. Some notes do honor before the maturity date. And as we start getting kind of the world moves past the pandemic situation will return to normal course repurchases.

And our next question comes from Chris Parkinson from Credit Suisse.

Great. Thank you very much. Just given the recent urea rally, just how should we think about the sustainability of the run-up in terms of just how you’re thinking about the SD dynamics on the second half and 2021 as well as the cost curve. So, if I’m just sitting back thinking about FX and then relative input costs on an MMBtu basis, fourth quartile versus first quartile. Where do you see the current spread versus earlier this year versus your presumed outlook for 2021? Thank you.

So Chris, I think, based on where anthracite is today, it would suggest about it two 60 delivered NOLA price, that’s above where we are today. So, we’re continuing to trade at a little bit of a discount to international parody, which is not really that uncommon given that when people need to find liquidity for cargos, this is the place they come. That’s said, I think we’re trading in a range that reflects actual underlying economics and I think that’s been shown the last couple of Indian tenders when you haven’t seen huge participation coming out of China. And I think the world is operating very rationally, at least within the nitrogen industry today. As I said, we expect given the absence of LNG cargoes that once the surplus has kind of worked its way through the system, you’ll see energy costs in Europe and Asia climb back up to an appropriate differential off of Henry Hub again. And so almost regardless of whether health prices move, what we really look at is that differential costs and that differential becomes increasingly important during periods when China isn’t exporting. And so we’re very constructive about what the margin structure of this business looks like going forward, which we kind of indicated next six, 12, 18 months look pretty positive from our perspective.

Yes, I agree. I think the nice – I think where we are today and where we are going to – I think we’re projecting with the India tenders alone, taking the producer longs from North Africa and the area of Gulf into September that kicks those positions forward, but you still have substantial buying probably 0.5 million tons per month for Brazil through January and into February. projections today are India will be over 10 million tons of consumption of imports, which is – will be an all time record. And so the rally, I believe last for – at this point, into Q4 and then the United States has to start buying for its spring demand. And we are – we believe the channel inventory in North America is fairly low coming out of our application season, as well as production turnarounds that ours, as well as others will have taken place. And so when you look at the cost curve, where anthracite coal is today on an MMBtu basis, that’s about $6.5 to $7 on gas. And then if they’re able to export those numbers, those are – that’s very positive for the market, because those tons are being bid in and they need to make it all the way to the port, which are even additional costs. So, a good floor right now for the market.

Thank you. Our next question comes from Vincent Andrews from Morgan Stanley.

Thanks. Hi, everyone. just looking at slide 17, the potential Indian range and just you mentioned that it is a record this year. I mean, do you think that I guess, the monsoon would have to repeat next year in the same way to get the same amount of demand, but where do you think the actual base level of demand is in India that we should be thinking about for 2021?

Well, I mean, I think part of the issue Vincent, is not only just the underlying demand, it’s the – what’s going on from a production standpoint. People have been again, kind of very gloomy about the notion of new production startups and what that was going to portend for imports into India and a number of those plants; Trimble, Madex and others have started up and similarly older plants have know shut down or curtailed substantially. So yes, while this year looks like it’s pretty strong year from the standpoint of application, a lot of it is just, I think the recognition that it’s more efficient from the standpoint of the general industry – Indian economy to be importing urea as opposed to being, trying to run older high cost inefficient facilities. So, again, we’re very constructive about the direction that this whole market is headed. Bert, any other?

it’s exactly right. And with the level of imports coupled with domestic production to be an all-time high for urea consumption, but you have to remember, we’re going to approach again 50 million tons of kind of the export market. So, this is a global rally. It’s not just dependent on India. There are a number of countries that are consuming more and we’ve seen a few shutdowns. So, it’s a balanced position to what’s driving and we seem to have something like these things happen every year or two, a positive push to the market and we’re in the middle of one. I think to tack on to that, in the situation, where you’ve got these huge global disruptions like the pandemic, the move towards food security is something that most governments really want to push toward. And so optimal fertilization trying to encourage complete growth is something that is top of mind, I think for many, many regimes out there. So, I think again, underpinning the strong demand in nitrogen, we’ve actually been in an odd way, potentially somewhat beneficiaries of the whole situation.

Thank you. And our next question comes from Mark Connelly from Stephens.

Thank you. I’m just wondering about freight rates. If they stay low, how much does that affect CF given all this positive outlook for India and Brazil? And if things do change and you ended up needing to export more in the second half, fall application came up short. How would that affect your overall expectation about your competitiveness?

Well, generally speaking, high freight rates are good for us. Because we’re – we operate in import dependent regions. So, anything that adds frictional costs into the freight market is great for us. When we think about fall application; the fall application really, isn’t ammonia story. It’s not a urea, UAN story. And so if it’s lower application, you’re talking incrementally, not that much from an export, because the way that Bert has managed the system from a balance standpoint. So, fall application isn’t really going to have a tremendous impact in terms of what our export profile looks like. Our exports are really going to be driven more on what’s the net back opportunity to move product out versus keep it here. And I think right now, again, if you look at where things are trading in the margin opportunity available to us, even in a low freight environment, we’re feeling really good about how the business is performing and if freight rates climb again, even better.

Yes. Well, when you look at freight rates where we are globally, they are weaker, especially dry products; you probably got $17 to $20 from the ag to Brazil or North America. And so that is probably a little more attractive than it’s been in the past, a little bit higher depending on the product coming from the Baltic. But when I look at or think about freight, I think of it as a destination to our customer, and that includes rail and truck and terminals and we’ve been working very closely with our rail partners. Some have been more supportive, some have not. But in a weaker economic environment, all of a sudden we might become popular again and we’ve had some of those discussions and are working on new terminating opportunities, leveraging some of those options available to us as well as truck. So, I like, where we are structurally on the whole freight equation and we’re looking, you’ve seen CF be an efficient operator and that’s all we – or at least we drive that through our analysis of costs and where we can squeeze out additional value for the shareholder and that is represented in freight and freight costs such as rail cars and things like that, that we’re aggressively looking at.

Thank you. And our next question comes from Jonas Oxgaard from Bernstein.

Hi. this is Katherine Gallagher on for Jonas. Thanks for taking the question. Do you see any impact on nitrogen demand with the Chinese flooding we’ve seen this summer?

That’s an interesting one, in terms of when you plant, when you apply and when you harvest we’re in these different cycles and when the flooding took place post application time. So, I would expect you’re going to have some either quality with the harvest or the crop that’s been planted, or the actual availability of that product making it through those rains and flooding situations. So, on an aggregate basis and a generalized answer to your question, I would expect that that would drive in future use of that agricultural land to achieve higher yields to replace that loss product.

[Operator Instructions] Our next question comes from Jeff Zekauskas from JPMorgan.

Thanks very much. I think I have a three-part question.

Jeff, get out our pad and paper here, so we can keep track of all three parts.

Thank you. On Slide 18, you show less production from Brazilian real players. What happened in Brazil and does that production ramp back up in 2021? That’s the first part.

Well, Petrobras – I’m sorry. Go ahead.

Okay. The second one is in response to P.J.’s question about green hydrogen, you made some suggestive remarks, but I couldn’t tell whether that meant you wanted to build a new ammonia facility that was supplied with green electricity, or what you wanted to do is, find a green power source for the ammonia that you’ve already got. I was wondering if you can clarify that. And then lastly, is your interest in green hydrogen, because you believe that the financial returns of green hydrogen will be higher than the financial returns for agricultural ammonia?

So, I’ll let Bert talk about Petrobras and then I’ll grab the other two.

Thanks. So, the interesting thing in Brazil is those plants, which were owned by Petrobras and Bahia or Paraná and then the plant that never got started in Matagorda Sul, have been operating for decades and have been, at times, exporting plants generally supplying import needs also. those were old inefficient without good gas sources. The plant in Paraná, close to Paranaguá was actually supplied by a product from a refinery, which was next door. So, they have been – I would say not profitable for years. And I think, through this whole rationalization process that Petrobras is going through with their whole portfolio of assets and services that was one area that just made sense, and there was an opportunity for another company to look and take those over and operate them, but that has not been able to happen probably due to gas supply. When you look at the available gas and gas pipeline network in Brazil compared to the United States or any Western country, or let’s say European or North American opportunities, it’s so small. And so – and then the Bahia plant, for example, is just out of the market, where they were trucking some of that urea all the way across the country, 1000 miles to Matagorda Sul did not make sense. So, shutting them down was economically intelligent, as well as operationally smart. What that has done is then increased the need for imports, and it’s been very good for the international market as we’ve talked about India. So, we talked about Brazil. Brazil will now be close to a 7 million ton import market for urea that puts the U.S. market as the third largest market, India being first; Brazil, second, and United States, third for import demand, so, a very good growth for that international ton to move to.

And I’ll handle the other two questions, Jeff. So, in terms of building new green ammonia plants, that’s not high on my list of things that, we want to do over the next five years or so. The economics around that are pretty challenged. I think, and let me describe a couple of different ways that we can though participate in all of this. The first one being we are actively investigating geological sequestration for the process CO2 gas that comes out that we capture, some of which we turned into ammonia. But you can – we can go ahead and sequester that, and then get offsets as a result of that and certify some set of the production, like even today as blue ammonia, if we were going to do that. similarly, then the next step would be to put in some electrolyzers and put in free hydrogen either into the backend of the process or potentially in the frontend of the process. And by renewable energy, in a number of our locations which is available, wind, in Port Neal Iowa, you got a hydro and chloride in Ontario. you’ve got some green options in the UK as well. And then from that, you can actually certify some of the production is green, and all of those things are relatively low capital cost implementations in order to be able to move a section of the portfolio from conventional to green and blue. I think to do a wholesale swap out, you’re basically talking about, replacing the frontend steam methane reformers with huge electrolyzers and that is a lot more capital, economically today that doesn’t make sense, because the price of North American natural gas is so reasonable compared to the other prices of energy, particularly if you’re talking about renewable energy. However, a lot of that is dependent upon what the price of carbon is or isn’t, and at a high enough carbon costs or a high enough product price demand for green ammonia, you could absolutely, see the justification from an economic return for doing that. So, my answer to that question is we’re evaluating all of these different approaches. We haven’t made any announcements yet, because our belief is rather than a big fanfare of kind of smoke and mirrors and vaporware. We want to wait until we’ve got something real that we’re doing and then announced something at that point in time. But we’re evaluating all of this and we think we’ve got a great path forward to actually in the very near term, be able to produce some blue land or green ammonia, but not have it be a huge capital outlay in order to get there. I think longer-term though, if you project out to, let’s just take the 2050 number that a lot of people are using, you could absolutely see a number of our plants be full on green running off of renewable fuel here and I think the benefit that we have is the capital investment in terms of the backend of the process, along with all of the storage and shipping logistics and terminaling capabilities is that we’re in the best position to benefit from it and anything that drives demand for ammonia, whether it’s green, blue, or otherwise is good for us, because it just increases the price of ammonia globally. So certainly, something we’re excited about from a development standpoint.

And our next question comes from John Roberts from UBS.

Good morning. This is Lucas Beaumont on for John. Thanks for taking my question. So, I was just having, could you please talk us through your assumptions around new supply growth the next two years, underpin your supply demand assumptions? So, I was just wondering, particularly, as it’s changed now that we’ve had a few more months to assess the impact of COVID disruptions on project completions. We’ve previously talked about difficulties like getting personnel onto sites and engineering providers being able to provide the required equipment. Additionally has your view changed of the industry’s ability to complete normal sort of maintenance activity given the similar difficulties? And do you see that impacting the supply also?

I’ll let Chris go through the nitty-gritty details, but let me just kind of start off with a high level comment on the switches. The world has sufficient nitrogen capacity. It’s just a matter of at what price does it get bid back into production on and what you’ve seen as Bert indicated in his prepared remarks, early on is when deep water ammonia prices crashed in response partly to the pandemic situation. You’ve seen high cost producer shutdown in Trinidad and actually, in other parts of the world. And so – and similarly, when you’ve had these new plants come online in India, you’ve had other plants, whether it’s Brazil or India or other places in the world shutdown. So, while there’s tremendous microscopic attention paid to the specifics on supply demand, what ultimately happens in this situation is, the market rationalizes, how much supplies ultimately available, because the high cost production shuts down and where that high cost production is actually, it moves around a little bit, because Trinidad was viewed as first or second quartile assets for a long time up until just recently. And now they’re the ones that were actually shutting down. And so what I would suggest is, while all of the timelines to build, have lengthened substantially and availability of some parts have been pushed out into the future, making it difficult for some people probably to operate that generally speaking, it’s going to be the cost curve and the slope of the energy differentials that are going to drive. What the margin opportunity is? Not whether there’s an extra plant coming on and certainly understand or not, but Chris…

There’s not a lot to add to that. Because I think, Tony covered it, but on a more detailed point, we are seeing delays in some of those plants, whether it be in India or you Uzbekistan. So, you’re starting to see some of those delays related to actual turnaround and maintenance activity. I think it’s definitely more challenging and maybe, extended longer. But I think that’s the same challenges you have with just overall operational risk with whether a number of operators get the virus or not as well. So, I think you’re going to see some of these small disruptions. But as Tony mentioned, there’s plenty of capacity and it’s just for that capacity to be bid back into production.

And our next question comes from Duffy Fischer from Barclays.

Hi, good morning, everyone. This is Sean Gilmartin, on for Duffy. Thanks for taking the question. Just real quickly from me, early on in the year, and granted things have changed, but yet kind of given soft guidelines around EBITDA between $1.4 billion to $1.6 billion for full-year 2020, just curious, given the solid first half, the dynamics you’re seeing in the market today, kind of inflection and positivity. Can we get to the upper end of that range in your opinion and given kind of flat to down a little bit, year-on-year corn acres into 2021 maybe a bit better pricing dynamics? How would you encourage folks to think about 2021 EBITDA levels? Thank you.

Yes. We’re not really talking 2021 at this point. This business is hard enough to forecast three months is a future let alone 18 months into the future. We just – we see some very positive signals about what demand is likely going to show up. I think the rest of the story is all about what the slope of the curve is and what happens in terms of energy differentials from a region-to-region basis. So, we’re going to wait until we get to further in the year, maybe, even a Q1 call before we approach that subject. But we still feel very comfortable with our recent guidance around where we expect the year to show up, we’ve – as Bert said, we had a successful build program, met our expectations, both in terms of take rate and pricing. And so as we sit here today, most of Q3 or much of Q3 is in the bag already and what we see looking forward through Q4 looks pretty attractive. So, we feel very comfortable with our guidance.

And our next question comes from P.J. Juvekar from Citigroup. P.J., your line is open. P.J., you might be on mute. [Operator Instructions] And we have no further questions at this time. I would like to turn the call back over to Martin Jarosick for closing remarks.

Thanks everyone for joining us today. We look forward to follow-up conversations and some virtual conferences over the next couple of months.

Thank you, ladies and gentlemen. this concludes today’s conference. Thank you for participating. You may now disconnect.