Rentech Nitrogen Partners, L.P. (NYSE: RNF), which manufactures and sells nitrogen fertilizer products including ammonia, UAN solution and ammonium sulfate, today provided an update on its outlook for 2013 and 2014. Details on results and forward-looking guidance will be provided when the Partnership releases third quarter operating results on November 7, 2013. Results for Third Quarter 2013: For the East Dubuque Facility, results for the quarter largely reflected deliveries of fill tons of ammonia and UAN, which were at seasonally low prices, as expected. As is typical during a turnaround year, ammonia deliveries were lighter in the third quarter than in a non-turnaround year. Deliveries of UAN were higher than expected, shifting expected revenue from the fourth quarter to the third quarter. For the Pasadena Facility, results for the quarter reflected a significant, recent worsening of the market for ammonium sulfate, and the margin impacts of high-cost inventory flowing through cost of sales for products sold at the spot prices negotiated at the end of the third quarter. Forward sales contracts have not developed for ammonium sulfate to the extent that they have for other nitrogen fertilizer products, so it is not possible to lock product prices and input prices at the same time, as has been our practice for a portion of the sales of the most important products of the East Dubuque plant. Since input prices for ammonium sulfate are typically fixed several months before the corresponding product price, margins may be compressed during a declining commodity market. A major factor that further reduced margins for the third quarter was a significant write-down of inventories calculated after the end of the quarter, based on transactions that occurred late in the quarter at prices below the costs of inventory. The Pasadena Facility generated positive EBITDA for the first half of the year, but negative EBITDA in the third quarter, with approximately three-quarters of that loss occurring in September due primarily to the size of the inventory write-down. The Pasadena Facility also experienced several relatively small disruptions in production that, in the aggregate, contributed to lower production and higher cost of sales during the quarter.
Turnaround and Expansion Projects: The expansion projects at both plants continue to be on time and on budget. The East Dubuque plant is currently in the process of startup following the biannual turnaround, and commissioning new equipment installed as part of the expansion of ammonia capacity. Ammonia production is expected to start on schedule in the first week of November.A routine inspection late last week identified the need to repair the foundation of one of the three existing syngas compressors, taking that compressor out of service. This unplanned repair will require the ammonia plant to run below the planned post-expansion capacity of 1,100 tons per day, at a rate of approximately 790 tons per day, until repairs are complete. Since the problem has just been identified, the repair schedule is in development, but is estimated not to exceed 90 days. The Pasadena Facility’s ammonium sulfate plant is expected to begin scheduled down time for approximately 2 weeks in early December, to complete the $3 million project to expand ammonium sulfate capacity to 2,100 tons per day, and $3 million of projects to improve on-stream time. The incremental tons of ammonium sulfate are expected to generate significant variable margin. The power co-generation project continues to be on time and on budget with completion scheduled by the end of 2014. The expansion projects at both plants have been funded, and the Partnership continues to have $35 million of undrawn capacity on its revolving credit facility. Outlook for 2013 and 2014: Reflecting the factors discussed above, the cash distribution related to the Partnership’s third quarter results, announced on October 24, was in line with the internal quarterly forecast that is a component of the annual guidance issued on August 8, 2013. The outlook for the fourth quarter has deteriorated since issuance of that guidance. Ammonium sulfate prices have declined further than expected, and the illiquidity of the market has continued longer than we had expected. Few transactions are taking place in North America, and typically lower-priced export sales are conducted in a small number of large, vessel-sized transactions. Buying activity in North America is anticipated to return during the fall season, as is typical for fertilizer products, but visibility into fall pricing is quite limited. The Partnership’s current view for the balance of 2013 is based on lower forecasts of ammonium sulfate deliveries and prices compared to the August 8 guidance, with prices only slightly higher than the most recent business conducted. Based on these prices, EBITDA for the Pasadena Facility is expected to improve from the third quarter, but to remain negative for the fourth quarter and the full year. The fourth quarter forecast for the East Dubuque Facility is now expected to be reduced by increased costs and lower sales due to the compressor-related repair mentioned above. The reduced production is not expected to affect 2013 sales already contracted for delivery, but forecasted spot sales are expected to be lower. Capital and operating expenses are expected to be higher by of no more than $2 million in the aggregate, which will affect the fourth quarter of 2013 and first quarter of 2014. Given these recent developments, the Partnership estimates that cash distributions related to the fourth quarter of 2013 could be as low as zero.
The Partnership expects ammonia production for the East Dubuque Facility in early 2014 to be restricted to 790 tons per day, compared to the 1,100 tons per day expected before the discovery of the requirement for compressor-related repair. Otherwise, the East Dubuque Facility is expected to operate at its expanded production rates during the rest of 2014. The Pasadena Facility’s margins are expected to improve in 2014. The benefits of lower input costs, already visible in the market, should start to be realized in early 2014. Third-party forecasters show modest improvements in prices for ammonium sulfate in 2014, as well as lower prices for the key inputs, leading the Partnership to expect improved margins and positive EBITDA for the Pasadena Facility in 2014.Changes in Timing of Cash Distributions: The Partnership plans to change the timing of the payment of its cash distributions, so that cash distributions will generally be announced at the same time as quarterly results. The Board of Directors of Rentech Nitrogen Partners has approved a change, so that quarterly distributions will be paid on or about 60 days after the end of each quarter, rather than the current practice of 45 days. The result is that quarterly operating results and cash distributions can be announced simultaneously for the first through third quarters. For the fourth quarter, distributions may be announced before full operating results, due to the longer time required to report annual operating results. The cash distribution for the fourth quarter of 2013 is expected to be announced in February 2014, and paid on or about 60 days following the end of the quarter. About Rentech Nitrogen, L.P.Rentech Nitrogen ( www.rentechnitrogen.com) was formed by Rentech, Inc. to own, operate and expand its nitrogen fertilizer business. Rentech Nitrogen’s assets consist of two fertilizer production facilities owned by its operating subsidiaries. The East Dubuque Facility is located in the northwestern corner of Illinois, and uses natural gas as a feedstock to produce primarily anhydrous ammonia and UAN solution for sale to customers in the Mid Corn Belt. The Pasadena Facility is located in Pasadena, Texas, along the Houston Ship Channel, and uses ammonia and sulfur as feedstocks to produce ammonium sulfate and ammonium thiosulfate fertilizers, and sulfuric acid. Rentech Nitrogen is the largest producer of synthetic granulated ammonium sulfate fertilizer in North America, with sales in the United States and internationally. Forward-Looking StatementsThis press release contains forward-looking statements about matters such as: forecasted trends in product demand, product deliveries, raw material costs and finished goods selling prices, and forecasted margins and EBITDA for the Pasadena Facility; forecasted results and production rates for the East Dubuque Facility; projected cash distributions by the Partnership for the fourth quarter of 2013; the timing, budget and expected operational results for our expansion and turnaround projects; and the timing, cost and financial impact of repairs to the compressor foundation at our East Dubuque Facility. These statements are based on management’s current expectations and actual results may differ materially as a result of various risks and uncertainties. Other factors that could cause actual results to differ from those reflected in the forward-looking statements are set forth in Rentech Nitrogen’s prior press releases and periodic public filings with the Securities and Exchange Commission, which are available via Rentech Nitrogen’s website at www.rentechnitrogen.com. The forward-looking statements in this press release are made as of the date of this press release and Rentech Nitrogen does not undertake to revise or update these forward-looking statements, except to the extent that it is required to do so under applicable law.