Q4 2025 Earnings Call Transcript

Good day, and welcome to the CF Industries Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Martin Jarosick. Please go ahead.

Good morning, and thanks for joining the CF Industries earnings conference call. With me today are Chris Bohn, President and CEO; Bert Frost, Executive Vice President and Chief Commercial Officer; and Rich Hoker, Vice President, Interim CFO and Chief Accounting Officer. CF Industries reported its results for the full year and fourth quarter of 2025 yesterday afternoon. On this call, we'll review the results, 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 SEC, which are available on our website.

Also, you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Now let me introduce Chris Bohn.

Thanks, Martin, and good morning, everyone. Yesterday afternoon, we posted results for the full year 2025, in which we generated adjusted EBITDA of approximately $2.9 billion. These strong results reflect outstanding operational performance by the CF Industries team, the enduring advantages of our manufacturing and distribution network and constructive global nitrogen industry dynamics that have persisted into 2026. Starting with safety, our full year recordable incident rate was 0.26 incidents per 200,000 hours worked, and we experienced our lowest ever number of process safety events. This enabled us to produce 10.1 million tons of gross ammonia in 2025, which represents a 97% utilization rate.

However, that performance is tempered by the incident, Yazoo City Complex in Mississippi experienced in November. While there are no significant injuries, this event is a reminder of why we emphasize individual and process safety every day across our entire network. We do not expect the Yazoo City Complex to resume production until the fourth quarter of 2026 at the earliest, given the long lead times required to fabricate and deliver certain equipment. As a result, we expect our network to produce approximately 9.5 million tons of gross ammonia in 2026. Turning to Blue Point, our joint venture with JERA and Mitsui, the project has progressed well from positive FID in April through hitting all our planned milestones by the end of the year.

This included our partner securing offtake from new low-carbon ammonia demand sources and receiving contract for difference awards from the Japanese government. We expect to begin civil work at the Blue Point site in the second quarter of 2026. Finally, we continue to efficiently convert adjusted EBITDA to free cash flow. At a rate outpacing material and industrial sector averages, as you can see on Slide 10. Net cash from operations in 2025 was $2.75 billion, and free cash flow was approximately $1.8 billion. We returned $1.7 billion to shareholders in 2025. This included deploying over $1.3 billion to repurchase 16.6 million shares, approximately 10% of the outstanding shares at the beginning of the year.

Given our high-performing, high-margin business, progress on strategic initiatives and what we believe are constructive global nitrogen industry dynamics ahead, we expect to continue to generate substantial free cash flow. As a result, we remain firmly committed to our capital allocation framework, investing in the business for growth and returning capital to long-term shareholders. With that, I'll turn it over to Bert to discuss the global nitrogen market environment. Bert?

Thanks, Chris. For the last 12 to 18 months, we had expected the global nitrogen market to be more balanced in this time frame as new capacity was slated to come online with significant tightening through the end of the decade to follow. However, the global nitrogen market remains tighter than expected. New capacity has been delayed, global production has not maintained historical levels and demand continues to grow.

Nowhere is this more apparent than in our indicative global urea cost curve, which we share on Slide 13. Global urea prices are currently trading well above even the high end of the cost for range. Strong demand led by India, Brazil and North America as well by European buyers securing volumes before the EU's carbon border adjustment mechanism was implemented, has pushed demand to the right. At the same time, supply is constrained by natural gas availability in Trinidad and Iran, challenging production economics in Europe and the end of seasonal Chinese urea exports in 2025. Additionally, geopolitical concerns for the Middle East loom over the market.

Through the first half of this year, we do not see many catalysts that would move prices toward the cost curve floor levels. India's February urea tender is atypical for this time of year, suggesting demand continues to meaningfully outstrip lower-than-expected domestic production. CF Industries had a very strong fall 2025 ammonia application season in North America as we position supply well, enabling farmers to capture good value per nitrogen unit from ammonia. This, along with continued strong global corn demand suggests to us that 2026 will be another year of high planted corn acres domestically, helping support nitrogen demand.

From a supply perspective, we believe global nitrogen channel inventories are lower than historical averages. Chinese urea exports are also unlikely to return until the end of the Northern Hemisphere spring application season. However, we do expect that new North American ammonia capacity, should it come online at full rates, will affect prices for globally traded ammonia, but will not impact tightness for urea or UAN. As a result, we expect the global nitrogen market to remain constructive in the near term.

At the same time, interest in low-carbon ammonia and low carbon nitrogen products continues to grow, both for tonnes from our Donaldsonville Complex and for our portion of Blue Point volumes. In the near term, global customers have demonstrated a willingness to pay a premium for low carbon ammonia given the benefits for their sustainability goals. We also expect demand to continue to grow from customers in Europe and Africa, seeking to reduce additional costs from EU regulations on carbon. We're also excited about the progress we're making domestically as we work with domestic retailers and end users of ag and industrial products to lower carbon footprint of their value chain.

Most significantly, we have advanced our pilot project with POET, the world's largest producer of biofuels and with retailers in the U.S. to enable the production of low-carbon ethanol. We expect the project will be a model for building a low-carbon ammonia and nitrogen fertilizer supply chain in the U.S. and in North America. With that, I'll turn it over to Rich.

Thanks, Bert, and good morning, everyone. For the full year 2025, the company reported net earnings attributable to common stockholders of approximately $1.5 billion or $8.97 per diluted share. EBITDA was approximately $2.8 billion and adjusted EBITDA was approximately $2.9 billion. For the fourth quarter of 2025, we reported net earnings attributable to common stockholders of $404 million, or $2.59 per diluted share.

EBITDA for the quarter was $731 million and adjusted EBITDA was $821 million. For the fourth quarter, we recorded two impairment charges totaling $76 million, of which $51 million was related to the electrolyzer pilot project at the Donaldsonville Complex in Louisiana. We made the decision not to continue to invest in this pilot project given its return profile. We also recorded a $25 million impairment charge related to the incident at Yazoo City that Chris mentioned earlier.

We satisfied the business interruption insurance deductible in December and expect to begin receiving insurance proceeds based on lost profitability during 2026. During the fourth quarter of 2025, we also completed a $1 billion senior notes offering. We did this both to refinance $750 million in debt that was coming due in December 2026, and to further strengthen our financial flexibility. Looking ahead, we expect capital expenditures in 2026 to total approximately $1.3 billion on a consolidated basis. CF Industries portion of this is approximately $950 million, which includes $550 million for sustaining CapEx for our existing network, plus approximately $400 million relating to both the Blue Point joint venture and the common infrastructure we are building.

Finally, we repurchased 4.1 million shares for $340 million in the fourth quarter. These repurchases completed our $3 billion share repurchase program, which was authorized in 2022. After this was completed, we commenced our $2 billion program, which was authorized by our Board in 2025. Approximately $1.7 billion remains on the 2025 program, which expires in December 2029. With that, Chris will provide some closing remarks before we open the call to Q&A.

Thanks, Rich. First and foremost, I want to thank CF Industries employees for their contributions to our success in 2025. They delivered fantastic results in the midst of the tumultuous global nitrogen market and did so with a focus on safety. We're extremely proud of what our 2,900 employees can accomplish when moving in the same direction towards shared goals. 2025 showed how much we can do. From operational excellence and positive FID for Blue Point to completing two major decarbonization projects and securing our first low-carbon ammonia sales for our premium.

This level of execution is not a one-year story, but rather has been consistently delivered over time. This, along with our operational advantages and structural advantages, where we operate underpins our ability to invest in growth and return in capital. This, in turn, increases long-term shareholder participation in our underlying assets and the free cash flow they generate. As you can see on Slide 9, we have increased nitrogen participation per share by over 35% in just the last five years.

Given our strong core business, strategic growth initiatives in our near, medium and long-term outlook for tightening global nitrogen market, we believe we are well positioned to build on this track record and continue to create substantial value for long-term shareholders. With that, operator, we'll now open the call to questions.

[Operator Instructions] Our first question comes from Andrew Wong of RBC Capital Markets.

I just wanted to ask about the pace of spending at the Blue Point project, it looked like some of the project might have been pushed now [indiscernible] -- just talk about that [indiscernible].

Andrew, I think you broke up a little bit, but I believe your question was related to the slide we had in the deck on Slide 12, just the capital cost related -- excuse me, Slide 15, the capital costs related to the Blue point. So the overall expenditure for Blue Point hasn't changed our -- it's still forecasted at $3.7 billion. But with any project of this size, as you get closer and get into it, both from ordering some of the long lead items like we've done and engaging the modular contractors, you get a better idea of not only what the costs are, which haven't changed here, but also the timing of when that cost is going to occur.

So we thought it would be worthwhile just given that we've moved into that stage just to re-update what the cash flow outflow will look like over the next five years. I think the important part of that slide on Slide 15 is the bottom line where it shows what's our annual cash outflow as a company. And given our free cash flow generation and the strength of it at $1.8 billion last year, $1.5 billion the year before. You can see the level of CapEx going out each of those years, is not something that we're concerned about affecting other capital allocation decisions in which we're making.

And that's really one of the reasons why with this growth platform that we structured the deal the way we did, taking a 40% interest in it so that we'd be able to manage and continue to be strategic in how we do other growth projects, but also return cash to our shareholders.

Okay. Great. And then maybe just a little bit more on Blue Point here. I recall there being quite a lot of room for expansion nearby on that site.

CF is obviously building themselves, some of the logistics and infrastructure there potentially to handle more volumes in the future. And so I know it's still early days here, but if we're thinking longer term, like 5, 10 years from now, does it make sense that we'll see a larger complex there? And is there a timing where it's more efficient to like so that you have workers that are already working at Blue Point to move to the second side? Like how should we think about that?

Yes. So initially here, I would say our focus is on the first site. But you're right, the common infrastructure we're building, there'll be synergies where if we were to build a second plant, we wouldn't have near the level of expense that we would have for this first site. And the site itself that we purchased could hold up to 5 ammonia plants world scale the size of this one, 1.5 million metric tons.

So it is an organic growth platform that we're looking at here, what the timing is where we had moved into a second site, I'm not certain that we know that just yet. There are some questions that we want to answer as we get into these module yards. But I think as we look at the long-term dynamics of the nitrogen market, there's just not enough new supply coming on to meet demand. So as we see that going forward, we do think there will be a tightening in the S&D, that will provide other organic opportunities for us, but nothing to mention right now.

Our next question comes from Joel Jackson of BMO Capital Markets.

I want to talk to you about CBAM, obviously, a lot in the news on CBAM. So what I want to ask you about is, it's a different scenarios. If CBAM for fertilizers goes as it is, if there's some suspension on fertilizer, if you get some offsets and other cost subsidies that sort of offset it. What does that mean for a, your business, just your business this year?

And then what does it mean for returns on Blue Point as you have modeled it in the different CBAM scenarios effects?

Yes. So maybe I'll start with CBAM, then I'll get to the implications on the business in Blue Point. So CBAM, today, while there's a lot of uncertainty around it, it's in place. And so it's happening.

We are continuing to see our European customers show interest in low-carbon product and willingness to pay a premium for it. So I think that speaks to their thoughts that it's going to maintain. I think whether CBAM stays or goes is probably more of an issue for European producers than it is for our North American centric production base. We view CBAM as one of several opportunities.

Bert and his team and the clean energy team have been working on many different sales that go outside of Europe that we're receiving premiums on some here building in the U.S., others in Asia and Africa, that we don't necessarily have everything tagged where it has to be from a CBAM standpoint. Now what I'll say is if CBAM's altered or goes away. At some point, there's going to be some type of carbon program in Europe. And us having low carbon product, these benefits should accrue to us in that.

Regarding how this is going to affect our business, I would say, as we talked about before, we did not model in any type of premium from Blue Point or even in our Donaldsonville production with related to low-carbon products. So all of that is upside to our internal rate of returns on that. So when you think about the CCS project, we started online last year at Donaldsonville. We weren't looking at anything besides the 45Q benefit that we would get from that.

Now we're realizing that we're able to sell that at a premium. So that's building on that. And similar with Blue Point, our analysis was without looking at any type of product premium.

Okay. And then second question. On Yazoo City, when the plant starts, hopefully, end of the year, will it look the same as it did before. Will the mix be the same? And maybe if you can just elaborate a little bit more on, is there specifically for equipment that you really need to get in that, that's the manufacturing schedule that you have to hit to get in Q4?

Yes. Just to remind everybody on the Yazoo plant, so where the incident occurred within the ammonium nitrate plant, the site itself has an ammonia plant, a urea liquor plant and nitric acid plants. All that has been effect -- has been unaffected. However, given there's the site's not logistically equipped to move that much net ammonia if the upgrades are not operating, that's why the entire plant is down right now.

So the only plant that we're looking to rebuild here is the ammonium nitrate plant. And I would say it's too early to judge on a lot of different aspects of that, but our intent is to get the plant up as soon as possible. The time frame that we've given with late Q4 here in 2026 is just as we've gone out to get switchgear and some of the electrical stuff, which is longer lead time items, we've been given those dates as delivery. If it comes in sooner, that would be excellent.

But we're right now just basing it on that. Maybe I'll -- just on this particular point with Yazoo City, I'll have Rich talk through some of the economics for 2026.

Yes. Thanks, Chris. Joel, in terms of the economics, the full year EBITDA impact of not running the Yazoo City Complex, is it going to be in the $200 million range. And again, that's an EBITDA number.

But I also want to highlight, we mentioned in our prepared remarks that we have business interruption insurance for the site. And so we are working with our insurance carriers. We're pulling together all of those claims, and we would expect to be receiving those business interruption proceeds during 2026. Our goal is to see if we can offset most or all of that kind of loss with the insurance proceeds, because that's the program that we have. I'll also mention that the timing of those insurance proceeds are going to be a little bumpy, because we will record those as they come in to the company, but that's the impact.

Our next question comes from Ben Theurer of Barclays.

Just wanted to kind of like get a little more commentary around the current tightness in the market. And you've laid this out as '25 was expected to be not as tight and then it was actually tightest towards the end of it, and we saw this because you guys doing almost $3 billion in EBITDA versus the $2.5 billion that you talked about kind of on the current mid-cycle. So as we look into 2026 and some of the drivers that you think can take you towards the mid-cycle of $3 billion, some of them might come already in 2026. So how should we think about, a, the market and b, some of these drivers over more EBITDA generation, the tax credits, et cetera, as we move through 2026, considering the [ $200 ] million miss on Yazoo related that you just mentioned?

Ben, this is Bert. And relative to 2025, a very interesting market as things unfolded globally. And because we're -- we participate in the global market, A lot of those issues drive what happens in different regions. And starting off with the conflict in the Middle East, which shut down production in Iran and in Egypt, and then you had high demand levels in India throughout the year, much higher than expected.

I think the industry expected $6 million, we were close to $10 million and additional demand for Brazil and then European difficulty due to high gas cost took production down and it required higher levels of imports. And then the United States planting 98 million acres of corn, incremental tons were needed to satisfy that demand, even though we carried in lower inventory levels into fertilizer year '26. So a very interesting market and the combination of lack of supply and high demand drove the market to levels that were unexpected. That dynamic is carrying forward into 2026. We expect -- the USDA came out with 93 million acres of corn.

I think the industry would say it's that or higher. So consistently, I would say, over the last 10 years, higher corn acres, so higher demand. And you're seeing additional needs for India, the current tender that was announced or opened on Wednesday, when those numbers will be probably disclosed tomorrow or early next week. And then you're seeing, again, around the world with $11 gas in Europe and CBAM issues, you're seeing higher levels of imports eventually will come there and South America as well.

So again, a positive demand and probably limited supply. So you're seeing today in NOLA, urea pricing at $450 a short ton, which is $100 higher than it was in December of 2025. So exceptionally positive dynamics driving the industry in North America where the preponderance of our production is located and we're participating in that market. Then you have the positive gas dynamics that are taking place. Today, we're at $3 for the forward market, positive economics for that structure as well.

So we see 2026 as being at least through the first half having a challenging market on supply and high demand going forward.

Yes, Ben, and I think you framed it nicely when you talked about 2025 that we thought would be balanced, some people thought a little bit long, same thing with '26. And as Bert just mentioned, '25 came out with $2.9 billion in EBITDA and the first half of '26 certainly looks very strong here. And all of that is sort of bridging those years to where the market gets what I think is going to be even tighter given the lack of new supply coming on, setting us up for when Blue Point does come on the market. And that's why in our commentary, we said we see the near, medium and long-term nitrogen dynamics, very strong, because we've bridged kind of a little bit of that time frame where we thought we'd be balanced during this, and it's actually tighter.

Related to the tax credit piece for next year, we will have a full year of the carbon capture and sequestration unit operating at Donaldsonville. Last year, we did about 700,000 tons we had sequestered. This year, it will be just under 1.5 million tons that will sequester. And that number is really based on just the amount of process CO2 we have remaining after we do upgrades and with the plant turnaround schedules with ammonia plants being down.

So we're going to max out the most we can sequester during that particular time frame. And right now, we're thinking that's around 1.5 million tons for 2026.

Our next question comes from Mike Sison of Wells Fargo.

Yes, I just had a quick question on CBAM, again. So if it goes away, does that make it difficult or maybe impossible to get a premium price for Blue Point? And if it stays, then there's a good chance to get a premium for Blue Point? And then just curious what you're all hearing in terms of timing when we'll find out on a decision for that by the EU.

Yes. So with CBAM, I mean, I think it's more complicated than just whether CBAM stays or not, because you have the whole ETS scheme over there that gives free allowances that are beginning to stop. Does that continue where they don't receive those free allowances, which then would basically push European producer cost even higher without CBAM. And I think on the premium side, I'll let Bert comment on this a little bit more, but I think it goes beyond what we're hearing from European customers about buying low-carbon product when it comes to the premium.

The premiums in place, we have contracts in place for 2026 in demand for more. So we are constructive. We continue to have further dialogue. I agree with Chris, that this is set in motion, CBAM that is in carbon pricing.

This is a train that has left the station, I believe. And so how that transpires to CBAM and our premiums were constructive. And we're even seeing that now across the globe with industrial customers and agricultural customers desiring low-carbon products. So I don't see that decreasing at all.

Got it. And then just one quick follow-up. Given the dynamics you shared for nitrogen this year. Is your bias that pricing kind of stays at this level and maybe the biases may be potentially to go up from here? Or how do you sort of see the kind of the scenarios for potential pricing there?

Yes. I'm never biased. I'm just correct. I think that because this is a global market, and you have so many different dynamics driving the world price structure with different producers and different localities producing this product that don't consume it.

And you have some very gigantic producing places like China that are sometimes in and sometimes out of the market. And then you couple that with 3 to 4 months of demand in North America of actually using this product in 6 to 7 months of inventory build. And so you have to be a student of the market and follow these things. And we had an opinion coming out of Q4 or in Q4 that because of the supply demand dynamics I had explained earlier, we were on an uptick of pricing, a positive uptick in pricing, and that has transpired.

How much further it goes. There's all kinds of expectations in the market today. I think there is still room to go, especially in North America. But I do think there will be a correction in the back half of the year like there always is, as we move from the Northern Hemisphere to the Southern Hemisphere of planting.

Our next question comes from Kristen Owen of Oppenheimer.

Carbon opportunities and maybe double-click on the agreement with POET for the low carbon fertilizers. Just given some of the proposed changes in the 45V guidelines, practice changes, I'm wondering how you're thinking about low CI fertilizer demand opportunity domestically. And if those 45V tax credits maybe help improve the unit economics or pricing premium that you're seeing here in the U.S.

Yes. So for the -- we missed a little bit of the first part of your question, but it's about low carbon and low carbon in the ag sector and the consumption of that product and the demand profile going forward. And our agreement with POET is exciting. POET is a super strong company and the leader in biofuels.

We're also talking to other ethanol producers. But the vision is about the core value chain. And how do you take a low-carbon corn? Well, how do you create that with low carbon fertilizer, who supplies that we do and who has plenty of supply for our customers, we're building it.

And so as you take that low carbon product through the value chain and as the ethanol plants decarbonize themselves, there's a tremendous opportunity for domestic and export ethanol demand to be satisfied by the United States. And we're the one place that can supply that in terms of the gasoline blends globally. And then for low carbon or low CI score fertilizer as well, we're seeing -- we're having conversations. We're seeing demand through the retail sector driven by the CPGs and other food producers as they look at their sustainability goals and Scope 3 and scope emissions.

Yes. And I think anything related to the 45V is just going to be an upside to us. As Bert mentioned, he's hearing enough activity even though at this particular point, low carbon fertilizer is not recognized in the 45V now, that is up for comment right now as the USDA is defining what are those qualifying activities and you would think low-carbon fertilizer, which would be an attractive pathway as it's very easy to verify what is the carbon score of that. So we're hopeful that gets included.

But as Bert mentioned, he's already getting interest in that, even with it not being included in the 45V just yet.

Super interesting. My follow-up question is a little more boring and on the modeling. So you -- can you just remind us your operating costs in 2026 you threw out the $200 million EBITDA headwind from Yazoo City, I imagine there are some stranded costs or overhead costs that won't be recoverable through the BI insurance just some thoughts around operating costs and any sort of turnaround that we should be thinking about in 2026?

Yes. In terms of the BI, our hope is that virtually all of those costs are going to be recovered through BI. We're not expecting anything major outside of it. And as we go through the rest of the year, our turnaround schedule, I think, is projected to be pretty normal in terms of what we would normally expect. So I don't really have anything I want to highlight.

Our next question comes from Christopher Parkinson of Wolfe Research.

Just a short-term question and a lot of questions for me. The short term, just Bert. Going back to some of the things you were discussing before, how are you thinking about order book flexibility into this year? I mean farmers are just now getting some deferred direct payments.

You're waiting news [indiscernible] and then you mentioned India, Iran, Trinidad out, Texas capacity and it seems like there are more moving parts now than in previous years, at least going back to '22, let's say. How are you thinking about that with your team? Are you leaving some flexibility as you enter spring? Or are you happy with prices where they are now?

Yes. In general, we're pleased with our order book. And as I highlighted earlier, coming out of 2025 into 2026, we carried some inventory in to 2026 on purpose, because of these dynamics that we're laying out that -- and this has been the discussion. We just finished the TFI, The Fertilizer Institute meetings in Orlando this week with all of our major customers.

And the message is we're heading into a logistics game that as good as the weather has been that it's been warm. We're seeing applications already start Texas, Kansas, Oklahoma and Nebraska. And I think that's going to be even more pronounced and we could see in early spring, similar to what we did in 2012. If that is the case or even if it's normal, we're approaching where the need to get products where you have difficulties on the river due to low water, you have, we believe, shortages or lower inventories in the upper Midwest. There's been a number of plant issues in our sector in Canada and through the winter storm that came through in January, we think there's been some downtime.

All that equates to lower levels of available product and we're having 93 million, 94 million, 95 million acres of corn. So in terms of the flexibility, we're all about execution right now, identifying where the product needs to be, where are the orders placed against our terminals and plants and communicating with our customers where they believe they're going to be requiring tons and then communicating about those -- getting those orders placed and in the process and working with our freight providers, the railroads, the barge companies to move it. So this is all about execution from now forward.

And perhaps a slightly longer-term question. There's obviously been a few questions here already on CBAM. But switching over to the other side of the Blue Point equation and heading to the east, Japan has actually been moving as far as I can tell, further forward, you've seen as of December [ medi ] certifications, further go forward on a $20 billion hydrogen hub, a lot of those consumers and potential, have lost supply agreements with others based on three project cancellations, one long-term deferral and one final blue -- blue ammonia facility that's, let's say, currently a flux for the next six months.

As much as everybody is focusing on Europe, do you think the buy side and the Street is missing something more pronounced in Japan that's still ongoing?

Yes. I think it's an excellent point, Chris. I mean, as we mentioned every one years ago thought that there was just going to be this big wave of low-carbon supply coming online. And we had said, it's easy to announce a project, it's difficult to execute on it.

And so as you mentioned, a lot of those projects have fallen off. Now what we're continuing to see a lot of interest in, and it goes beyond Japan and Asia, but it is in low carbon. And I think the JERA and the Mitsui and others over there are the leaders in this. I think more importantly, it's not only the low carbon aspect of it, it's for a new demand source.

And that's something that when you look at the Medi agreement and what they were able to do with the contract for difference, their 60% of this new plant is going to a new demand source that didn't exist a year ago. And so we're optimistic that we continue to build out on that along with continuing to see additional demand growth in the legacy agricultural business of sort of that 1% to 2% a year. And all those factors are why we are suggesting that longer term, not enough supply coming on, new demand centers coming on and then just the regular legacy growth that we're going to have a very tight market when Blue Point does come up.

Our next question comes from Lucas Beaumont of UBS.

I just wanted to go back to the sort of difference between the pricing outlook and the cost curve. So I mean, we've had like strong pricing to start the year. Cost care has moved up a bit, but not as much. And I mean the sort of premium there is going to widen.

And as we look further out, the energy futures curve continues to ship lower kind of now into like the [ $7 to $8.50 ] range kind of later in the decade. So I just wanted to sort of get your view on how is that sort of resolved with your view of sustained market shortages on the supply side? Does this kind of need to correct in some way? Or do you expect it to persist, I guess, through this year and then into the medium term?

Yes. Maybe I'll start. So on that, from a longer-term standpoint, there is the gas differential that you're talking about. And today, that sits at around $7 to $8 per MMBtu delta.

We do expect that, that will converge a little bit with Henry Hub, by no means do we think that goes away or flattens to a level that doesn't keep us economically competitive. But I think there's another side of that, that we've just been talking about on many of these questions through here, which is the SMB side. So yes, you have the COGS side of what it would cost, but you have to bring on new capital in order to meet that demand growth without even clean energy growth coming into this, just the incremental growth of demand is going to push the cost curve demand side farther to the right, having to pull in either higher cost production than we have today or require new plants to be built.

And like I said, our plants alone at $3.7 billion, capital costs are only going up. And with that, people are going to expect returns. So I think as we look at -- we expect the natural gas differential to continue, but we also expect that we're going to see demand move to the right on the cost curve and also the cost curve to be supported by new plants that are going to be needed and required or high-cost production to remain in.

And that also doesn't consider just what's going on dynamically around the world with energy and shortages of energy in certain locales like Trinidad or high-cost energy in Europe and suboptimally operating at 80% or less as well as other specific locations of limited production. Brazil is going to be bringing back. They're supposedly, their plants that would have been -- not been operating over the last several years. And so supply is limited that we see in the forward, demand continues to grow, but also supply continues to be cut in other locations, making for a very solid structural market, as Chris explained.

All right. And then I guess just maybe a bit of a short-term question on the Middle East tensions with Iran. So I mean, they're about 10% of the global urea export markets. I guess, how would you see the market dealing with any disruption to production there and the impact on pricing?

And I guess how would that sort of need to flow through from a timing perspective in terms of, I guess, disruption to the shipments before it's really starting to have an impact and how long it would be down.

Yes. If you look at the Middle East and the suppliers that are located there, the producers, are in Iran, Oman, Qatar, Saudi Arabia and UAE for urea, that's about 20 million tons. So in a globally traded ocean going traded ton, that's about 35% of the world's supply that goes through the Strait of Hormuz or close to it. However, you also have to look at ammonia where those same countries referenced are about 5 million tons or also 30% of the globally traded ammonia ton.

And so if something were to happen, the constraining factor to supply would be pronounced. As well as LNG, about 25% of the world's LNG also transit through that the Strait. So if conflict were to occur, it would be, I would think, even more difficult or more challenging than the current situation in Russia and Ukraine and moving out of the Black Sea.

Our next question comes from Vincent Andrews of Morgan Stanley.

This is [ Justin Pellegrino ] on for Vincent. Thank you for all the commentary on where prices and market commentary are headed over the last few weeks. But I kind of wanted to step back and go back to Blue Point for a second. You mentioned earlier in the call that as you kind of started going through the process, permitting or whatever, that the time line may have shifted around a little bit.

And I was just curious, where have the pressure points been as you started to go through the process, whether that be tariffs, labor, whatever it may be? And then can you kind of just flag anything that we should be watching as that project starts to progress through the stages and anything else that's worth talking about there?

Yes. Thanks, Justin. The timing really hasn't shifted at all. So our expectation is still in 2029, the plant will come on by timing, I mean timing of payments.

In which case, as you get closer into these larger projects and you're actually talking to the -- whether it be the modular yards to civil contractors, you've engaged different things like that, you have a better idea of when those payments would be going out. So, nothing's changed from our time line on the particular project. I think as far as milestones go, as I mentioned, we've pretty much achieved the milestones that we have in place where the next big ones would be the Air permit and Army Corps permit as we look to build the heavy haul bridge that will bring the modules over. Additionally, as we start to do some of the civil work, which our expectation is here in the next couple of months, we'll start moving ground, driving piles.

We've already driven test piles. So I think right now, there isn't much of these milestones other than the permitting process, which, like I said, our expectation is that we will have that going here in the next couple of months. The other part that I should mention is of our $3.7 billion in total capital spend, we still have about $500 million of that, that is built in as contingency. So not knowing really where tariffs are going to fall out based on Supreme Court and also that a lot of this lead time -- longer lead time stuff doesn't come for 3 years, but we do have a sizable contingency built into this particular project.

Our next question comes from Edlain Rodriguez of Mizuho.

Just one quick one for me. We've had some affordability issues with phosphate. And of course, you don't produce that, but you know what's going on there. And with urea prices moving higher, like any concerns about affordability in nitrogen, like is it better to be as affordable as possible just to prevent a bunch of issues or the market will just determine where nitrogen lands on the affordability spectrum, and we just have to deal with it?

Yes. Edlain, I think you raised an important issue because we're a part of a value chain that the farmer plays the most important role because he or she is planting and harvesting and storing many times those crops and then there's a payout. And so we do study that. We do study where that lays out for the major crops, corn, soybeans, wheat, cotton, sugar, at least for North America and what those economics look like.

We are in a global market, however, and product moves pretty freely around the world from the Middle East to North America, from North America to Europe from Russia to North -- to the United States and like same thing with corn and soybeans. And so I think we're aware of that. We're looking at what that means for -- in terms of return on variable costs, return on full cost. And I think the [ Trump ] money that flowed down from Washington is helpful for in terms of balance of payments.

I do think there are some credit issues in certain parts of at least the United States, I'm aware of that retailers are holding and those are conversations with how they balance their year, and so yes, we're aware, yes, we're following it. And yes, we want to be a part of the solution for the American and Canadian farmer.

Our next question comes from Matthew DeYoe of Bank of America.

I don't know. You had mentioned Brazil, and so I wanted to tap in a little bit on that and the plants that were being restarted. I know it's not your plants, and so companies don't often like to highlight or talk about that a little bit. But at least from a headline basis, there's like 1 million tons of urea in that production.

And effectively, it was supposed to be started up or starting to start up by the back half of last year. Seems like you're calling for Brazilian urea to be flat on an import basis year-over-year. Is there some expectation that growth is in there? Or are you treating that plant -- those plants is 0?

Or is it they'll take too long to ramp and demand will offset. I'm just kind of wondering your thoughts on that. And in general, I guess, like recommissioning in the commissioning cycle in plants and how that's creating or can create gaps in supply.

Yes. Brazil has been an amazing story over the last 25 years with their consumption of urea and especially on imports, because they become one of the drivers of the globe of demand. But if you go back to those earlier years, it was about 2 million, 2.5 million tons of imports to today, almost 8 million tons of imports, but parallel to that ammonium sulfate coming in at also around 8 million tons. So on the end molecule or the end product, the nitrogen product coming into Brazil has grown substantially.

Ammonium nitrate being fairly consistent. And so what has happened, though, during that time period, these plants are -- you have the plant in Parana -- close to Paranagua and in Camacari and some of the plants in [indiscernible] that are up north. Those plants are not well placed, at least the northern plants to where demand is, and they've struggled to operate over the years, one, that they're inefficient, two, that their high logistics costs to move the product to the high-demand areas. Brazil continues to grow in acres and acres planted and especially with the double cropping being economically viable.

And so we do see these plants coming on, and they've also talked about reinitiating construction at [indiscernible] that was stopped about 10 or 15 years ago. And so Brazil has the capability. What they don't have is the gas where these plants are producing or enough gas that's been an issue as well. So they get to an initiative of the Lula government and [ Petrobras ] to continue to invest and serve their domestic farmers as they can.

But Brazil will still be a major importer, a major driver of urea demand or nitrogen demand worldwide.

Yes. And just from the urea supply side in Brazil, I'm probably a little more skeptical than others on this just from my time in manufacturing and what the cost would be to bring plants that have been idle, but likely were not necessarily taken down just because of the number of years they've been down. I think the capital -- the upfront capital cost to do that and then the efficiency of those particular plants after they are up would cause a lot of issues. So I'm still in a wait and see what happens with those particular facilities.

Now loan on that, Bert, I just wanted to know what the -- your input.

Our next question comes from David Symonds of BNP.

I just wanted to ask on your assumption of a 4 million to 6 million tonne export quota from China in 2026. That's pretty much flat year-on-year versus what they did in 2025. And my understanding is they've got 4 million tonnes of additional capacity coming online at some point through the year and I think inventories are still quite high. So I've been penciling in a little bit more than 6 million, like 6 million, 7 million tonnes. Just curious to hear your thoughts on that.

I think that's possible. I think we've seen a different China in most years from the heydays of their export activity in 2015, '16, '17 to really pulling that back and recognizing the economic and political benefit of exporting that urea is fairly de minimis. But keeping that product in country for the Chinese farmers and the growth of Chinese production has been important to them. So I think there is a differential between the domestic price and the international opportunity.

Last year, you're correct, it was around 5 million tons of exports, and we're penciling in. We're being conservative to say that, that maybe something that the government is initiating. But if you take their capacity and run it at an 80% plus or minus run rate, they really don't have that much to export, and that's about the run rate they've been running over the last several years. So I would say your number might be a little high, but we'll have to have a coffee over that number next at the end of the year.

This concludes our question-and-answer session. I would like to turn the conference back over to Martin Jarosick for closing remarks.

Thank you, everyone, for joining us today. We look forward to seeing you at upcoming conferences.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.