Good day, ladies and gentlemen, and welcome to the fourth quarter 2018 CF Industries holdings earnings conference call. My name is Tiffany, and I will be your coordinator for today. At this time, all participants are on listen only mode. We will facilitate a question- and- answer session towards the end of the presentation. To pose a question at any time, please press star one on your touchtone telephone keypad. If at any time during the call you require assistance, please press star zero and a coordinator will be happy to assist you. I would now like to turn the presentation over to host for today, Mr. Martin Jarosick with CF Investor Relations. Sir, please proceed.
Good morning, thanks for joining the CF Industries 2018 full year and fourth quarter earnings conference call. I'm Martin Jarosick, Vice President, Investor Relations for CF. With me today are Tony Will, CEO; Dennis Kelleher, CFO; Bert Frost, Senior Vice President of Sales Market Development, and Supply Chain; and Chris Bohn, Senior Vice President of Manufacturing and Distribution. CF Industries reported its full year and fourth quarter 2018 results yesterday afternoon. On this call, we'll review the CF Industries results in detail, discuss our outlook, 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 the factors that may affect our performance may be found in our filings with the SEC, which are available on our website. You will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Let me introduce Tony Will, our President and CEO.
Thanks, Martin, good morning, everyone. Last time we posted our financial results for 2018, in which we generated adjusted EBITDA of $1.4 billion, a 45% increase over 2017 adjusted EBITDA of $969 million. These results reflect a backdrop of tighter global nitrogen supply demand and generally lower North American natural gas prices. It was the hard work and outstanding execution by the CF team that allowed us to capitalize on the market conditions. Even though it was the efforts of the entire CF team that delivered these great results, I want to highlight Chris' and Bert's organizations in particular. Let me call your attention to slide seven of our materials. This data, taken from an analysis conducted by CRU, indicates our superior operating performance.
We've talked about being great operators in the past, this may be the first time we've quantified the impact for you. We've been able to achieve a 10% greater utilization in our Ammonia plant production than our North American competitors. Based on the size of our network, that translates into roughly 800,000 tons of incremental Ammonia per year that we produce versus what our competitors would be able to do with a comparably sized asset base. Said another way, we basically have a full additional world-scale Ammonia plant worth of production every year based on our operational capabilities. Given that a world-scale Ammonia plant in North America would cost over $1 billion, our operational expertise is a significant competitive advantage. On the supply chain and marketing side, we realized higher selling prices across all products year-over-year.
We also achieved lower costs of goods sold for the year. This execution across all parts of our business enabled us to generate an increase in adjusted EBITDA of 45% versus 2017. We operated well, and most importantly, we did so safely. We ended the year with a recordable incident rate of 0.6 incidents per 200,000 hours worked, and we accomplished that despite a very heavy turnaround in maintenance schedule. I am really proud of the CF team for a truly fantastic year. Looking ahead, we're excited about 2019. As Bert will explain in a moment, we see a continuation of the favorable market conditions from last year. Based on January and February actual gas costs, along with the forward strip, 2019 gas could be lower than 2018 by almost $50 million.
Additionally, year to date, index pricing at the U.S. Gulf for major products, as reported in the publications, is also running ahead of last year, we anticipate a substantial increase in nitrogen demand in North America, given our expectations for increases in both corn and wheat acres compared to last year. All of that suggests a strong first half of 2019. Weather will have a big say as to if that materializes in the first quarter or the second quarter, either way, the first half in total should be strong. The second half of the year is always a reset, and therefore somewhat uncertain as we sit here in February. We continue to be bullish about the long-term trends that extend out to 2022 and beyond. New global nitrogen capacity is growing more slowly than demand, further tightening supply and demand.
The forward curve for North American natural gas looks really attractive compared to the rest of the world. Our story is more than just about a great opportunity in the first half of 2019. We are very well positioned for the next four to five years. In 2018, our business generated $1.5 billion in cash. We deployed that cash consistent with our longstanding capital allocation philosophy. We invested in sustaining and improving our existing assets. We grew by acquiring the previously outstanding units of Terra Nitrogen L.P. We paid our regular dividend, and we returned our excess cash to shareholders by announcing and then completing a $500 million share repurchase program. As shown on slide nine of our materials, the share repurchases by themselves should drive a roughly 5% accretion in 2019 over 2018.
We closed the year with almost $700 million in cash on the balance sheet. Given our positive outlook for the next four to five years, our board has authorized a new $1 billion share repurchase program that runs through 2021. In addition, we again reiterate our commitment to retire the $500 million in debt on or before its maturity in May of 2020. With that, let me turn it over to Bert, who will cover our market outlook, and then Dennis will discuss our financials before I return for some closing thoughts. Bert?
Thanks, Tony. The CF team performed well throughout 2018 with total sales of 19.3 million product tons. This included a record volume of Urea and near record volume for UAN. Ammonia sales, while benefiting from higher prices, were notably lower in 2018 compared to 2017. This was due both to a higher number of plant turnarounds than in 2017 and a fall Ammonia season negatively affected by poor weather. Global prices reached 2018 highs in October. Since then, they have been under pressure, first due to moderating energy prices in Asia and Europe, and then due to seasonally low demand in the Northern Hemisphere. We believe that as demand begins to materialize, industry fundamentals will support global nitrogen prices in 2019. As a result, we see substantial opportunities to build on our 2018 performance.
Net global Urea production capacity additions are projected to be modest for the year at approximately 3.5 million metric tons. Additionally, we believe global nitrogen demand will be solid in 2019. Most notably, we expect strong nitrogen demand in North America during the first half of the year. The new crop soybean to corn futures ratio favors a substantial increase in corn plantings in the United States, which are projected to rise by four million acres to 93 million acres in 2019. We also expect a one million acre increase in wheat plantings. These acreage shifts should drive incremental nitrogen demand in North America. Additionally, the poor fall Ammonia season supports further incremental demand.
Areas that did not apply Ammonia in the fall will likely need to make up the resulting nitrogen deficit in the first half of the year with applications of Ammonia or upgraded products in the spring. With the demand outlook in North America, we anticipate barge, rail, and truck logistics assets will be in high demand and priced at a premium through the second quarter. As we look ahead, we expect sales volumes to increase compared to 2018. In any given year, CF sells around 19.5 million product tons, which can be higher or lower based on turnarounds and maintenance inventory levels entering the year and product mix. We also expect it to continue to benefit from our access to low-cost North American natural gas. We weathered spikes in the fourth quarter well and the forward curve looks favorable.
We continue to benefit substantially from basis differentials, particularly in Oklahoma and Alberta, and are actively managing our natural gas requirements, purchasing forward to lock in basis differentials to remove near-term price spike risk. Each of these factors make us optimistic about 2019. We're well-positioned for this environment. We have demonstrated our ability to effectively leverage the flexibility of the CF system to navigate market conditions, and we're confident in our ability to maximize our overall margin through the year and into the future. With that, I'll turn the call over to Dennis.
Thanks, Bert. The company reported net earnings of $49 million, or $0.21 per diluted share, and EBITDA of $349 million for the fourth quarter of 2018. After taking into account the items detailed in our press release, our adjusted EBITDA was $341 million. As the global nitrogen recovery has taken hold, our cash generation has increased in turn. This has allowed us to deploy excess cash in line with our long-standing capital allocation philosophy. As you can see on slide six, net cash provided by operating activities was approximately $1.5 billion in 2018. We used $422 million for capital expenditures on sustaining and improvement projects. We also invested in growth by purchasing all of the publicly traded common units of Terra Nitrogen in April. It also enabled us to return $780 million to shareholders in 2018, which included $280 million in dividend payments and $500 million in share repurchases.
The repurchase program reduced our share count by approximately 11 million shares. As you can see on slide nine, taken together, these have increased shareholder participation in the underlying assets of the business by approximately 5% or two tons of nitrogen per 1,000 shares compared to the end of 2017. As we look ahead, we believe we will be able to build on this track record. We ended 2018 with ample liquidity. Our cash and cash equivalents were about $682 million, and our $750 million revolving credit facility was undrawn. We expect capital expenditures in 2019 to be $400 million-$450 million. As Tony explained, we also expect substantial cash generation in the years ahead. As a result, the board approved a new $1 billion share repurchase authorization through the end of 2021.
We also remain committed to repaying $500 million in debt on or before its maturity date in May of 2020. With that, Tony will provide some closing remarks.
Thanks, Dennis. Before we open the call to questions, I want to again thank all CF employees for their outstanding work in 2018. Their commitment and dedication drives everything we achieve as a company. We're proud of what we accomplished in 2018. We're looking forward to the opportunities we see ahead in 2019 and beyond. We are well-positioned to leverage our considerable strengths and take advantage of the favorable industry fundamentals we see for the foreseeable future. We expect this to drive our substantial cash generation capability and enable us to continue to create long-term shareholder value. With that, operator, we will now open the call to questions.
As courtesies to others on the call, we ask that you please limit yourself to one question. Should you have additional questions, we ask that you reenter the queue. We will answer additional questions as time allows. If you do have a question at this time, please press star then one. If you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place yourself on mute once your question has been stated. Our first question comes from Michael Piken with Cleveland Research. Please proceed.
Yeah. Hi, good morning. Just wanted to find out a little bit about your thoughts on the Magellan pipeline potentially being shut down and what that means longer term for both your business as well as the future of all Ammonia.
Yeah, thanks. Regarding the Magellan, we are disappointed, but not surprised by their decision to shut down the pipeline. They've had operational issues for the past several years, which has challenged them to support or ship the tons that we've wanted to move up into the Midwest. We ship about 4%-5% of our Ammonia on the Magellan. Kind of projecting what we thought would happen, we've been working with our system, with our team, to create options and different avenues to move our tons up into that market. One is barge loading out of Verdigris, which we're able to do now, as well as increasing our storage capabilities in certain terminals and working with our truck providers. We believe that we will be in an okay position moving forward to continue to move those tons into the market.
We expect the pipeline to shut down by the end of the year.
Realistically, Michael, it was just the Verdigris tons that were the predominant tons that we transported on the Magellan. As Bert said, we've got some good barge options coming out of there. I think Bert's team has done a really nice job of preparing for this eventuality.
Thank you. Our next question comes from Ben Isaacson with Scotiabank. Please proceed.
Good morning. Thank you. When you think five-plus years out, can you give us an update on how you see the growth of the U.S. LNG market impacting U.S. nitrogen economics and specifically CF's position on the cost curve? Do you have strategies to manage that? Thanks.
Ben, I think both Dennis and I will take a look at this. The good news is, from our perspective, that construction costs in North America are extremely high. Anybody that's building an LNG liquefaction capacity in North America is putting a fair bit of dollars into the ground and are expecting a return on it, given that those are all for-profit entities over here. The result of that is, given an expected rate of return, we see gas costs in the rest of the world continuing to be in a position where North America is substantially advantaged relative to our competitors abroad.
I think from a resource base in North America, if you look at what's happened just in the last couple of years, we've gone from high 60s, low 70s BCF production into the 80s or mid-80s now. The supply response is very quick in North America and gas price is below $3. We don't think there's an issue of the resource drying up quickly and North American gas spiking. We don't see the new LNG capacity dramatically lowering the marginal cost of production elsewhere in the world. For the next four to five years, we think it's business as usual for U.S. producers.
Ben, I think the key thing for you to look at on the resource side is what is sort of the resources to production ratio. I've seen that anywhere from 80 to 100. When you've got a ratio that high, typically when you can tap into the resource with short cycle time, low cost, land rig projects, the production response can be as Tony has talked about or outlined it. The small increments that we see in LNG capacity that have come or that will come are pretty small compared to what the resource base is capable of producing in a fairly short timeframe.
Thank you. Our next question comes from Christopher Parkinson with Credit Suisse. Please proceed.
Thank you. Given we're approaching the tail end of capacity expansions over the last build cycle of the last half decade or so, how do you believe Urea trade flows are going to evolve given the decreasing importance of Chinese exports? If you could also touch on how you believe the UAN trade flows will evolve in the context of European anti-dumping duties. Both of those would be appreciated. Thank you.
You're right. Regarding expansions, as I said in my notes, that about 3.5 million tons are coming on this year, a declining amount of new tonnage coming on. With expected growth, we expect that the Urea market will be good and positive going forward. However, the capacity expansions that have come are from lower cost production areas, Nigeria, Northern Africa, Middle East. I'm not sure about the Indian additions that are announced, just because they'll be having to pay high cost LNG. We do believe that China, over time, is moderating down to this level of about two million tons of exports. Trade flows, I think you've seen the additions come on and operate well in the U.S. We're going to move down into a lower level of imports and stay in that range of, let's say, four million tons.
We expect growth in Brazil as the Petrobras plants are shut down, so moving from five million tons to over six million tons. Still expect India to be in that six to seven million ton range for the next couple of years. It's a classic supply and demand and high cost and marginal producer back to those economics, and the cost curve will work. That these higher costs, higher LNG markets will have to moderate down and absorb the lower cost tons. That's a direct reflection of these EU discussions. We're actively participating and cooperating with this analysis.
We expect an announcement to come out in the next month or month and a half, and they can lead to duties, no duties, or a continuation of the same duties which we pay today at 6.5%, while millions of tons come this way and pay no duty in the U.S. Our position on that one is pretty clear. The low margins of the European producers is completely unrelated to the U.S. imports that we have shipped or exports we have shipped over to there, but is caused by a combination of what we would experience, the lower price UAN and Urea global prices, and then high European production costs driven by high gas costs, whether that be LNG or Russian imports.
We expect, if you're thinking economically and reviewing the economic analysis that we and others have provided, that that analysis should come out that we did something that was shipping tons at prices similar to what the U.S. were and was not anything close to dumping.
Yeah, I think on that point, as Bert said, we're cooperating actively with the commission investigation. We are not dumping. It is a global price point for UAN, and our delivered price into France and Belgium is above what our net-back price would be using a Jones Act vessel to hit the East Coast of the U.S. Those are very rational kind of moves for us to make. At the end of the day, it is not the Western European producers that are filing this complaint. It's not EuroChem, it's not OCI, it's not Yara. It is the Eastern European producers, Lithuania, Romania, Poland, Fertiberia, that are bringing this lawsuit. As Bert said, they're running very inefficient, very high cost, and logistically challenged plants. If you look at where the center of mass of UAN consumption is in Europe, it's France and Belgium.
Where those plants are located in the east, they have as high of transportation costs to land that product as we do, or even higher. The fact of the matter is, if the European Commission goes forward with some sort of duties, what they're basically telling is the French farmers, "You have to subsidize the high cost Eastern European producers." If you're sitting in Belgium, that's probably not a terribly attractive message to be sending out to the French farmers, particularly given the yellow vest situation and so forth. We'll see how it develops. Bert, you want to talk about plans that we've made to deal with the situation if it goes that way, if the farmers are subsidizing high cost producers?
Yeah, either way, regarding your question on trade flows, we're constantly looking at our options and optionality to the system, whether that be moving to this market or that market. We're ambivalent to where the tons go. We like to move them to the highest net back. That being said, we've constantly reviewed. We brought on 1.8 million tons of capacity in 2016 and 2017 of UAN, and we've had additional capacity growth because the Port Neal plant, the urea plant, is running so far above capacity, we have extra liquor, and we're making extra UAN up there also.
When you look at the buckets that are available to us, it's the production mix that we choose to work with each day to week, and probably right now we're running a little higher Urea mix because that is more attractive. We're looking at extra terminaling opportunities in the U.S. but on the coasts. We're working with our domestic customers for additional tonnage to remain in this market. Then you've heard us talk about the development of South America, Argentina, Brazil, Chile, Colombia, and Mexico. All of those markets have grown substantially in the last 5 years, and we're at the forefront of that effort for very attractive margins. We look at least CF's UAN book.
We think we'll be able to continue at the same level or above that we're participating in the market today and see good opportunities going forward.
Thank you. Our next question comes from Joel Jackson with BMO Capital Markets. Please proceed.
Hi, good morning, guys. The last few months, we saw a lot of volatility around Indian tenders, which Urea tenders, which you don't participate in. Maybe from your perspective, you can comment on what kind of volatility the market this created among market participants in terms of different trade flows going in between China and India, excuse me, China and Iran. Also, there's a lot of discussion that maybe some of the bid volumes into the tenders were double counted in different ways. Maybe talk about how the different play on the Indian tender has affected your market that you participate in. Thanks.
Yeah. When you look at the India tenders, they do, depending on the size and the timing, can have a big impact. They're the only country in the world that purchases this volume, this amount of tons, let's say 5.5 million to seven million tons, depending on the year. In the past, that came principally from Iran and China. As we've talked about over the last couple of years, these trade flows are changing. We see a decreasing amount of tonnage coming out of China over the next couple of years, and that has happened. With the sanction on Iran, that has been difficult, if not impossible, to participate in these recent Iranian tenders. That tonnage has moved to the Middle East, principally supplied out of Qatar, Saudi Arabia, and some of those countries, as well as Nigeria and some Northern Africa.
I think as traders and producers have participated, some producers are going direct. Some traders, you're right, some people took some shorts and then covered later. That does have a disrupting impact on the overall market when you get in and buy a one million-plus tons in a week, and then that ships over a six to eight-week period. We look at that for us and how we manage our position and how we manage what we expect to come into North America. I think for us, it's a good outcome that Indian buyers are buying and the Middle Eastern producers are shipping. It's like a $7 freight to go to India rather than spending $20-$30 to come to North America. This goes back to my earlier comment that this is just how economics works.
Low-cost providers are providing into a market that's attractive for them. Trade flows will continue to evolve. We have some spot tonnage that comes into this market as well as Brazil. When that is too much, that overwhelms the market. That's what happened to Brazil, and that's what happened to us in the last couple of months. We think that will moderate. We see a positive market going forward.
Thank you. Our next question comes from Mark Connelly with Stephens Inc. Please proceed.
Thanks. Just a quick follow-up on the pipeline issue. With cold weather affecting the barge season, there's already talk of high barge demand through second quarter. Is that going to drive your freight costs higher?
For CF, we've contracted our barge logistics almost as well as we have our own rail cars, over 5,000, and we have our own trucking group that's managing an increasing amount of our truck logistics. You're correct. I think with the cold weather, the ice and ice block probably will be a little bit later, the volume of water that's probably going to be going down the rivers will make barge traffic going up slow. The impact of the Magellan for us is Ammonia. We do move barge Ammonia from Verdigris as well as Donaldsonville, and we are already putting that, what we believe will happen, into motion, and I think we'll be fine.
I do think that barge freight probably will go up, and we can see what other competitors and customers are doing, locking up load points like out of St. Louis into the upper Midwest or securing barge logistics for some of these spot vessels that are coming in or an inability to get that. That's who I think will be impacted are these vessels that come in without barge service connected to the sale might suffer an inability to get service for a short period of time.
The other thing I would add, Mark, to what Bert said is generally speaking, much of the tightness in the barge market is focused around dry product. We own our own Ammonia tows and have long-term leases on the other ones. We've got pretty ready access to the vessels and have power on long-term lease as well. Because of the basis differential favorability in Oklahoma, we can actually move Verdigris Ammonia down into New Orleans for about the same price or even some days cheaper than what we can produce it in Donaldsonville. Because Donaldsonville is already on the Nustar, what we tend to do when we do an Ammonia export is a lot of times end up making that the Verdigris tons that go out.
On the glass half full side of the equation, high barge costs and freight costs in general just increase the in-market premium that we get. Given the in-market network and capacity that we have, that's actually a really good thing for us as opposed to a bad thing. High oil, high freight costs, high scarcity of vessel and other options all play to our advantage instead of become a detriment to us.
Thank you. Our next question comes from Steve Byrne with Bank of America. Please proceed.
Yes. Pardon me. What would you say contributed to your UAN net realized price in the quarter that seemed more below our spot expectations for the quarter? Was it any particular key end markets you were selling into that weighed on that? Maybe it was forward sales. In terms of your outlook for UAN with respect to pricing that has been a little bit weak here in the last two months, what gives you the conviction that the channel's not already full? Your outlook for more corn and the fall application season was light. That seems very supportive, but how do you know that channel's not already full or your competitors haven't already sold forward?
Steve, let me answer the first piece of that, and then I'll turn it over to Bert to handle the forward look. I'm going to take you back to our November transcript. I'm not sure how much clearer we could have been about saying, "Look, our forward order book, we liked the price when we took it. We didn't see the huge run-up coming in the fall and expect most of the fourth quarter to contain a heavy dose of fill from the summer." I understand that a lot of people sort of have a quote-unquote "miss" out there on UAN price, but it's not clear to me what we could have done differently to have provided visibility into what people should have been expecting. My only sense is, and I say this with the utmost respect for your work.
You got to listen to what we say instead of what the publications are posting for spot price, because we gave you the script for what was going to happen in terms of the fourth quarter results. That said, I'll turn it over to Bert and let him talk about our view into the first half of 2019.
Looking at it, I don't believe that the channel is full. We've spent considerable time over the last several years identifying tanks and size of tanks and the ability of the distribution system to absorb the tonnage that's produced and imported. Today, the UAN market is, we believe, for North America, will be above 14 million tons, and I think demand for specifically UAN will be robust given that the fall Ammonia season was so light. When you look at the fall Ammonia season comparisons, 2018 was a very poor year comparable to 2016. The difference being that in 2016, we didn't get a lot in Canada or in the northern tier, but did in the southern tier.
It was the opposite this time, we did get a lot of movement and product applied in Canada and the northern tier and did not in the southern tier, which is a bigger consumption area. The industry talk is about 40% went down so 60% did not, and that could be conservatively 700,000 to 1 million tons of Ammonia. It will be impossible for that to all go out as Ammonia. It will have to go to upgraded product. We believe our customers are preparing for that and realizing that they need to get those logistics in place, those logistics reserved, and that is with us and others. Competitors may have sold forward. That's fine. The market in terms of being weak on an end basis, it's actually very strong.
With Urea trading where it is in NOLA at the current UAN price, it's trading above its historic premium, we think positioned very well, we're probably, I'd say four to six weeks away from spring starting, that just plays right into our strengths with our storage network and market production. We think that UAN pricing will fare fairly well in Q1 and Q2.
Thank you. Our next question comes from Don Carson with Susquehanna Financial. Please proceed.
Yes, I had a question on your thoughts on the moderation of Asian and EU energy prices on the global cost curve. Normally in your presentation you've got a cost curve and what the implications are for what you think U.S. pricing would be. For example, in Q3, you were implying that the then cost curve would give you a $260-$310 NOLA Urea price range in 2019. You went through some of your cost advantages over TTF and anthracite. Can you update us on where we are now compared to what you were talking about in the third quarter given lower energy prices? Thanks.
Yeah, Don, this is Dennis. When we talked last time, as you said, the range was there. You laid it out a little bit above $300. What we're seeing today is that basically the floor that we talked about, because of where the shelf sits, is roughly the same, sort of about say $260, the ceiling has come down to say sort of $285, $290 to account for what's happened to oil prices and the related effects that they've had on gas prices. We still face a pretty steep cost curve even with what's happened to energy prices. If you look at those two numbers that I just gave you can see way at the left-hand side of the cost curve that there is still, as Tony and Bert have been discussing, a tremendous margin opportunity still left in the business.
We'll have to see what happens to oil prices. What we see now is that OPEC compliance has been reasonably good, OPEC+, prices have come up. We're I think at $64, Brent, today. I'm not sure exactly what the forward curve is going out, it looks like it's perking up just a little bit.
I would just add, Don, on that one, you're absolutely right. When we published that curve, I think Brent was at mid $70s and now it's low $60s. The one thing that's moderated against that a little bit is internal to China, not what they're importing, but internal China, at least according to WoodMac, their coal prices have remained relatively flat, if not increased a little bit. As Dennis said, you may have a couple of those bars on what was otherwise a fairly flat shelf that have changed positions a little bit here or there. You got compression in terms of the width of that high to low, but it's not like the low end of that has collapsed by any stretch of the imagination.
The other thing that we're pretty excited about honestly is after we published the curve in October, you got into November and December, U.S. gas price had spiked for quite a while.
It looked like the forward into the first quarter was up with a four handle on much of that. When you look today, it's come down dramatically. We're in the mid twos now. I think it goes to what we spoke about earlier in terms of the supply response in the U.S. and just how much capacity there is to move gas around here. If anything, our cost structure is favorable to when we produced this chart back in October, we'll have to see what happens through the rest of the year. We're very pleased to be largely open gas right now, because I think there's some upside for us out there.
Yeah, Don, the other thing I'd point out, because it's always important, I think, to remind people who look at the cost curves what they are. Basically what they are is a good indication of sort of what average prices would be for sort of the year if the energy prices that we lay out in the detail were prevalent. It really is a price floor, not a price ceiling. You can get into periods during the year, you can get into years in which demand is a lot stronger than the immediate supply. You can get prices on average that rise above the cost curve as we have seen in prior years.
I think the other thing that makes us confident in this respect is that as you look forward to going from 2019 through 2021, 2022, the rate of growth in capacity is outstripped by the rate of growth in demand. The supply and demand balance is moving in the right direction for us.
Thank you. Our next question comes from Duffy Fischer with Barclays. Please proceed.
Yes, good morning. Two questions off the impact of the poor application fall season in North America. First is, if we get the big expected spring like you think, does that change the mix of nitrogen products between Urea, UAN, and Ammonia, or will the mix be normal? Then two, what does that do to your inventories, both dollar amount that you carried through the year, and then how much kind of product do you have pre-placed to meet a big demand season?
The impact of a poor fall, as you enter fall, we plan for a normal season, we've got decades to show us what normal is. Some of that's pre-sold, and some of that is sold spot. As we rolled through the fall, it was evident early, like I'm talking about by the 10th of November, we would not have a fall Ammonia season. We quickly pivoted then and redirected tons to different markets and positioned the plants differently. Our intention is always to be able to run our plants full and to then prepare for the spring and position those products for demand starting kind of now in the Texas and Oklahoma market. As the market moves north, those markets come into play. For spring, we are planning for a big spring.
With 93 million acres, we're constructively positive what can happen in the corn sector. Because of the low stocks to use ratio on corn. We believe that the $4 position today of corn has some upside. Beans probably have downside with the carryout of almost 100% increase in the carryout on soybeans. It would be difficult to store and to move, especially if we don't get some resolution to this Chinese limitation on imports there. You're going into the Brazilian shipment season now. We're planning on a lower level of soybean exports in the 24 million ton type range going forward. That, I think, puts pressure on soybeans.
The attractiveness of corn, I think, could go up to 95 million acres, moving this additional demand from the fall to the spring will make it difficult to get all those tons out on a timely basis. The Ammonia season moves in a period of days and weeks, that's where I mentioned earlier, truck and other logistics become paramount. I do believe the mix is going to change. Let's say, as I said earlier, 700,000 to 1 million tons of Ammonia did not go down in the fall. If you bucket that in three different positions, just dividing it by a third, 300,000 tons of Ammonia will move to the spring. We're ready for that. Then you have to multiply by the N factor because UAN is 32%, Urea is 46%, and Ammonia is 82%.
You're going to see a substantial amount of Urea and UAN being needed in the upper Midwest. Inventory wise, we plan to go in full and prepared, then the challenge will be resupply. We're having our rail cars positioned to move those tons as well as our barging assets, we're up to the challenge.
Thank you. Our next question comes from Jeffrey Zekauskas with J.P. Morgan. Please proceed.
Thanks very much. In your fourth quarter results, can you talk about how much your volume was limited by short season and how much it was limited by your own turnarounds? Can you also say something about the level of imports of nitrogen fertilizer you expect into the U.S. in the first half of 2019?
Jeff, let me handle kind of the first piece of that, or at least a piece of the first piece of that, and I'll throw it over to Bert.
Sure.
The turnaround activity level was high for us, really. Had we had extra Ammonia in the fourth quarter, it would have either had to go out as exports, which the Ammonia exports are fine. They make some money, but they're certainly not as valuable as the end market ag sales are. The volume shortfall on Ammonia was really a seasonal issue as opposed to a turnaround issue. We had pretty good movement of the upgraded products, and at the end of the day, that was a couple hundred thousand tons we're talking about. It was a relatively small number in the context of 19.5 million tons. I would largely point that to the volume of ag Ammonia that didn't go out versus what a normal season is as opposed to anything else. Bert, I'll let you comment on the rest of it.
Yeah. Looking at the imports where we are to date, I would say we're ahead, expecting 4 million-4.1 million tons of Urea, and probably needed 1.5 million tons of UAN, and we're currently trending towards above that level. That's why I think you've seen the weakness in NOLA. You have to remember, New Orleans is one of the few markets in the world that has liquidity at all times. In Brazil, you have to bring that vessel in and nominate it and have it sold. You don't have to do that in NOLA. In India, you work off tenders. We've seen some traders. This is what has happened over the years. These traders bring product in, market gets lower, and they take, or somebody's taking these losses.
We believe that has declined over time as we've gone from 8 million tons of imports to four. It takes time for people to learn lessons, I think. We expect that the imports coming in Q2 will be probably lower just because of total demand that's in position. We think the market will balance that way.
Bert, why don't you just comment a little bit on-- so you do have this extra imports kind of slopping around at NOLA, the end market premium, what's happened to that given the constraints on being able to actually move that product out of the region?
Yeah, I think a direct reflection of the importance of logistics, contracts, positioning, and timing is where we are on both the end market premium for Urea and UAN, and Ammonia, for that matter. Ammonia is trading below $300 in Tampa and at $500 in the end market terminals. Urea is trading at $240 in NOLA and trading at $290-$300 in the interior. UAN's trading at $185, $190 in NOLA, trading at, I'd say, $210-$240 in the interior, depending on the production location. You're exactly right. This is something we've talked about, and we plan on continuing because there is a value to being able to pick up and not have such a substantial position.
Taking a vessel of 30,000 tons at a price of several million dollars where you could take it by the truckload, I think that's called just appropriate positioning risk for our customers. We want to provide that opportunity for them.
Thank you. Our next question comes from P.J. Juvekar with Citi. Please proceed.
Yes. Hi, good morning.
Good morning.
With the lower fall application that goes into spring, farmers can decide to apply a little bit of Ammonia, but maybe more likely urea and UAN. How do you think that will play out in terms of volumes of each? Because your margins are different on each product. How do you maximize your profit while helping your growers? Related to that, just quickly, how much urea did you export during the off-season here, and what was the net back on the exports? Thank you.
Okay. Looking at that question, we don't sell directly to farmers. We work with our retail and channel partners to do the optimal decision making for the farmer. That is directly connected to the 4Rs, applying the right product at the right rate at the right place at the right time. We make these products. We can move our products in different places, whether that's the export, domestic, up the river, on the rail, with a truck, through a pipeline, with the idea of having or the ideal of having that product in place for our customers to pull. When you're looking, though, at a corn farmer who is planting for yield and the trend yield this year is at 176 bushels an acre.
If you're in the I states, Iowa, Illinois, Indiana, and probably Nebraska or pivot irrigation areas, your target is probably 220-280 bushels an acre. That's what it was pulled off last year. As you're planting, you're pulling nutrients off the soil. Those nutrients will be needed and especially needed for optimal seed growth. What we're seeing is a combination of applications. Ammonia plays a pivotal role in the initial growth stage of the corn crop, then either Urea or UAN or a combination thereof of split applications. Yes, margins are different for upgraded products as we go. We're driven, I think, to serve the needs of the farm center and retail center. That's what we'll continue to do. On the Urea exports, we're ambivalent to where our products go. It's net back driven for that market also.
When there is an attractive opportunity, w e will export. We did that last week. We took a vessel to Chile where we're going to be loading it next week. That was at a positive netback compared to what the domestic market was giving us. Last year, we exported a little over 400,000 tons of Urea, about 450,000 tons, UAN close to 1.5 million tons focused on Europe and South America. We ship to Australia and Ukraine also. Those are great opportunities for us. We're happy to build our customer base as a global participant in this market. As those opportunities come to us, we will execute against them.
Yeah. In particular on urea, I would say much of the year last year, the U.S. was a little bit of the port of last resort for a number of international producers. What you saw was NOLA trading at a bit of a discount to international parity. On virtually every one of those exports that we conducted last year, the netback was substantially above what NOLA was offering. I think, from the standpoint of urea in particular, export is a great option for us.
Thank you. Our next question comes from John Roberts with UBS. Please proceed.
Thank you. Was the buyback activity in the fourth quarter about the max rate that you could do in an open market program, or could you have bought back a lot more stock? I'm just trying to think about the pace of buyback that we might expect.
John, we had an authorization that was capped at $500 million. In mid-October, the share price was trading in the mid-50s. As you wound toward the end of the year, we had dropped to the low 40s. I think what you saw was an increased activity that was reflective of where the share price was and the fact that taking shares out in the low 40s is also providing about a 3% after-tax yield for us given the dividend on the shares. We think that's a great opportunity to take that down. Going forward, I think what you'll see is a pace that is going to be reflective of market conditions and cash generation, as well as where the share price is. With lower share price, expect us to buy more in. That's how we think about the world.
On slide 16 in the back on the expected closures in China, about half of the expected closures are assumed rather than actually announced. Could you talk a little bit about the assumptions behind that estimate?
Yeah. The assumptions that weigh into that is looking at where the coal prices are as well as electricity price and the internal pricing versus being able to get import parity. What are the number of plants that are below breakeven from the standpoint of cash flow perspective? So we have a sense of the aggregate loss from a cash perspective on a number of those plants, and that's what goes into that assessment. We can't tell you which are the ones that are going to turn off the lights first, but we see that as likely coming. We think there's going to be about 5 million tons of closures as we make our way through this year.
And-
A lot of those plants may not be producing today. They could be on curtailment or shutdown. Because they haven't been announced as closures, they haven't hit the list yet. It certainly wouldn't surprise me if it doesn't change the net balance from a Chinese production demand standpoint. It's just they're going to be moved into the permanent closure as opposed to temporarily curtailed.
Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed.
Hi, this is Jeremy Rosenberg on for Vincent. Thanks for taking my question. Just had a question on, just from a modeling perspective for 2019, any puts and takes to think about, whether it be the tax rate or really just anything to flag from modeling perspective would be helpful. Thank you.
Yeah. From a tax perspective, what we're looking at is probably a federal tax rate of around 25%. We've sort of said mid-20s, that's with either 21% statutory rate plus some state and foreign taxes. Remember that our largest foreign jurisdiction, Canada, has a higher tax rate than we have here today. That, however, is for provision purposes. From a cash perspective, you'll see in the 10-K we have a substantial amount of net operating loss carryforwards, which are laid out there. In addition to that, we have the ability to take bonus depreciation. That's to deduct 60% of the cost of capital in year, and we've got a capital budget next year for $400-$450. I'm not sure how good our earnings and so forth from a tax perspective will turn out. You all have different perspectives. We've got ways to shelter those.
I wouldn't expect that in 2019 we'd be paying a significant amount of federal cash taxes despite what we have in the provision.
Thank you. Our next question comes from Jonas Oxgaard with Bernstein. Please proceed.
Hi. Good morning, guys. Thank you. You mentioned in your press release you've been monitoring the Iranian sanctions and the Chinese re-exporting. I was wondering, is there a role for you to take a more active stance than just monitoring? You do have pretty active market intelligence as far as I know. How do you see this playing out? Can the Chinese traders just keep re-exporting with no interference from the U.S. government?
I think there certainly is the option for some of that to continue. More recently, there's been, I think, some discussions about doing direct business with India and trying to do some currency payments and movements that don't touch the international wire system. That would allow some of that activity to happen. Our view all along has been that the gas is virtually free. The plants are built. They're going to run those plants, and those tons are going to find a way into the international market through some vehicle. It does create a bit of an overhang and some disruption. Our view is that was just part of the global supply picture, and we weren't counting on them not happening. I would say that the U.S. government is well aware that those tons are coming out.
Some of the stuff is just outside the areas that we can provide or the government can provide appropriate pressure against. I do think longer term, as long as the sanctions stay in place, whether it's access to technical expertise, access to new parts, particularly some of the more exotic materials that need to be fabbed in Europe or other places that are more directly affected, you may see either a reduction in operating rate or slowness for the Lordegan plant coming up kind of thing. I think what's running is going to continue to run, but depending upon how long this goes on, that could drop off a little bit.
Thank you. Our next question comes from Andrew Wong with RBC Capital Markets. Please proceed.
Good morning. Just regarding the $500 million of debt that's due next year, do you plan to repay that, or do you plan to roll it over? Maybe just more of a general question on capital allocation. Aside from debt repayments and share repurchases, is there anything else that you look at investing into, maybe expansions or M&A? Thanks.
If you go back to our capital allocation philosophy, we would like to invest in growth for our business where we can do that and have it be accretive on a cash flow per share basis and above our cost of capital. There are, however, not a million of those things for us to do, and we're pretty picky about the projects and the M&A prospects that we look at. Absent anything of significance in that area, we want to return the cash to shareholders, but we want to do that within a framework that reflects our commitment to long-term investment-grade metrics. What we've committed to the market is we're going to repay on or before its maturity date, which is in May of 2020, the last of the $500 million of the 2010, I think it's 2010 bond.
Those carry a coupon rate of about seventh and an eighth. When we finally get that done, we'll be sitting at an interest cost per year, cash interest cost of below $200 million per year. Significant reduction in fixed charges. I think it's also important, as Tony pointed out, that we also do share repurchases as a means of returning cash to shareholders. It has a 3%-ish after-tax yield on that, and it does eliminate a lot of fixed charges as well. We believe that both taking the debt out and also reducing the fixed charges associated with dividends are credit positive.
Thank you. Ladies and gentlemen, that is all the time we have for questions for today. I'd like to turn the call back to Martin Jarosick for closing remarks.
Thanks, everyone, for joining us, and we look forward to following these conversations at various conferences we'll be at over the next few months.