How Are CVR Partners LP and Rentech Nitrogen Partners LP Responding to Current Market Conditions?

It ain't easy being a nitrogen fertilizer manufacturer right now. What are CVR Partners LP and Rentech Nitrogen Partners LP doing about it?

Jun 22, 2014 at 12:19PM

The fertilizer industry is known to be cyclical, but investors have good reason to remain unsure if the current down spell is just the new reality. Cheap production from China is pouring onto the global market and keeping selling prices subdued, while recently completed industrial projects aren't helping the supply glut. These and other factors continue to subdue selling prices for nitrogen MLPs such as CVR Partners LP (NYSE:UAN) and Rentech Nitrogen Partners (NYSE:RNF). Investors are probably wondering what each company is doing to insulate itself from unfavorable market conditions. Let's dig a little deeper to find out.

Storage capacity and alternative revenue streams
Despite some minor downtime and upgrades in the first half of the year, the Coffeyville, Kansas, manufacturing facility owned by CVR Partners is firing on all cylinders. The company took advantage of downtime at its ammonia plant to install a more efficient hydrogen recovery system, which could allow the company to capture an additional 25 metric tons of hydrogen per day to boost ammonia production and sales.

Don't forget that while CVR Partners derived 80% of its first-quarter revenue from sales of urea ammonium nitrate, or UAN, it also sells ammonia and hydrogen. In fact, hydrogen accounted for $5.9 million in revenue during the period, while ammonia contributed just $2.6 million. The additional hydrogen capacity will help make the facility more efficient and boost an alternative revenue stream.


Source: CVR Partners.

In addition to hydrogen sales, CVR Partners is developing diesel emission fluid, or DEF, which sports a cost-advantage over UAN on a nitrogen basis. Management is also tackling the seasonality of the nitrogen market by increasing its storage capacity. Rather than sell production at lower prices during the fill season (April through summer), the company now has 100,000 metric tons of UAN storage capacity that can hold production for sale at higher prices during the next year's in-season (when planting takes place). These little changes could have big effects on the company's top and bottom lines going forward.

Short-term opportunities with a long-term focus
Rentech Nitrogen Partners has two facilities for producing nitrogen fertilizers, but first-quarter results were marred by manufacturing downtime and reduced selling prices. However, the company's East Dubuque, Illinois, facility took advantage of a unique and temporary problem in the natural gas markets to boost its first quarter income. After a pipeline supplying natural gas to the region encountered operational issues and drove up prices, Rentech Nitrogen Partners purchased cheaper natural gas from other locations and sold it for a profit. While this natural gas switcheroo is not a long-term growth opportunity, the gutsiness of management is quite admirable. The company sold $4.5 million in natural gas for a gross profit of $3.1 million -- not a bad turnaround.

More sustainable growth projects and alternative revenue streams are at hand for both of the company's manufacturing facilities. For instance, Rentech Nitrogen Partners also sells DEF to the trucking industry and carbon dioxide to the food and beverage industry. The majority of sales are dependent on global nitrogen prices, but it's encouraging to know that additional products offer at least some insulation from market conditions.

Foolish bottom line
Unfortunately, both CVR Partners and Rentech Nitrogen Partners sell nitrogen fertilizers, which largely puts them at the mercy of market conditions. There are, however, steps that can be taken to insulate each company's top and bottom lines from volatility and weak selling prices. Increasing alternative revenue streams, storing production for more favorable market conditions, and selling industrial byproducts into not-so-obvious markets (carbon dioxide to the food and beverage industry) are several methods being undertaken by management at both companies. They may not make a big dent when times are good, but they could make all the difference when a bad quarter rolls along. 

Warren Buffett's biggest fear is about to come true
Nitrogen producers are facing a difficult market, but Warren Buffett just called this emerging technology a "real threat" to his biggest cash cow. While Buffett shakes in his billionaire boots, only a few investors are embracing this new market, which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, and that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the brains behind the technology.

Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolioCAPS page, and previous writing for The Motley Fool, or his work for SynBioBeta, to keep up with developments in the synthetic biology industry.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information