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Rentech Nitrogen Partners, L.P. (NYSE:RNF)

Q2 2013 Earnings Conference Call

August 8, 2013 4:30 PM ET

Executives

Julie Dawoodjee Cafarella – Vice President-Investor Relations

D. Hunt Ramsbottom – President and Chief Executive Officer

Dan J. Cohrs – Executive Vice President and Chief Financial Officer

Marc E. Wallis – Senior Vice President-Sales and Marketing

Analysts

Adam Samuelson – Goldman Sachs

Ted Drangula – Morgan Stanley & Co. LLC

Brent R. Rystrom – Feltl & Co.

Matt Farwell – Imperial Capital LLC

Derek Fernandes – Brean Capital LLC

James A. Bardowski – Sidoti & Company, LLC

Gordon Watson – GLG Ore Hill LLC

Operator

Good day ladies and gentlemen, and welcome to today’s Rentech Nitrogen Partners L.P. 2013 Second Quarter Conference Call. At this time, all lines have been placed on listen-only mode and the floor will be opened for your questions and comments following the presentation.

At this time, it is my pleasure to turn the floor over to Julie Cafarella, Vice President of Investor Relations. Ma’am, the floor is all yours.

Julie Dawoodjee Cafarella

Thank you. Welcome to Rentech Nitrogen’s conference call for the three and six months ended June 30, 2013. During this call, Hunt Ramsbottom, CEO of Rentech Nitrogen will summarize the partnerships activities during the periods and provide our financial outlook. Dan Cohrs, our Chief Financial Officer will give a financial review in the period. Also, in the room with us today are John Diesch, President and Marc Wallis, SVP of Sales and Marketing, who will be available for the question-and-answer session at the end of our prepared remarks.

Please be advised that certain information discussed on this conference call will contain forward-looking statements. They can be identified by the use of terminology such as may, will, expect, believe and other comparable terms. You are cautioned that while forward-looking statements reflect our good faith belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties and risk factors detailed from time to time in the partnerships periodic reports and registration statements filed with the Securities and Exchange Commission.

The forward-looking statements in this call are made as of August 8, 2013, and Rentech Nitrogen does not undertake to revise or update these forward-looking statements except to the extent that it is required to do so under applicable law.

In addition, today’s presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliations to the most directly comparable GAAP financial measures are included in our 2013 second quarter earnings press release that is available on our website.

Now, I would like to turn the call over to Hunt Ramsbottom, CEO of Rentech Nitrogen.

D. Hunt Ramsbottom

Good afternoon, everybody, and thank you for joining us today. We reported good results today despite softer forecasted product demand and prices. We believe the long-term fundamentals for Nitrogen remains strong. But a wet spring resulted in a delay in abbreviated planting season and less nitrogen demands.

Additionally, significant volumes of offshore urea available at very aggressive prices lowered nitrogen prices across the board and also prompted some late season switching from UAN to urea to the relative prices of the two fertilizers. While we can’t, of course, control the weather or commodity prices, we did a great job in areas we can control, such as safety, plant operations, and progress on our expansion projects, on-stream times at both plants were at or near budgeted levels.

We also experienced better than anticipated production rates in both ammonia and urea out of East Dubuque Facility during the second-year of the turnaround cycle. Our safety record continues to be excellent. Even during times of major construction, which is underway at the East Dubuque Facility, the ammonia production and storage capacity expansion project was 75% complete at the end of the second quarter. Construction of the 20,000 ton ammonia storage tank will be completed ahead of schedule and it’s currently set for commissioning immediately following the turnaround.

The entire expansion project remains on track for completion by the end of the year and is on-budget. We’ve ordered long lead items for the ammonium sulfate expansion project at the Pasadena Facility and continue to expect the project to be completed within the two-week time period in November.

On the sales front, our reputation in the marketplace for high-quality premium grade ammonium sulfate is growing. We’re gaining market share over lower grade ammonium sulfate domestically and internationally. Offshore, we continue to realize an average premium of $100 per ton over lower grade ammonium sulfate. We are also leveraging our deepwater port to gain access to new markets, such as New Zealand and Canada.

Turning our attention to the second quarter results, we generated $0.74 in earnings per unit this quarter or $0.77 per unit excluding one-time items. We declared a second quarter cash distribution of $0.85 per unit. The distribution is payable on August 14 to unitholders of record as of August 7.

I’ll now turn the call over to Dan for further details. Dan?

Dan J. Cohrs

Thank you, Hunt. Good afternoon, everyone. As Hunt, mentioned we saw lowered nitrogen volume and product prices this quarter, in line with industry trends caused by wet weather during this spring season and affected by Chinese exports of urea. These conditions affected all of our products and disproportionately affected our margins for ammonium sulfate. As sales were delayed, we continue to produce ammonium sulfate using raw materials that have been purchased at prices higher than we are seeing today.

The product was later sold at prices that have declined due to the market pressures we talked about. The timing of these events squeezed our margins on ammonium sulfate. In fact, we had to take an inventory write-down of $1.8 million in the second quarter for our AS product inventories.

As the prices for AS, sulfur, and ammonia that we currently see in the market, Pasadena plants annual run rate for EBITDA would be about $20 million somewhat below our expectations at the time of the acquisition, but significantly higher than the realized margins we expect for 2013 and in line with the conditions in the industry.

Looking at the second quarter results, revenues were up 47% compared to the second quarter last year. That’s due to the $42 million contributed from the Pasadena Facility, of course, we didn’t own it in the second quarter last year. East Dubuque’s revenues were down about 13% from the second quarter of last year. The consolidated gross profit margin declined significantly from 65% to 38%, but keep in mind that most of that decline is because of the addition of the Pasadena Facility, which typically operates at lower margins than East Dubuque.

The East Dubuque margin declined slightly from 65% to 61% and Pasadena recorded a gross margin of 6%. SG&A was up about a $1 million and that again is due to the addition of the Pasadena Facility. SG&A in East Dubuque dropped from the second quarter of last year by 28%.

That brings us down to net income per basic unit as Hunt said of $0.74 or adjusting for some one-time items $0.77. The one-time items were adjusting for to try to make it comparable on an apples to apples basis are $6 million of debt extinguishment expenses and $4.8 million related to an adjustment in the fair value of the earn-out contingent consideration.

The consolidated EBITDA for the quarter was $38.4 million for the full six months – for six months of the year $59.1 million. And we ended the quarter with $113 million of cash or pro forma for the distribution about $80 million after that distribution is paid. The cash we have that we’ve raised in the notes offering earlier this year is still sufficient to fully fund all of our announced expansion projects.

Looking at the product deliveries and prices for the quarter, if we look at East Dubuque first, ammonia deliveries were virtually flat quarter-over-quarter. We have different timing this year. Although if we look at first six months, the deliveries were down significantly from last year, 70,000 tons in the first six months last year versus 52,000 tons for the first six months of this year. UAN deliveries were down from 92,000 last year to 59,000 this year for the quarter. Although again, if you look at the full six months UAN is roughly flat 126,000 tons down to 120,000 tons.

The Pasadena Facility has delivered 114,000 tons in the quarter or 168,000 tons year-to-date, we did lock in sales on another 160,000 tons in July. Pricing in the second quarter was still relatively strong for ammonia, we saw average delivery prices of $741 per ton, that’s up from last about 7%. UAN prices were down 5% from last year at about $360.

In the Pasadena Facility, our price for ammonium sulfate in the second quarter averaged $289 per ton. At the East Dubuque Facility, our natural gas cost in our cost of sales averaged $4.12 per MMBtu, that’s up from $3.64 last year. Natural gas in East Dubuque was about 47% of the cost of sales and for Pasadena, ammonia and sulfur together represented about 68% of the cost of sales both in the second quarter.

Maintenance CapEx in the second quarter for East Dubuque were $1.9 million, up slightly from the $1.7 million last year, for Pasadena, $1.6 million of maintenance CapEx this quarter. The growth CapEx were higher in both plants. For the second quarter, East Dubuque’s growth CapEx was $11 million flat with last year and in the Pasadena Facility $8.7 million.

At the East Dubuque Facility, we’ve locked-in and/or delivered about 79% of the 2013 forecasted ammonia deliveries at an average price of $655 per ton and 100% of forecasted UAN deliveries at an average price of $293 per ton. We’ve locked-in 83% of our forecasted natural gas consumption for the year at an average price of $4.17 including transportation costs.

For the Pasadena Facility, we locked-in and/or delivered of about 62% of the ammonium sulfate deliveries. 168,000 tons were at an average price of $299 per ton. We have firm delivery pricing on the other 160,000 tons that we’ve locked-up, but finally netbacks might vary by a few dollars, because transportation costs are not final on those tons. So we are not disclosing that pricing until we have firm numbers to report on our net on those tons.

And with that, I’ll turn it back to Hunt.

D. Hunt Ramsbottom

Thanks, Dan. We believe the long-term nitrogen fundamentals remain strong; several factors including favorable natural gas costs, continued population growth and former affordability of nitrogen contribute to a healthy outlook for our products.

Additionally, despite anticipated ending corn stocks well above $1 billion [virtual mark], forecasters continue to believe that 90 plus million acres of corn are expected to be planted across the nation in coming years, which should support good nitrogen demand.

Even with healthy expectations for nitrogen demand, the market has experiences price weakness. Significant offshore urea offered at very aggressive prices compared to recent history, has been driving nitrogen prices down across the board. Higher than anticipated producer inventory levels due to lower nitrogen demand, during the excess of wet spring also placed additional pressure on nitrogen prices.

As a result of this pricing environment and similar to our peers, we’ve updated our guidance for the 12 months ending December 31 2013. Our guidance for cash available for distribution is now in the range of $2.05 to $2.20 per common unit. The 2013 guidance includes the impacts of two previously announced schedule outages at the facilities in 2013 and the impact of lost revenue in 2013 due to the unscheduled outage at the East Dubuque Facility in December of 2012.

As Dan mentioned, we’ve locked-in most of the year’s results for East Dubuque Facility. The midpoint of the guidance assumes the prices for the remaining ammonia deliveries not yet locked-in or average near $550 per ton, which is slightly above the current spot posted Mid Corn Belt price for ammonia of $545 per ton and below posted fall prices of $575 per ton.

The midpoint of the guidance assumes remaining natural gas costs of $4.21 including an average of $0.40 per MMBtu of transportation cost, which is currently above the forward NYMEX strip for the year when transportation costs are added.

For the Pasadena Facility, the midpoint of the guidance assumes that weighted-averaged domestic and international ammonium sulfate prices for remaining tons will average $242 per ton, which is consistent with prices which we booked business in recent weeks.

Ammonia purchase costs are derived from a formula that includes the trailing one-month Tampa Index. The midpoint of the guidance assumes that Tampa based ammonia prices will average $470 per metric ton, which is consistent with the current Tampa ammonia price. The midpoint of the guidance also assumes that sulfur prices which have declined significantly in recent weeks due to abundant offshore production are expected to stay in near current levels of $95 per long ton. And again, as Dan mentioned, once we work through some high-cost inventory, the current product margins for the Pasadena Facility would put us at an annual EBITDA run rate of greater than $20 million.

Before we open the call for questions, I'd like to close with a few words. The industry is experiencing the short-term negative effects of weather in significant offshore nitrogen supplies. However, it’s important to keep things in perspective. We’ll continue to expect strong acres planted in 2014, while likely lower than the records we’ve seen of late expectations of 90 plus million acres are still well above historical averages in a good strong crop year with solid nitrogen demand.

We believe we’ll continue to capture premium nitrogen pricing due to our location in the Mid Corn Belt. We've seen this recently as the second quarter relative to our public comps. Additionally, with sulfur as the nutrient continue to gain importance and our efforts to expand in new markets, we believe we’ll continue to capture premium pricing for ammonium sulfate internationally.

And let's not forget that the Pasadena Facility acts as a natural hedge to the East Dubuque Facility, as it purchases ammonia at the lowest price point, while East Dubuque Facility sells ammonia at the highest price point. The forward strip for natural gas continues to be very favorable levels, which benefits our margins at East Dubuque.

When we put all this together, we believe we’ll continue to deliver solid results. We’ll also expand our production capacity this year along with other growth opportunities and potential acquisitions, would allow us to incrementally grow distributions per unit.

I’ll now turn it over to the operator for questions. Operator?

Question-and-Answer Session

Operator

And ladies and gentlemen the floor is open for questions. (Operator Instructions) And our first question comes from Adam Samuelson from Goldman Sachs. Your line is now open.

Adam Samuelson – Goldman Sachs

Hi, thanks. Good afternoon, everyone.

D. Hunt Ramsbottom

Hi, Adam.

Adam Samuelson – Goldman Sachs

Hi. So I guess the first question on Pasadena, I mean clearly kind of volatile pricing environment both on the output and on the input side in the quarter. But I guess I want to get better sense of where you think you are in terms of bringing that plant to its full productive capacity. You know the on-stream rates for both second quarter and the first six months of 83%, and when you bought the plant, you thought you can get to 90% plus. Just maybe comment on, how you think the plant has been performing relative to your initial expectations and kind of the opportunities going forward especially with the debottlenecking this year?

D. Hunt Ramsbottom

Sure. I think it’s a bit behind our expectations, but not a lot, maybe 5% 6% behind our expectations on the production levels. But I would say, what we entered into that facility and where we are at today, I’m extremely pleased with what the management has done down there. We’ve had to introduce some new personnel into the facility. We got to do some work on the facility and with the turnaround, we are confident by 2014, we will be at those production rates that we budgeted and expected to have going forward. So it’s just been a slight bit behind our expectations, but we’re not concerned.

Adam Samuelson – Goldman Sachs

Okay. And then maybe just, still in Pasadena, the marketing of the ammonium sulfate product, it seems like some like volumes shifted into July out of June, is that solely really a function just to how the delayed season in North America or any more thoughts on the marketing efforts down there?

D. Hunt Ramsbottom

No, it is related to the situation I alluded to on the script with North America, and I’ll just add to that, that we spent a fair amount of time recently with our distribution arm and our sales agents internationally, because we really want to press on the expansion and where we’d able to sell this product, and in our collective view, we have a lot confidence that this product, as I said, is getting a lot of acceptance domestically and in markets not only in Brazil, but other areas in South America, and as I mentioned, and now in New Zealand and Canada. So we’re confident that the product will continue to gain momentum. And let’s note that the plant had not run this consistently before we bought it. So the market could not depend on this product being in the marketplace as consistent as we are bringing it today, and that in itself is gaining confidence of the customers on a global basis.

Adam Samuelson – Goldman Sachs

Okay. That’s helpful, and then maybe just finally from me, on the capital allocation outlook, I mean, should we think about the next steps, now we have the debt refinancing and you started the investments in the generation down at Pasadena, anything incremental or really in the outlook that we should be thinking about for 2015, 2016 distribution growth?

D. Hunt Ramsbottom

No, Dan, if you want to comment, but I don’t see…

Dan J. Cohrs

You are talking about distribution growth?

Adam Samuelson – Goldman Sachs

Well, investments to drive distribution growth?

Dan J. Cohrs

Oh, new investments.

Adam Samuelson – Goldman Sachs

Yeah.

Dan J. Cohrs

Nothing that’s ready for announcement certainly. I mean, we are studying additional ways to expand, but certainly, we don’t have anything yet to announce.

Adam Samuelson – Goldman Sachs

Okay. All right, I’ll pass it on. Thanks very much.

D. Hunt Ramsbottom

And remember we’ve got the Cogen, and coming upstream in 2015.

Adam Samuelson – Goldman Sachs

Yeah.

Operator

Thank you. And our next question comes from Ted Drangula for Morgan Stanley. Your line is now open.

Ted Drangula – Morgan Stanley & Co. LLC

Hi. Good afternoon, everybody.

D. Hunt Ramsbottom

Hi, Ted.

Ted Drangula – Morgan Stanley & Co. LLC

Hi. I guess, as following up on the last question on distribution growth potential, I don’t want the past and it’s not something you probably want to get every quarter, but you’ve given a nice bridge to 2014 from 2013. Could you just refresh that for us a little bit because I know that, I think it’s important for people to realize kind of some of the specific leverage you guys have outside of just the one with the nitrogen market?

D. Hunt Ramsbottom

Sure. Dan will comment for you.

Dan J. Cohrs

Yeah, Ted, the biggest factor, of course, will be increased capacity both in East Dubuque and in Pasadena. We’ve got about a 20% increase in capacity in Pasadena and slightly more, about 23% increase in capacity coming online right at the end of this year in both plants. So we would expect more product, of course, generating more margin. Also remember, this year was a turnaround year, a major turnaround in East Dubuque, and so all of our numbers have assumed that it will be down for a month this fall and that the long turnaround because of the expansion. Normally, our turnarounds are around two weeks. This is more like four weeks, because we have major work to do as we finish the expansion. Next year would not be a turnaround year. So we would expect a full year of production in both plants. So those are really the major factors right there.

Ted Drangula – Morgan Stanley & Co. LLC

All right. Great and, I guess, thinking about the way you guys are managing the order book for in the second half and I know you have often the tendency to sell forward to these amount of UAN as we get to this time of the year, but do you guys have a read on, Marc, are you nervous that we’re just going to, that the Chinese market is really going to flood things here in the second half and then it could be even further downside. I think it’s becoming popular opinion that we’re sort of bouncing along the floor here and price everywhere. So if it’s actually the case, then it seemed there will be no upside in the price and no reason to sell the book for. I am just curious maybe some of the internal thoughts you guys had on doing that?

D. Hunt Ramsbottom

Yeah. Sure, Ted. I’ll start and then I’ll turn it over to Marc here for additional color, but we’ve been obviously watching that market as everybody else has and it has been bouncing along as $300 level for a while. There has been some tenders out there from India and Pakistan and it doesn’t seem to be moving the market any lower. So that at least indicates to us that we may have hit this floor and there seems to be upside from here. Marc, I don’t know if you want to add any commentary?

Marc Wallis

Yeah, Ted, I would agree with what Hunt said on the urea front and then bringing it back to the States here on the UAN side, the values came up on a New Orleans basis from 220 to the referenced number of 245. Upstream values have improved, but in recent price point, buying is kind of stagnated at kind of 294, 295 range. Corn prices have not been working on our favor. I think that they’ve declined about as much as they are going to in the near term. And the market does seem like it wants to sort of gain some traction, but I think it’s far from robust and the upward movement maybe some what modest as we move into the latter part of year. I think ammonia has an opportunity to gain some good strength. UAN might be held back by just limited increases on the urea front.

Ted Drangula – Morgan Stanley & Co. LLC

Okay, and then just one last follow-up. On the ammonia side, the price is down in New Orleans and the Gulf has been way down obviously that will on the past season side of things, we know how that works. Do you get any, I mean, it seems like there is some opinions out there that the ammonia price could in Tampa continue to settle down a little bit. Is there any – I know there is different opinion on this , but what is guidance depending on your ability to hold a really substantial premium in the corn belt versus Tampa or New Orleans on ammonia and might there any thoughts on that?

D. Hunt Ramsbottom

I think as you look at the upstream premium that we had experienced in the past and I used today as $470 Tampa reference, roll that back to a short ton and where upstream prices at today, we’re not at the level that we would like to see. So I mean, the price delta right now, Ted, as you know is less than $150. We think it will go back to the $150 or higher. I know some of the market forecasters and especially we spoke with Tom Blue this week. He is pretty optimistic the upstream premiums are going to be there. And final comment as the fall season maybe somewhat compressed with a slow maturing crop, it really is going to enhance the companies that have distribution upstream ourself, I mean, Rentech fits that build perfectly.

Ted Drangula – Morgan Stanley & Co. LLC

Great. Thanks a lot.

D. Hunt Ramsbottom

Thanks you.

Operator

Thanks you. Our next question comes from Brent Rystrom from Feltl. Your line is now open.

Brent R. Rystrom – Feltl & Co.

Thank you. Hi, guys.

D. Hunt Ramsbottom

Hi, Brent.

Brent R. Rystrom – Feltl & Co.

Just had a couple of quick questions, can you give your thoughts on particularly the Western part of your region, how well the presented planting played for corn this year?

D. Hunt Ramsbottom

Marc?

Marc E. Wallis

Brent, when you look at the some of the reports getting out from the grain industry, Minnesota and Central Ohio looks like some of the area that didn’t or let’s call it worst hit with acreage loss. That doesn’t directly affect our trade zone, but collaterally we had a little pressure coming from the Fort Dodge area back into our markets, and with that respect, that might have taken a little bit of UAN away from us, but in general, it didn’t affect us too much.

Brent R. Rystrom – Feltl & Co.

Okay. Hearing lots of discussion from people that farmers are taking about a bump in the ammonia applications in the fourth quarter because they don’t want to get caught in next spring, how they got caught this spring, not being able to put down in the spring. Have you guys been hearing that, anything to that effect?

D. Hunt Ramsbottom

I think ammonia is a great value at the posted levels that brought from (inaudible). And as we just mentioned to, Ted, I think that the ammonia has a opportunity to rally a little bit. It’s one of the product lines, as you all know, they can been put down on the fall. It lets the growers get into the field a little early in the spring with not as much field work do in the nitrogen front. So barring an unforeseen or negative weather events, we’re really optimistic on fall ammonia.

Brent R. Rystrom – Feltl & Co.

Okay. Thank you, guys.

D. Hunt Ramsbottom

Thank you.

Operator

Thank you. Our next question comes from Matt Farwell from Imperial Capital. Your line is now open.

Matt Farwell – Imperial Capital LLC

Hi, good afternoon.

D. Hunt Ramsbottom

Hi, Matt.

Matt Farwell – Imperial Capital LLC

Just a quick question on Pasadena, we saw, I guess, a sticky input price as pricing fell. Could we see the same sort of dynamic work in the favor of the company if pricing rebounds?

D. Hunt Ramsbottom

In terms of the input prices?

Matt Farwell – Imperial Capital LLC

Yeah, in terms of input versus output prices.

D. Hunt Ramsbottom

Absolutely. I mean, we are seeing the trend line with sulfur work very much in our favor and same thing with Tampa ammonia. So we are seeing where did have this spike has coupled with the weather phenomenon. In the spring time, we’re seeing that prices of sulfur have dropped tremendously and Tampa ammonia is as you know, as Marc mentioned it in the 470 range. So we will absolutely capture that benefit.

Matt Farwell – Imperial Capital LLC

All right. Another question is just broadly speaking, we’re seeing – we saw a sell off in corn, but we also had weather related issues as well as Chinese exports that impacted pricing. So are you looking at this as more related to China imports and weather or is this, I mean is there a possibility that pricing can improve despite from pharma economics being weaker with the lower corn price?

Marc E. Wallis

Matt, I think that there is every reason to expect that we can maintain stability and the margins in the nitrogen front, even in the event of, say corn values and mid force to lower force. The affordability of, not only nitrogen, but their overall fertilizer complex is favorable at the grower level.

So we would expect them to put on optimum nutrients to field the crop for next year. and as Hunt mentioned, our view on the offshore urea market, we feel like it’s definitely hit a bottom, and we should only look for more positive things from that front, which would help out to escalate the nitrogen prices a little bit. so I think we can win on both fronts there.

Matt Farwell – Imperial Capital LLC

Do you expect the Terra in China to be reinstated when the season resumes in the fall?

Marc E. Wallis

We do expect that to happen, yes.

Matt Farwell – Imperial Capital LLC

Okay. Thank you very much.

Marc E. Wallis

Yeah.

Operator

Thank you. Our next question comes from Derek Fernandes from Brean Capital. Your line is now open.

Derek Fernandes – Brean Capital LLC

Hello.

Dan J. Cohrs

Hi, Derek.

Derek Fernandes – Brean Capital LLC

I just want to touch briefly if I could on the bridge that was mentioned earlier in terms of growth in cash distributions. You guys previously gave guidance in terms of what you guys saw for full-year production growth in Pasadena and East Dubuque, I was just wondering if you guys might be able to update that at this point?

Dan J. Cohrs

Are you taking about for 2014?

Derek Fernandes – Brean Capital LLC

Yeah.

Dan J. Cohrs

Yeah. Nothing has changed. We’re still seeing, we saw the same expectation for the capacity increase in the East Dubuque, which is about 23% and the capacity increase in Pasadena, which is about 20%. And then you can take the production this year reflecting a four-week turnaround, next year, it would be no turnaround. So the math hasn’t changed. Everything in our previous statements about the incremental production there would still be true.

Derek Fernandes – Brean Capital LLC

I see. And in terms of, I guess to dig that a little bit more deeper into it. The revenue generation that you see from these increased volumes that’s not being significantly changed due to the lower prices you guys have in today’s environment versus say six months ago?

Dan J. Cohrs

Well, the revenue of course, will depend on the pricing. I mean, we’re not putting out guidance right now on 2014 pricing or revenue or EBITDA. So clearly, pricing is important here, but the volume of product that we’re talking about would be the same as we’ve always been talking about.

D. Hunt Ramsbottom

And we have good confidence that those volumes will place in the marketplace. So then the question is your input costs and your product costs, and we’re not in a position today to forecast that. I think you just going to have put that together yourselves and look at the forward strip as we do and take your best guess on where you think ending inventories are going to be this fall and where we’re going to end up in pricing towards the fall and into the spring.

Derek Fernandes – Brean Capital LLC

Yeah. Yeah, very true, and I guess, if I may touch very briefly, your implied full year sales for ammonia were just a slight tick higher just going off of the percentage you guys had, that was given there in the release. Is there any kind of driver for that? Are you seeing particular expectation of strength in terms of sales volumes?

D. Hunt Ramsbottom

It’s really we’re producing slightly more per day than we had in our previous guidance. Essentially you can always assume that we’re going to sell whatever we produce in these plants, and what we’re seeing East Dubuque is just the daily production rate is slightly higher than we previously forecast. We’re late in the cycle right now, in the turnaround cycle. We’re coming up on a turnaround. So typically we forecast production that sort of declines that you go through that turnaround cycle. We’re just producing a little more everyday than we had previously forecast.

Derek Fernandes – Brean Capital LLC

Okay. Okay. Excellent, and well, good luck in navigating the current market.

D. Hunt Ramsbottom

Thank you. Great.

Operator

Thank you. And our next question comes from James Bardowski from Sidoti & Company. Your line is now opened.

James A. Bardowski – Sidoti & Company, LLC

Hi. How are you, gentlemen? Thanks for taking my call.

D. Hunt Ramsbottom

James, how are you?

James A. Bardowski – Sidoti & Company, LLC

I’m doing well. Just have a couple of pretty quick questions, about first regarding the capacity increases. It’s certainly something that I’ll champion on behalf of RNF, but one thing I would like a perspective on, clearly, it’s no secret with low natural gas prices, the tide of ammonium production is shifting back to the U.S. That said, a couple of your competitors recently canceled a couple of big projects, which is great. But there is one proposed project that’s actually under construction from Orascom Industries and my worry is that it’s essentially in the East Dubuque Facility’s backyard, it’s in South East Iowa. I am sure you guys are familiar with it, but it’s about 1.5 million metric tons to 2 million metric tons in estimated production, which should be completed by about mid 2015 give or take. Do you have any view on that, any contingency or concern?

D. Hunt Ramsbottom

Well, we clearly, as everybody else has done, studied the capacity, the potential capacity increases in the marketplace and I think we should start by noting that we import a significant amount of product into the U.S. and I think it’s somewhere around 7 million tons a year coming into the U.S. from abroad. This is couple of 100 miles from our facility. When it comes on-stream, we don’t exactly what their product mix is going to be if the project does get completed. We don’t know exactly what their product slate will be. Again, we’re still getting a very nice premium for our product in the marketplace. If there was an effect on it, we run sensitives around that. Maybe it could reduce our premium a bit, but we’re certainly still going to get a premium, and because of where we are in the marketplace, but it may cut into that premium. And I’d say, May with a capital M, because we just don’t know yet.

James A. Bardowski – Sidoti & Company, LLC

Okay, great. I’m happy to hear that it’s being studied and certainly planned for. And I guess one more question regarding the China urea exports, is it something that you think is going to be ongoing going forward or something that we can potential see higher tariffs and lower exports in the future? What kind of take do you have on the downward pressure from the exports?

D. Hunt Ramsbottom

I think it’s tough to say long-term, what the Chinese are going to do. But I think the tariffs will be imposed again. And I also believe that some of this today is, at least we’re hearing and again, we’re studying that at potentially some of the call switching, because of a slowdown in China, some that call that we had increased efficiency in their plants and some of the calls being that they have been switched over to produce singas for fertilizer production.

So I don’t know, but our view that, if it does continue, the marginal players around the globe will shut down. So there will be some balance on a global basis, as they continue with low-cost product in the marketplace that the marginal producers in Europe and other parts of the globe will be able to compete. They are putting products in the marketplace below their cost. So they’ll have some balance, there will be some balancing over the long-term, but I think anybody tells exactly what the Chinese are going to do, wouldn’t be probably as truthful to you. It’s tough to say, but I think there will be a rebalancing if it does continue. At least through discussions with our board, now there is that this has happened over years and periods, and it stops. so if history is any measure, then it’ll end at some point.

James A. Bardowski – Sidoti & Company, LLC

All right, excellent. I very much thank you for your viewpoint, gentlemen.

D. Hunt Ramsbottom

Okay.

Operator

Thank you. And our next question from Gordon Watson from GLG Partners. Your line is now open.

Gordon Watson – GLG Ore Hill LLC

Hi, guys. A question on the ammonium sulfate, we saw that the pricing in the marketplace came down quite a bit toward the end of July, sort of closer in line with where you guys have realized pricing? Tell me your competitor that one that you particularly reported today had much higher realized pricing. What I’m wondering here is, I mean this market is fairly standard and you guys were ramping up throughout the quarter. Could you just give us a little more detail on exactly how you marketed and sold this product and whether or not, you think the ramp up had an effect on one of the causes of the drop in AS pricing in the end of July?

D. Hunt Ramsbottom

Marc, do you want to give some color?

Marc E. Wallis

Yeah. Gordon, I think that the price changes you saw after the spring season came to an end. It was inductive that of the action you’ll see year-in and year-out, the market will find a floor in the off-season, domestically here, still action takes place and ammonium sulfate has a dozen another product lines that we offer to. We typically build some momentum in the market as we move into the second half of the year and in the spring, and then the cycle repeats itself. Those levels that you started to stop yet may vary. The ramp up that we have experienced, so the product that we’ve marketed into both the U.S. and offshore over the past year, I don’t think had anything to do at all with or the pricing ended up in the spring, nor we ended up in the fill period. The stream market was very strong. We’re depending on the mix of how much tons were moving upstream versus that will be the plans and offshore affects our FX. But the volume was not indicative or did not have anything to do with the field levels that we started out. But we’re participant, we’re not trying to set the market. There is other bigger players that we know, have to find their space, and we let one of them come out and announce full program and we participated in line with them.

Gordon Watson – GLG Ore Hill LLC

But in terms of ammonium sulfate production in the United States, I mean, you’re very big player right. I mean, I’m just wondering the conversion of this plant and bringing on and I know, (inaudible) but in the U.S. but you guys are seeing, but you’re not seeing it have any affect on pricing.

Unidentified Company Representative

In our opinion, the product that we brought in to this domestic market did not drag this market down at all. We are significant player and we’re cognizant about trying to maintain margin in the business and that’s why we’re very selective on where we try to position our product at.

We did see some imports from a few other countries come into the market that we haven’t seen before that may have been a drag because the quality issues are not there. We seen the issues where countries or other company’s may try to bring in low quality products that they want to pass off as granular and it doesn’t meet the end users’ needs and they ultimately reject it.

So again, in our opinion, we’re not and we’re very conscious about maintaining our margins and not affecting or adversely affecting gas prices here.

Gordon Watson – GLG Ore Hill LLC

Okay, thanks very much.

Unidentified Company Representative

Thank you. And that does conclude our Q&A session. I will like to hand the floor back over to Julie Cafarella.

Julie Cafarella

As was articulated on this call, while commodity prices have softened, we still expect a good remaining second half of the year as nitrogen demand remains healthy. We also expect 2014 to be a very good year with the additional tons of ammonia and ammonium sulfate coming online and the lack of a major turnaround, all of which will incrementally contribute to per unit cash distribution. This concludes our call. Thank you for joining us today and please contact me if you have any questions.

Operator

Thank you. And ladies and gentlemen, this concludes today’s conference call. We thank you for your participation. You may now disconnect your lines and have a great day.

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