Nutrien Ltd

TSX:NTR

Earnings Call Transcript 2024-Q3

[Operator]

Greetings and welcome to Nutrien's 2024 Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Jeff Holzman, VP of Investor Relations.

[Jeff Holzman, executive]

Thank you, operator. Good morning, and welcome to Nutrien's third quarter 2024 earnings call.

As we conduct this call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our quarterly report to shareholders as well as our most recent annual report, MD&A and annual information form.

I will now turn the call over to Ken Seitz. Nutrien's President and CEO; and Mark Thompson, our CFO, for opening comments.

[Kenneth Seitz, executive]

Good morning, and thank you for joining us today to review our third quarter results, the progress on our strategic priorities and the outlook for our business. At our Investor Day in June, we outlined a set of 2026 performance targets that provide a pathway for driving structural improvements to our earnings and cash flow through the cycle. As highlighted in our third quarter release, we have made significant progress in a number of these priorities in 2024.

This includes accelerating the time line for achieving $200 million in annual operational efficiency and cost savings. We now expect to achieve this target by 2025, 1 year earlier than our initial goal with cost reductions evenly split between retail and corporate. Nutrien is in a unique position to expand production and sales of potash and nitrogen with limited capital expenditures. We set a 2026 target to increase upstream sales volumes by 2 million to 3 million tonnes compared to 2023 levels. And through the first 9 months of 2024, we have increased sales volumes by 1.3 million tonnes.

In our downstream retail business, we have faced some headwinds associated with a more prolonged recovery in Brazil and softening in North America ag-commodity prices. However, we remain confident in the growth platforms that support our 2026 retail financial targets, which include an expansion of our proprietary products business, network optimization, tuck-in acquisitions and the execution of our improvement plan in Brazil.

Through a focused and disciplined approach to executing our capital projects, we expect to further optimize capital expenditures in 2025 to a range of $2 billion to $2.1 billion. This total includes the capital required to maintain our world-class asset base and meet our growth objectives. We will continue to pursue each of these performance targets with a focus on how we can enhance our offering of products and services to the grower, all while structurally growing our earnings and free cash flow. Now turning specifically to our 2024 results.

Nutrien generated adjusted EBITDA of $4.3 billion through the first 9 months of 2024, supported by increased downstream retail earnings higher upstream fertilizer volumes and lower operating costs. Retail adjusted EBITDA totaled $1.4 billion in the first 9 months, up 10% from the prior year. North American crop nutrient margins increased to $17 per tonne compared to 2023, supported by a stabilization of fertilizer markets and continued growth for our proprietary crop nutrients and biostimulant product lines.

The improvement in per tonne margin was partially offset by lower North American crop nutrient sales volumes, which were impacted by wet weather in May, lower corn acres and reduced field activity in the third quarter. Crop Protection margins in North America have improved in 2024 while seed margins were lower, primarily due to the impact of dry weather and delayed planting on our proprietary seed business in Brazil. We ended the third quarter with Crop Protection inventory down 13% compared to the prior year as we focus on tightly managing working capital levels.

Turning to Potash. We generated adjusted EBITDA of $1.6 billion in the first 9 months, down from the prior year due to lower benchmark prices. We increased potash production across our 6-mine network and lowered our controllable cash cost of production to $52 per tonne over this period. The reduction in per tonne costs was primarily driven by higher production volumes and the benefits of mine automation investments.

We sold record potash volumes in response to increased demand from our customers. We achieved this performance despite a short-term disruption in Canadian rail service during the third quarter, highlighting the advantages of our industry-leading supply chain and effective planning by our commercial teams.

In Nitrogen, we delivered adjusted EBITDA of $1.4 billion in the first 9 months, down from the prior year as the benefit of lower natural gas costs was more than offset by lower nitrogen prices in the first half of 2024. Our North American nitrogen assets remained very well positioned on the global cost curve, and we continue to progress reliability initiatives that have contributed to higher production volumes in 2024. Nitrogen selling prices in the third quarter increased compared to the prior year, reflecting tight global supply, in particular, for ammonia.

Phosphate fertilizer benchmark prices have remained strong, contributing to higher net selling prices in the third quarter compared to the prior year. Weather-related events impacted our phosphate operating rates, resulting in lower sales volumes and incremental costs.

Now turning to the market outlook for the remainder of 2024. We have seen a good start to the fall application season in North America with crop nutrient sales in October above the historically strong levels achieved in the same month of 2023. The increase in demand has been driven by a relatively early harvest and the significant need to replenish soil nutrients following this year's record harvest.

Global grain stocks remained below historical average levels, supporting export demand for North American crops and firm prices for key agricultural commodities such as rice, sugar and palm oil. Global potash consumption is projected at a record level in 2024, supported by strong agronomic need and relative affordability. We have raised our full year global shipment forecast to a range of 70 million to 72 million tonnes and expect continued growth in 2025.

We anticipate limited new global capacity additions next year, creating the potential for incremental supply tightness compared to 2024. Global nitrogen markets have remained firm in the fourth quarter due to continued Chinese urea export restrictions, ammonia supply outages and project delays. U.S. nitrogen inventories are estimated to be well below historical average levels, which we expect will support strong demand for the fall season and into 2025.

I will now turn it over to Mark to provide more details on our full year 2024 guidance assumptions and our capital allocation plans.

[Mark Thompson, executive]

Thanks, Ken. Good morning, everyone. As Ken highlighted, Nutrien delivered record potash volumes through the first 9 months of 2024, and we've raised our annual potash sales volume guidance to 13.5 million to 13.9 million tonnes. The range reflects our scheduled maintenance downtime in the fourth quarter and the assumption of a relatively short duration labor disruption at the Port of Vancouver that's currently impacting Capitec's shipments through the Neptune terminal.

For the full year, we expect our potash controllable cash cost of production to be down approximately 5% compared to 2023, strengthening our position as one of the world's lowest cost producers. In Nitrogen, we revised our annual sales volume guidance to 10.6 million to 10.8 million tonnes. The range reflects the impact of extended turnarounds and unplanned outages in the third quarter including the impact of weather-related events. We expect higher operating rates in the fourth quarter with turnarounds at select North American nitrogen sites now complete.

For Retail, our full year adjusted EBITDA guidance was revised to $1.5 billion to $1.6 billion as favorable growing conditions in North America reduced pest pressure and limited field activity in the third quarter. Grower demand increased in October, and we expect North American crop nutrient sales in the fourth quarter to be similar to the historically strong levels achieved into 2023.

As Ken outlined, we're focused on strategic priorities that support the achievement of our 2026 performance targets, which we believe provide a pathway for enhancing earnings and free cash flow. Looking ahead, we see several levers available to optimize sources and uses of cash across Nutrien.

From a sources standpoint, Ken described the areas we've identified to drive increased cash flow from operations. This includes increasing upstream fertilizer volumes from existing assets, delivering downstream retail earnings growth and driving operational efficiencies and cost savings across our network to ensure we maintain a low cost position.

We continue to evaluate ways to simplify and focus our portfolio, optimizing our investments in working capital and reviewing assets on our balance sheet that may not warrant maintaining with the objective of improving cash flow conversion through the cycle.

In terms of uses of cash, we are allocating $2.2 billion to $2.3 billion in 2024 to sustain and enhance our assets, a reduction of over $400 million compared to 2023. We expect to further optimize CapEx in 2025 to a range of $2 billion to $2.1 billion, strengthening free cash flow and positioning the company to countercyclically deploy capital towards high conviction opportunities.

We have a long track record of providing a stable and growing dividend as a core part of the return we deliver to our shareholders. Our dividend per share has increased by 35% since the beginning of 2018, while maintaining a total dividend payment of around $1 billion due to the significant reduction in share count over this time period. The allocation of our remaining free cash flow is currently focused on a narrow set of growth investments and on share repurchases with the goal of maximizing our risk-adjusted returns and growing free cash flow per share.

From a growth standpoint, we are focused on projects that have a strong fit with our strategy, provide returns in excess of our hurdle rates and have a relatively low degree of execution risk. These are growth platforms where we've proven our ability to execute and deliver value. Today, this includes investments in proprietary products, network optimization, tuck-in acquisitions, nitrogen debottleneck projects and mine automation and reliability projects. We've also repurchased 1.5 million shares for approximately $75 million, since late September and intend on repurchasing shares on a more ratable basis under our NCIB program that's authorized through February 2025.

I'll now turn it back to Ken for closing remarks.

[Kenneth Seitz, executive]

Thanks, Mark. We remain focused on strategic priorities and strengthen the advantages of our business across the ag value chain. Our results through the first 9 months of 2024 demonstrate progress towards our 2026 targets on a number of these priority areas. This includes accelerating the time line for delivering operational efficiency and cost savings, optimizing capital expenditures, expanding upstream fertilizer sales volumes and advancing high-return downstream retail growth opportunities.

As Mark highlighted, we are focused on allocating capital on a countercyclical basis towards a targeted set of growth initiatives and share repurchases that enhance free cash flow per share.

We would now be happy to take your questions.

[Operator]

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

[Andrew Wong, analyst]

I was just wondering, if you could provide any update on how you plan on implementing a buyback program going forward with maybe more regular or systemic or dramatic type repurchases? And just given where your shares trade today, how would you view buybacks versus any FX spending on growth?

[Kenneth Seitz, executive]

Thanks, Andrew. We can certainly talk about what we mean by ratable. Of course, we bought back stock this year. We're going to continue with that through the balance of the year. As we look now into 2025, we've been using the word countercyclical. We've pulled back on capital. We have -- and that's on the investing side. And now we pulled back to optimizing across the capital portfolio and a number of other measures that are going to liberate free cash flow. As we look at the outlook today at the highest and best use for that to improve free cash flow per share growth. And at the moment, yes, we're buying back our stock, when we do that analysis.

But Mark, maybe you want to provide some more color on our plans are and why we use the word ratable.

[Mark Thompson, executive]

Yes, absolutely. Thanks, Ken. Andrew, so look, I think just to step back and reiterate Andrew, a bit of what Ken said, I mean, our capital allocation priorities, they're going to continue to follow the strategic direction of simplifying and focusing the organization and really exercising the discipline in both cost and capital management. And these are things that we control regardless of market conditions. So this intensified focus on both optimizing sources of cash and uses of cash with the objective of growing free cash flow per share is something that is really top of mind for us.

With respect to your question on share repurchases specifically, I think just to highlight and recap, we commenced share repurchases in the second half of September. And if you look at that time period, we've purchased about $75 million worth of stock over the last 1.5 months. And as we said, we intend to continue ratable repurchase activity at a general similar run rate to what we've done so far through the end of that authorization in February 2025.

I think as Ken highlighted, we sit here today -- and that set of growth objectives that we have has been narrowed. They're focused. They are things we've done before. A number of them are accretive to free cash flow. But the reason we've continued to make progress on the buyback here over the last couple of months and intend to continue doing so as we do see compelling value, not only from a risk-reward standpoint, but the ability to grow free cash flow per share independent of market conditions. As we look at alternatives at this point in the cycle, obviously, agricultural commodities have turned down somewhat over the last few months.

And if we look to past cycles, particularly in the retail business, that has presented us with opportunities at weaker points in the commodity cycle where we can continue to consolidate in those market conditions. We've been quite disciplined over the last couple of years in stronger market conditions, but we anticipate some of those tuck-in acquisitions, particularly in North America, will come back to us. So we'll be looking to those alternatives opposite share buyback. But today, the buyback is compelling to us.

[Operator]

The next question comes from Ben Isaacson from Scotia Capital.

[Ben Isaacson, analyst]

I just have one question on the potash. It's quite rare that we see 3 years of consecutive growth in potash demand, especially following a year of global shipments -- sorry, especially following a year of record global shipments that we're seeing this year as the channel gets restocked. In light of your comments about softening field activity as crop prices are low, can you talk about your confidence level that potash demand will grow next year in line with your report?

[Kenneth Seitz, executive]

Thank you, Ben. Yes, I think for 2024, potash volumes have been strong, and you've seen that we've changed our own local shipments range to 70 million to 72 million tonnes, that is true. But there are a number of reasons that were constructive for 2025. I can start with global inventories and you look around the world and you could say that global inventories are at average or below average levels in just every market -- major market on the planet with perhaps the exception of Brazil. But even with Brazil, they are -- they continue to return to record level demand consumption of crop nutrient. NPK this year, probably about 46 million tonnes, which would be similar to previous record levels.

Similarly, China is consuming record levels of NPK. We've seen that in potash. We're seeing that in nitrogen at the moment, and we're seeing it in phosphate as well. It is true that we've seen a very strong drop in North America and that ag-commodity prices have come off, that's true. But at the same time, that strong crop has pulled a lot of crop nutrients out of the ground. And so that those nutrients are going to need to be replaced. And in fact, even here in the fall, we've had an early harvest. The fall is open, and we're looking at a lot of activity in the fall application season, getting ready for what farmers will be a good -- see as being a good growing season.

Next year, again, with North American farm margins being about its 10-year average. It's also the case, the softer input prices have stimulated some demand. So we've seen strong demand in this price environment. And importantly, we're still returning to trend level demand in potash. I mean we're just getting now to what we would consider to be trend level post this conflict in Eastern Europe and everything that, that brought.

So I would say a number of things that are going on at the moment that we have now a range for next year of 71 million to 74 million tonnes, again, looking to return to that trend level demand growth. But Chris, anything you wanted to add?

[Christopher Reynolds, executive]

Yes. Thanks, Ken. The only thing maybe to reiterate is that as we look around the world on these major potash markets, we're not really seeing any inventory build that's concerning to us. And as we talk to customers in each of those markets, they're also optimistic about demand for 2025, particularly as Ken said, that these prices remaining at affordable levels. And even if we were to see, for example, in China, inventories grow around 3 million tonnes, you put that into the context of apparent consumption at around 18 million to 19 million tonnes. And again, we don't see that concerning. So we do see the good consumption levels that we've seen in 2024 continuing into 2025.

[Operator]

Your next question comes from Joel Jackson from BMO Capital Markets.

[Joel Jackson, analyst]

I'm going to follow-up on the potash question with a couple of mini questions, if you don't mind. I don't think you mentioned Southeast Asia oil -- palm. It seems like palm oil prices are really, really doing well. It looks like in a recent tender this week in Southeast Asia. It looks like you got maybe a little bit higher price, but not massively higher. So first question there is why should we not see some greater pricing there, the palm oil? Also I didn't mention on some of the drivers for '25? And then second question would be when you look at supply for '25, what more supply do you see coming on? Are you anticipating more supply from Laos? Are you anticipating more tonnes to get through St. Petersburg and Bronco from Belaruskali, BPC? Any other supply drivers?

[Kenneth Seitz, executive]

Thanks, Joel. That's a couple of great observations. Thank you. Yes, I would say with respect to Southeast Asia, we haven't mentioned it yet, but you're absolutely right. In fact, for 2024, part of the rebound to trend level demand that we just talked about. Part of that story is certainly Southeast Asia. And it's for the reasons that you said, affordability is strong. When we see palm oil prices at MYR 4,000 per ton, but there's also strong rice prices in the region but that we expect strong demand. And for an important standard grade market, like I say, that's certainly part of the story for 2024.

And if you look at the biodiesel mandate that's coming in 2025. And again, with strong prices, we expect that Southeast Asia for 2025 will continue to be an important part of the story on -- on the supply and demand balance, I think you make a good observation as well. When we talk about 2024, we call it more or less a balanced market, 70 million to 72 million tonnes and supply more or less meeting demand.

As we -- as those volumes grow, as consumption demand grows into 2025 and for all the reasons we've talked about. We think that will -- we do see some potential tightening in the market. And that's because, as you say, if we look around, there could be some small incremental additions on the supply side, but we don't see much. And so when we've said that there's the potential for some firming in 2025. The reason we say that is exactly that. We expect a growth without incremental supply necessarily being added to meet that incremental demand.

[Operator]

Your next question is from Vincent Andrews from Morgan Stanley.

[Vincent Andrews, analyst]

Question in nitrogen. One of your slides shows your -- I think the product inventory levels in nitrogen are at low levels as we go into the fall season. Curious what your anticipation is in the retail business in terms of what you want to do about that in terms of -- do you see this as an opportunistic time for you to build inventory and hold it through the winter? Or do you still intend to exit the fall season with kind of empty bins?

[Kenneth Seitz, executive]

Yes. I would say that what we're seeing in our retail businesses, there's nothing unusual and we do expect -- we do expect to head through the season here with inventories flowing through our channel. But Jeff, do you want to talk about what you're seeing on the ground?

[Jeff Tarsi, executive]

Yes. So first of all, I mean, we're seeing -- we're greatly encouraged by the activity we're seeing this fall. As Ken mentioned earlier, we've had very strong nutrient removal with really large crops, particularly in North America. From an inventory position, we like the position we're in. Right now, we came into the third quarter a little heavier than we would have been last year, but that's reflective of an early harvest and an early start to fall application.

And as it relates to nitrogen, we desperately needed some moisture across the Corn Belt. We got that area last week, and so we're getting -- I'm really encouraged by what we're kicking off across North America from an NH3 application standpoint. But mods are in retail, it's normally to buy what we need for the season ahead and not carry over into the year. And so I would like from a retail perspective to end the fall with low inventory levels.

[Operator]

Our next question comes from Steve Byrne, Bank of America Merrill Lynch.

[Steve Byrne, analyst]

Ken, I wanted to drill a little bit into potash pricing. You've got -- you're looking for another couple of percent higher volumes in 2025. But your offshore price has been running almost $100 a tonne less than the North American price. It used to be closer to 30%. You get even Lukashenko complaining about potash pricing. My question for you, given your current role, your prior role in Canpotex, what is the value proposition to Nutrien to be part of Canpotex? You have 1 partner and BHP can't join it. Would you negotiate differently, if you were on your own and not part of Canpotex?

[Kenneth Seitz, executive]

Yes, Steve, thanks for the question. And yes, there's a lot of impact there. But I'll just start by saying, in fact, to tomorrow, we are -- today, we're celebrating Nutrien 65 years of producing potash in Saskatchewan. We've been doing this for a long time. And for 55 of those years, we've been doing them with Canpotex. Canpotex says established a customer base in the market in all these key regions that you can't reproduce and that comes with evolving relationships over that period of time.

Part of the value proposition for those customers is that -- they have access to all of these Saskatchewan mines, it's high quality, it's reliable and it's competitive. And so those relationships continue to be incredibly important to us, incredibly important to Canpotex. And behind that customer, we have built out a supply chain in this business to get volumes from landlock Saskatchewan, I keep saying to the jungles in Malaysia that supply chain doesn't exist anywhere on the planet.

So there's just so much infrastructure, so many relationships, so much history and a history of good commerce, good trade with these customers. that as we look to move our volumes, Canpotex has been just an extraordinary partnership, and it has taken us into new markets over 40 countries around the world. And obviously, we've always been competitive. So I think that I think Canpotex offers us a lot, Steve.

What I would say is we look into the future now we have seen trade flows that have been imbalanced in certain parts of the world in light of the conflicts in Eastern Europe, even some impact perhaps on what's happening in the Middle East. So yes, you do have markets like Brazil that are easier for global producers to get to at the moment that -- so we have seen volumes going to Brazil. And you see the impact on price, which creates the delta between that market and markets that might be more difficult to get to I think as these trade flows normalize as we look at a stable supply-demand balance in 2024.

As we look at potential firming into 2025, now we look at the role in Canpotex is going to play in all that. That's where we say with demand growing, maybe outpacing supply event in 2025 and even beyond. And so that's where we say opportunity for some additional tightening firming here in price. But of course, Canpotex is going to continue to be playing a significant role in getting our volumes around the world.

[Operator]

Your next question comes from Jacob Bout from CIBC World Markets.

[Jacob Bout, analyst]

Question on retail. Second quarter here, you've trend your 24 retail guidance despite a pretty large crop coming off in the U.S. Curious, what would your view of normalized retail EBITDA would be in a $4 corn price environment?

[Kenneth Seitz, executive]

Jacob, and we have a number of things that we talk about at the moment that a few headwinds in our downstream business and in North America would be, as we've talked about our wet May, as we've talked about the ideal growing conditions here in the third quarter that led to less pest pressure and less overall field activity. That's true. But I would say the bigger story is Brazil and the ongoing work that we're doing to recover both with the market and certainly with our business in Brazil. But I'll hand it over to Jeff to provide some color around all of that.

[Jeff Tarsi, executive]

Yes. Thanks. And look, our guide down in the third quarter was more a reflection of what occurred in the third quarter than what we expect going forward in the fourth quarter. As Ken mentioned just a minute ago, regardless of the corn price. Brazil has been a headwind again this year. We expect more recovery there. In that market that we've seen year-to-date. North America and Australia have performed really well, in my opinion, in '24. And so we expect earnings growth next year just by stabilizing things in Brazil.

Going forward, we expect earnings growth that we've talked quite a bit at Investor Day about our strategic actions around the LPI and how we want to expand our margins in that area as well. And I also think that we had some things that we missed this year. We talked about low field activity in the third quarter. Some of that's related to some applications that we actually missed in the spring with a cold and delay planning for corn.

And we think those things will come back to us. We thought we'd get a bit more of it in the third quarter, but our ideal weather conditions really led to extremely lowest pressure at low trips across the field for our growers. And so we think those things will come back to us next year.

[Operator]

Your next question comes from Edlain Rodriguez from Mizuho Securities.

[Edlain Rodriguez, analyst]

Just one quick question on retail in Brazil. I mean the formers there should be heard in a little bit. There's like a lot of disruption in the marketplace in terms of people going bankrupt, does that create medium-term or long-term opportunities for you in terms of retail acquisitions, given that it's a long-term attractive market over there?

[Kenneth Seitz, executive]

Thanks for the question, Edlain. So we -- our focus at the moment in Brazil is on our current core business. And the things that we've talked about by stabilizing the business. And I would say today that, that is our exclusive focus. So when we talk about rationalizing some infrastructure, some unproductive infrastructure like lenders like some selling locations. When we talk about optimizing our cost footprint from a human resourcing perspective in light of some of the challenges in Brazil.

We talked about focusing on inventory and inventory management, bringing down working capital levels. Those things are all in flight. It's an extraordinary amount of effort in Brazil at the moment, and that is our exclusive focus. And we've talked about working through all of that through 2025. We think that for the work that's taking place, that's going to continue through 2025. And then among all that, continuing to focus on proprietary products and growing our proprietary business, which that's for our future in Brazil certainly that's going to be a core part of it as we see opportunity there with our agrochem business.

So it's a long way of saying our focus today, we're not looking at expanding in this environment. We're looking at and focusing on our current business.

[Operator]

Your next question comes from Richard Garchitorena from Wells Fargo.

[Richard Garchitorena, analyst]

So my question is another strong quarter of potash sales volume this quarter. Despite a short rail strike. You raised the guidance this year to 13.5 million to 13.9 million. But obviously, the third quarter run rate would imply over 16 million potential annualized production. So that's well above the 14 million to 15 million target that you gave for 2023 on your Investor Day. So my question is, are you currently at that operational capability rate at this time to get to that 14 million to 15 million. Could you produce that if the market demand was there for it? You mentioned that you expect demand growing in 2025 for potash and don't really see many other supply coming on in other regions. So would you be the 1 company that could potentially meet that demand?

[Kenneth Seitz, executive]

So I'll maybe start with your last question first and then work back from there, Richard. Yes, we can meet growing demand. And we've talked about our ability to produce 15 million tonnes in that we need to do between now and then is bring on people, bring on operators. And if you look at our guidance range today, we would say that the capacity and our complement of operators at our 6-line network has been built for exactly those types, our guidance range and not beyond, we don't want people standing around at our operations.

So yes, we get to -- we need to hire some people. It's always the case that on any given day, on any given month, so we might be producing above what appears to be a 15 million tonne annualized rate. But when you take those daily or monthly and annualize them, it's going -- it's not representative of what we can do in the year and that it's just related to what's happening in a particular mine, how maintenance turnarounds fit into the schedule. We have some high days in our business, where we're in good ground, and everything is working well, but we'll have some days where we'll hit anomalous ground and you will see probably a run rate there would be less than our 14 million tonnes of capacity.

So it's not a case of looking at those days or months and annualizing them. What we see today is what's true and that is capacity has been built to meet to meet the needs of our global customers at kind of 19% and 20% market share that we talk about often. And that, yes, we could certainly expand our volumes to 15 million tonnes by picking on people and we can do that along with equipment.

[Operator]

Your next question comes from Chris Parkinson of Wolfe Research.

[Christopher Parkinson, analyst]

Just a quick question on your perspective on nitrogen supply dynamics. Just when you take a step back, I mean, there's 1 school of thought that's concerned by oversupply just given the number of MOUs and kind of project concepts, I'll call them things out of Russia, which I personally think is wrong, but it is what it is. And then the other school of thought is looking at higher costs, a lot of maintenance bills coming out in Europe, CBAM in Europe, and potential further rationalization. So as you sit here today, even versus a couple of quarters ago, kind of what are your core puts and takes in terms of how you're thinking about that business over the next, let's say, 3 to 5 years?

[Kenneth Seitz, executive]

Yes, great question, Chris, and I'll say a couple of things and pass it over to Chris Reynolds. But if it's on the clean ammonia side of the industry and the number of announcements that we've seen on prognosticated new plant. As we've looked at those announcements that if we look at the evolution of the potential there and our own experiences with looking at clean ammonia, we would say that we don't see speculative new plant being built being green led right now, it's a question about really the pacing of the energy transition and how you were then in behind that pace, the clean ammonia complex and what kind of risk you'd be willing to take in a market that you might be able to grab a premium on the energy side of the business.

That's still evolving and timing of all of that is still very unclear. So again, we expect any new plant to be backed by some form of offtake or some form of bankable contract that gives you the confidence to deploy the capital. And indeed, it seems to be playing out that way. If we look at the industry and the nitrogen complexes as it is today across the various nitrogen products. We don't see a lot of new build a new plant that's been deployed, especially on some of the downstream products.

But Chris, maybe you want to provide a little bit more color on the sort of supply-demand balance in nitrogen, how do you see that evolving?

[Christopher Reynolds, executive]

Yes. Thanks, Ken. Chris, yes, and as Ken said, if we break it down by supply and demand of nitrogen market and how we see the next couple of years. On the demand side, it's been pleasing to see that the trends sort of returned to about a 2% compound annual growth rate globally. So -- and that's been fairly consistent over the years. And then you look specifically in examples like in China today that urea consumption there on the ground. As I said earlier, we're good folks there this week has grown by 14% year-over-year, taking apparent consumption to 60 million tonnes of urea. So the Chinese government remains very focused on domestic agricultural production there. And similarly around the world, whether it's Brazil or India, some good steady growth on the demand side.

And then on the supply side, what we're watching, obviously, is what's happening in Europe and those natural gas prices, we would probably mentioned that the last couple of winters in Europe have not been too bad. But if we get a harsh winter in Europe, those natural gas inventories could be quickly depleted and you could see that price move even higher. And we've seen some production curtailments there as a result. And then as Ken alluded to, some delays in new production coming online has kept this market fairly well balanced.

But on top of all of that is our position here in North America with low-cost gas, both in the U.S. and Canada and the advantaged locations of those plants, particularly [indiscernible] in the U.S., which we like. So I would say, again, as we look out over the next 3 to 4 to 5 years, feeling good about the nitrogen market.

[Operator]

Your next question comes from Benjamin Theurer from Barclays Capital, Inc.

[Unknown Analyst]

This is [ Rahi ] filling in for Ben from Barclays. My question was kind of on geopolitical issues. Any updates on how it's impacting fertilizer shipments? Is it still just a hit towards like shipment costs? Or are there any quantity of volumes impacted? And how is the update on Red Sea shipment process just kind of on an overall fertilizer market view?

[Kenneth Seitz, executive]

Yes. No, a lot going on in the world, obviously, and some geopolitical events that are impacting our business. If we look at the war and Eastern Europe, what we would say and have talked about is the fact that those volumes, for the most part, are getting to 3 content flows of those export volumes. It's probably all true with the exception perhaps of the Belarusians who continue to struggle getting access to port capacity in a cost-effective way.

It's absolutely the case that those suppliers and particularly Belarus, probably struggling with cost to serve as well as they send shipments via rail across Russia and into the north of China, where -- we know that on a landed basis, that's probably putting all-in costs for the Belarusian $270, $280 a tonne. So that's -- those are definitely challenges in light of this conflict in Eastern Europe.

But some of those challenges are going to persist for a bit yet. But as those volumes find their way into the market, some rebalancing trade flows that we've talked about, that really we've obviously finding a home for our volumes with our customers as well. And that has been the case right through all of this turmoil.

On the Red Sea, I think it's fair to say that our colleagues at ICO and APL have found alternative routes. And so the challenges through the Red Sea that ICL has experienced probably continuous experience that they found alternative routes through the Mediterranean. So we're seeing ICL volumes come into the market as well, which is good. And those trade flows relatively balanced as well.

But those -- we'll continue to watch these things very, very closely because -- as you say, it has had impacts on trade flows. Some respects continues to do certainly has raised the cost to serve for the industry and therefore, the overall cost bases for the industry and as this conflicts of all, we'll continue to watch that.

[Operator]

Your next question comes from Joshua Spector from UBS.

[Unknown Analyst]

Yes, this is [ Ezekiel Roberts ] on for Josh. So just going back to nitrogen. So you've sort of taken your shipment volumes down a little bit for this year. Obviously, due to some specific factor there. But I was just wondering, if you can kind of give us your latest thoughts and frame how you're thinking about the incremental uplift into next year and then the pathway to your 11.5 million to 12 million target in 2026?

[Kenneth Seitz, executive]

Yes. No, good. Thanks, Josh. Yes, we've had some weather-related effects this year. We've had some extended turnarounds, had a power outage that power supplier at our Fort Saskatchewan facility in Alberta unexpected for us and some mechanical issue, see put that all together. And yes, we're just a little bit below where we had expected to be this year. That said, heading into 2025 and beyond. We talked about our 11.5 million tonne at 2026. Investor Day target and 11.5 million with Trinidad operating on natural gas, it would be 12 million tonnes.

Now I'll hand it over to Trevor Williams to give us the breakdown on where we're going to get those new volumes and how we get from here to there.

[Trevor Williams, executive]

Yes, just a couple of thoughts here. If I look back and just compare to 2023, we're approximately 200,000 tonnes ahead year-over-year versus out last year. And then we normalized, look it's over our turnaround, which is a very heavy year this year of almost 300,000 tonnes that's on a normalized basis. Obviously, this is a result of some of the improvements that we talked about that we announced last year at [indiscernible] quarter in Trinidad.

As Ken alluded to it always on a full year basis this year, we had several externally related outages across the quarter. And in addition to that, a couple of turnarounds that do go a little bit longer. Now this has been one of our heaviest turnaround years that we've had for quite a while, with 4 major turnaround executed here in 2024 with one wrapping up here in Trinidad here in the last quarter.

But as Ken said, as we look forward to our Investor Day target of 11.5 million and above. There's really 3 components there. There's continued reliability improvements across the fleet, there's about 300,000 tonnes in terms of [indiscernible] cap there. With debottlenecks that both will be completed in '23 and while we have scheduled for '24 and '25 as the order of about 300,000 tonnes there as well. And then finally, as Ken mentioned, we have about 500,000 tonnes in terms of what we're doing with respect to Trinidad in terms of gas improvement.

But with that, the one thing that we'll call out as an example is that if you look in 2023, we utilized about 82% of our gas that was available to us in 2023. In 2024, we're protected right now, we're going to be between 93% and 94% of the gas available utilized. And that's really the result of our 3 out of 4 strategy that we put in place late last year.

[Operator]

Your next question comes from Laurence Alexander from Jefferies.

[Daniel Rizzo, analyst]

This is actually Dan Rizzo on for Laurence. So you achieved your cost-cutting goals early and are expected to be achieved in 2025. Would that suggest that maybe you can kind of expand the goals that there's more that can be done as we push into '26 and '27? I guess that would be my question.

[Kenneth Seitz, executive]

Yes. No, absolutely. And yes, we have been incredibly focused on our cost base and as we talked about in Investor Day, we had -- looking in through '25, '26, we did see an opportunity to reduce SG&A, both in our retail business and our corporate functions by I mean, $200 million as we've said, we're ahead of schedule on that. Again, and as we continue to look at that cost base, we do see some potential for additional savings. We're working on that at the moment. At the moment, yes, we have confidence in achieving that $200 million and now achieving it earlier than we talked about. And we're always looking at the opportunity to continue to optimize refined costs, keep ourselves as a low-cost producer and competitive in everything that we do.

[Operator]

Your next question comes from Aron Ceccarelli from Berenberg.

[Aron Ceccarelli, analyst]

Earlier this week, we got some comments from Belarusian President Lukashenko, on a potential combined 10% production cut with Russia I was wondering how credible are these comments in your view, considering these guys are low-cost producers and don't really need to cut production? And my second question is on ag retail, specifically on seeds. If I look at your sales and seeds they declined 16% in Q3, but the gross margin dollar terms collapsed to 4 million tonnes -- sorry to $4 million. So I wanted to understand how much of this should continue into Q4? Or it was just a one-off for Q3?

[Kenneth Seitz, executive]

Good. Thanks for the questions. Yes, Belarus, DBC, we saw that announcement as well. We don't speculate on those sorts of things I think you would want to talk to them and understand better what the plan is there. All I would say is we've talked about this impact of shifting trade flows and the challenges perhaps in that part of the world are not getting access to efficient and nearby tidewater and that raising the global cost curve as a result. So the cost of service gone up that's true, that's clear. And probably, it will continue to be the case as those producers look for port capacity, like I say, that is nearby.

So won't speculate on anything that any prognostications or any that is coming out of the press in that part of the world, you'd have to talk to them. But what we would say is, yes, we do see that for both in terms of inflationary pressures on the industry, probably added $50 a tonne. And then for certain producers, who are having challenges probably could be another $50 a tonne on the cost curve. And then the second question as it relates to retail and seed, I'll pass that over to Mr. Tarsi.

[Jeff Tarsi, executive]

Yes. Thanks, Ken. And Yes. So the third quarter is a small quarter for us, we see as it relates to the margin reduction in the third quarter. Latin America is the primary driver in terms of reduction as it relates to see margins for quarter 3. This is due to some unfavorable weather conditions, which causing production challenges and compressed margins for us in that region, and we do consider that to be a onetime event.

[Operator]

Thank you. There are no further questions at this time. So I will now turn the call back to Jeff Holzman for closing remarks.

[Jeff Holzman, executive]

Okay. Thank you for joining us today. The Investor Relations team is available, if you have any follow-up questions. Have a great day.