Terra Industries Inc. a leading world producer of nitrogen products, has lowered the utilization of each of its North American plants by 10% in response to the run-up in natural gas prices following Hurricanes Katrina and Rita, said company President Michael Bennett Monday.

Speaking during a webcast conference, he said the company’s five North American facilities were operating within the “ballpark” of 90% of capacity. “We can’t really throttle down much below 80-85% without shutting [a] facility down,” Bennett noted.

“The gas market is telling us right now [that] it doesn’t want us to burn as much gas and we’re responding to that,” he told analysts. Bennett estimated that Terra Industries’ North American plants typically consume 100 Bcf of natural gas annually. A $1/Mcf hike in the price of gas adds approximately $14-15 million to the company’s gas bill, he said.

Due to the high price for natural gas, he said the Sioux City, IA-based company does not plan to build inventories of nitrogen. The price of gas for November delivery closed at just under $13/Mcf Monday. Bennett speculated that gas prices would have to drop to about $10/Mcf for his company to “minimally” break even on nitrogen sales.

“Until prices for nitrogen products would achieve a level that would allow us to generate satisfactory gross margins, what we aren’t going to do is burn high-cost gas to build inventory,” Bennett said. “At this point in time, we don’t think that the natural gas market has really settled into a stable range. We saw this sharp run-up over a period of two weeks. Over the last three days, we’ve seen the market come off pretty substantially…We think it’s just a little bit too early to call” the direction of gas prices.

On Friday, Terra Industries reported that at Sept. 30, it had supply contracts, financial derivatives and other instruments that fixed the purchase price for about 11% of its next 12 months’ North American and United Kingdom natural gas needs. It also said it has collared most of its forward positions (that is, purchased put options to protect against declines in natural gas costs and, to offset the cost of the put option, sold call options). Outstanding collar transactions at Sept. 30 were approximately 9% of Terra’s next 12 months’ North American and United Kingdom gas needs, the company said.

Terra said its forward purchase contracts at Sept. 30 fixed prices of future gas needs at $60.9 million below published forward prices at this time. However, the gain was largely offset by $42.8 million in losses on outstanding call options, the company noted.

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