LSB Industries (NYSE:LXU) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
LSB Industries reported strong financial performance in Q1 2026, with significant year-over-year growth in net sales, adjusted EBITDA, and EPS due to operational improvements.
The company's CCS project at the El Dorado site is progressing as planned, with expected completion by the end of 2026 or early 2027.
A $20.9 million settlement was reached with Benham Constructors, while litigation against Leidos continues, seeking damages in excess of $300 million.
The ongoing Middle East conflict is causing significant supply disruptions in the ammonia and urea markets, benefiting LSB Industries due to its US-based operations.
The company is well-positioned with a solid balance sheet, allowing for potential expansion and investment in growth opportunities, supported by the current geopolitical landscape and strong market fundamentals.
Management highlighted the importance of security of supply for industrial customers and the potential for brownfield expansions to meet increased demand.
LSB Industries expects continued strong demand and elevated pricing for its products throughout 2026, despite planned turnarounds at its facilities.
Full Transcript
OPERATOR
Greetings and welcome to the LSB industry's first quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require Operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Christy Carver, Senior Vice President and Treasurer. Please go ahead.
Christy Carver (Senior Vice President and Treasurer)
Good morning everyone. Joining me today are Mark Behrman, our Chairman and Chief Executive Officer, Cheryl McGuire, our Chief Financial Officer and Damian Renwick, our Chief Commercial Officer. Please note that today's call includes forward looking statements. These statements are based on the Company's current intent, expectations and projections. They are not guarantees of future performance and a variety of factors could cause the actual results to differ materially. For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward looking statements, please see the risk factors set forth in the Company's most recent Annual report on Form 10-K. On the call, we will reference non-GAAP results.. Please see the press release in the Investors section of our website lsbindustries.com. for further information regarding forward looking statements and reconciliations of non-GAAP results. To GAAP results. At this time I'd like to go ahead and turn the call over to Mark.
Mark Behrman (Chairman and Chief Executive Officer)
Thank you Christy and good morning everyone. I'm pleased with our first quarter 2026 results. They were in line with our overall expectations and reflect the growing contribution from the impact of the operational discipline we have been building and executing over the past several years. Our progress has become increasingly evident over the past two quarters, driving improved operating and financial performance. The investments we've made to increase the safety, reliability, efficiency and output at our facilities continues to bear fruit in the form of improving overall EHS performance and significant year over year growth in net sales, adjusted EBITDA and EPS. Our results reflect the progress we've made so far and we expect to see additional improvement going forward. Our emphasis on production performance improvement, optimizing our product mix and disciplined commercial execution reinforce our ability to maximize profitability. This will become even more important as current market dynamics begin to be reflected in pricing over the coming quarters. Regarding the progress of our Carbon Capture and Storage (CCS) project at our El Dorado site, we feel good about meeting our projected timeline. I will provide an update later on in this call. Lastly, as we previously discussed, we have been involved in litigation with respect to engineering and procurement contracts related to the construction of the ammonia plant at our El Dorado Arkansas facility. Earlier this month, we entered into a settlement agreement with Benham Constructors, one of the two defendants in the case. Pursuant to the terms of the settlement agreement, Benham agreed to pay us approximately $20.9 million. The settlement agreement does not release or otherwise discharge any claims, rights or remedies we have against Leidos, including our claims for fraud and breach of contract. We plan to continue the vigorous prosecution of our filed claims against Leidos and continue to seek actual and punitive damages in excess of $300 million. The trial against Leidos is scheduled to begin in October of this year. Now I'll turn the call over to Damian to provide more detail on the commercial environment.
Damian Renwick (Chief Commercial Officer)
Thank you, Mark and good morning everyone. Let me start by discussing the ongoing conflict in the Middle East and the impact that is having on our industry. This is one of the more significant and prolonged supply disruptions that we have experienced. The strata for moose alone represents 20% of global ammonia seaborne trade and 30% of global urea seaborne trade.. While the situation remains fluid, these dynamics are creating meaningful supply constraints across both markets. We are seeing this manifest in two primary ways. The first is the disruption to shipping through the Strait and the ability to move product globally. Second, and potentially more significant, is the impact to existing fertilizer production facilities in the Middle East, the full extent of which is not yet fully known. These dynamics are additive to the existing supply challenges across global markets, including the reduced ammonia production in Trinidad, gas curtailments in India, outages in Australia, increasingly frequent drone strikes on Russian nitrogen plants, the potential export restriction of ammonia from China, as well as the ongoing export restriction of urea from China. While supply disruptions have been significant to date, global demand for ammonia and urea has remained consistent despite some demand destruction in phosphates globally. Fertiliser and industrial demand have been reasonably strong, supported by Indian domestic consumption and fertilizer and industrial upgrades globally. Moving to natural gas approximately 20% of the world's LNG transits through the Strait. Obviously, this has been severely disrupted and there is very little alternative supply of LNG that can offset this. We expect European natural gas prices to be increasingly elevated as they work to fill up their storage ahead of next winter. During this time we expect to be advantaged on US Natural gas prices which has been incredibly resilient and affordable. Today it trades well below $3 per MMBtu. We also believe that the implications for the market will not be short lived. Even when the Strait is fully opened, it will take some time before normality is restored. We expect elevated pricing throughout 2026. and even into early 2027. Turning to page four, our industrial business is in a sold out position. Even with our improved production volumes during the first quarter, we optimized our production mix to maximize ammonium nitrate spot sales at above typical market prices. This allowed us to support customers whose AN supply has been disrupted. The US AN market continues to be under pressure with significantly lower domestic production available while demand is strong. We expect these constructive market dynamics to continue to impact market prices with supply interruptions expected to continue through most of 2026. As we think about the mining market segment, we are encouraged to see a renaissance in mining. What we are seeing is not temporal but structural. Copper demand is strongly outpacing supply and record gold prices are also incentivising new supply. Much of this activity is taking place in the western us. Quarrying and aggregate production has also been growing. Lower demand in residential construction is being offset by higher demand in private and public construction. Even coal remains resilient, supported by policy changes and insatiable demand for electricity. The chemical segment has also been positive. The antidumping duties on imported methylenediphenyl diisocyanate has been positively finalised for five years. Generally the chemical producers in the US are feedstock advantaged with US natural gas liquids while international peers are paying much higher naphtha inputs which have been disrupted from the Strait of Hormuz. Turning to page five, let's move to the domestic ammonia market. We had a good spring ammonia campaign and exited with minimal inventories. Inland prices continue to track with international prices so we expect this to carry through to summer fuel. New domestic supply in the U.S. gulf continues to ramp up, albeit with some delays. However, this new supply is nowhere near the extent of the supply that is disrupted globally and would only approximately offset the loss of production in Trinidad. Favorable weather windows during the first quarter allowed growers to apply ammonia resulting in higher than expected shipments out of our prior facility and low inventory levels at the end of the quarter. Ammonia supply appeared to be constrained during the last half of March with many customers seemingly dealing with allocations and the inability to secure enough supply to meet growers application demand. AG demand for ammonia is being supported by nitrogen pricing spreads with ammonia trading at a significant discount to urea and uan. Growers are especially incentivised this year to minimise input costs given the current challenging grain economics. While sidedress ammonia demand is a relatively modest percentage of total nitrogen demand, we would expect this pricing relationship to persist and growers to be incentivized to maximize ammonia purchases and application during the second quarter. Turning to UAN Grower economics as previously mentioned are challenging for the upcoming crop year. We believe the difficult margin environment for growers is resulting in limited risk taking and positioning of product throughout the supply chain. We currently believe that the North American market is at risk of being short nitrogen due to uncertainty around forward urea imports. Urea pricing has strengthened since the end of February due to the Iranian conflict and the Strait of Hormuz issues, and the US has consistently priced at a discount relative to the rest of the world, putting import volumes for late April and May at risk. UAN demand has been steady throughout 2026. and we expect that to continue through the second quarter and into July. We believe that current supply chain inventory levels are low and that demand may attempt to switch away from urea if pricing spreads or availability of urea become an issue during Q2. We are currently estimating a very low carryout to uan inventories on June 30th at around 2025 levels. Urea shortages, unplanned downtime across the US production system, or reduced imports could reduce carryout even further than currently expected. Lastly, the USDA recently projected 95 million planted corn acres for the 2026 crop season and we anticipate robust nitrogen demand through the full fertilizer application season. Now I'll turn the call over to Cheryl to discuss our first quarter financial results and our outlook.
Mark Behrman (Chairman and Chief Executive Officer)
Cheryl thanks Damian and good morning. On page six you'll see a summary of our first quarter 2026 financial results. As Mark mentioned earlier, we focus consistently on improving the reliability and efficiency of our assets and we believe these results, as with last quarter's results, reflect those efforts and the progress we continue to make, which is contributing to our ability to capitalize on tight market conditions. As shown on page 7, Q1 adjusted EBITDA grew 44% year over year from 29 million in Q1 last year to 52 million this year. This increase reflects higher pricing coupled with stronger volumes and product mix, which were partly offset by higher natural gas and other operating costs. On page eight you can see that our balance sheet remains solid with approximately $180 million in cash at the end of the first quarter and net leverage at 1.4 times. Operating cash flow for the quarter was 52 million. After subtracting $15 million of sustaining capital, which is the capital required to maintain our operations, our free cash flow was approximately 37 million. This reflects strong free cash flow generation in the quarter and we're encouraged by these results. Looking ahead, we remain focused on sustaining a high level of free cash flow generation and our strong balance sheet gives us meaningful flexibility to invest in growth opportunities and drive long term value creation. Looking ahead to the second quarter, we expect demand for our products to remain strong as we operate in a sold out position. We also expect pricing to remain elevated Tampa ammonia and nola uan have averaged approximately $775 per metric ton and $480 per ton respectively, while natural gas costs have averaged below $3 per MMBtu thus far in the second quarter. Our planned turnaround at our El Dorado facility is underway and is a key step to continued operational improvement. The outage is expected to impact ammonia production by approximately 35,000 tons. Additionally, we expect to incur approximately 15 to 20 million of turnaround related expenses during the period. As discussed on our last call, we did build ammonia inventory heading into the turnaround and therefore expect to operate our downstream production during the majority of the ammonia outage. Putting it all together despite the Turnaround, we expect Q2 adjusted EBITDA to be significantly higher as compared to the first quarter of 2026 and the second quarter of last year, driven by strong market fundamentals and continued improvement in downstream production and now I'll turn it back over to Mark thank you Cheryl Turning to page nine our El Dorado low carbon project is progressing and we continue to work closely with senior officials from the EPA's Region VI with a goal of sequestering CO2 by the end of this year or early next year. In addition to the previously drilled injection well, this quarter we completed the drilling of the underground horizontal pipeline that will transport CO2 from the capture equipment area to the injection well that will sequester the CO2. The next step is to complete the capture area civil work and prepare the area for delivery of the capture equipment this summer. The assembly and connection of the different pieces of capture equipment is expected to be completed in late fall this year. On the commercial front, our team continues to pursue low carbon product supply opportunities where we can generate premiums for those products as well as evaluate the potential to sell environmental attributes generated. We are excited as we're getting closer to completing our project and realizing our vision of decarbonizing ammonia. As I mentioned earlier, we've been highly focused over the last several years on increasing the reliability of our facilities, which has translated into higher production rates, improved product mix and lower costs. During this time, we've often been asked about when we would begin to see the results of these investments, I think I can safely say that after two consecutive quarters of $50 million plus in EBITDA led by significantly improved production performance, we're beginning to see the fruits of all the hard work our teams have accomplished over the last three years and we're not done. As we continue to invest in our business, including the El Dorado turnaround Sheryl mentioned, along with the scheduled turnaround at our prior Oklahoma facility in the third quarter, we expect continued improvement in our overall production performance. In previous calls, we've laid out a path to an additional $50 million of annual EBITDA through specific initiatives including production targets, process efficiencies and our El Dorado carbon capture project. A good portion of this is expected to be realized by the end of this year, with the balance coming by the end of next year. We ended the quarter with a strong cash position, having generated significant free cash flow for the quarter. We also believe we will generate meaningful free cash flow for the remainder of this year. This, plus the approximately $21 million settlement payment I mentioned earlier, will provide us with financial flexibility and numerous options as we consider the best way to create value for our shareholders. We are currently reviewing several opportunities to invest capital into projects that would enable us to expand both our fertilizer and industrial production capacity. These include debottlenecking activities as well as evaluating potential acquisition or partnership opportunities that offer the ability to increase our production while gaining meaningful scale. There's no question that the evolving geopolitical landscape, including the conflict in the Middle east and associated disruption of production facilities there, as well as the ongoing impact of important trade channels, is having a significant impact on the global availability of nitrogen fertilizers. We expect this will continue throughout the remainder of 2026 and into 2027. Our improved operating performance is enabling us to maximize fertilizer production and support U.S. farmers with an additional supply in this difficult time. We are encouraged by our continued execution across the business and believe it positions us to continue supporting our customers and deliver sustainable growth and long term value creation. Before we open it up for questions, I'd like to mention that Cheryl will be participating in the Barclays Leverage Finance Conference in Austin on May 18th and the Wolff Research Materials Future Conference on June 16th and 17th in New York City. Additionally, Damian and I will be participating in the Granite Research Virtual conference series on June 30th and July 1st. We look forward to speaking with some of you at these events. That concludes our prepared remarks and we will now be happy to take your questions. Thank you, ladies and Gentlemen, if you would like to ask a question, Please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You May Press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And our first question comes from the line of Lucas Beaumont with ubs. Please proceed.
Lucas Beaumont (Equity Analyst)
Good morning. Thank you. So, I mean, I just wanted to get your view, I guess, on where the nitrogen market's going. So, I mean, it seems like there's been a bit of a disconnect between, I guess, what's happening in the physical market and the degree of the disruptions that we're seeing. I mean, prices have moved up a lot in certain areas. You know, your area, UAN, the cost curve, kind of not as much so far, but, I mean, we haven't seen any resumption yet, in trade flows. And I think even if things were to sort of prove that they were credible resuming kind of tomorrow, we'd probably still have like, four plus weeks before production would restart over there, and then two to three months before we can start seeing deliveries again into import markets. So I guess just from where we stand today, I guess, how do you kind of see market dynamics sort of evolving over the next couple months and what that sort of means for, you know, pricing and I guess, demand and demand destruction ultimately.
Mark Behrman (Chairman and Chief Executive Officer)
Morning, Lucas. What I would say is I think you're right. I think that there's the perception that if there was a permanent ceasefire, that things would go back to normal relatively quickly. And I think that's a misnomer. I think there's so much, first off, there's so much supply that's been taken out of the marketplace. It'll take us, you know, a relatively long time to make that up. And part of the reason that it'll take us longer to make that up is there's been damage to facilities in the Middle East. And I think most of us don't really understand what type of damage to facilities, production facilities, have occurred. And so we don't know how long it'll be before some of those plants that were damaged come back online. I also think people maybe are miscalculating the backup of vessels that are waiting to get out of the Strait and how long that will take and the coordination of that and which vessels get priorities. So I think big picture, you know, we think that it's going to take Certainly through the end of this year and I believe into next year until we see us back to normal again. As far as, you know, our view on pricing and, you know, what do we think? Supply demand. I'm going to pass it over to Damien and he can give you a more current view on the ground.
Damian Renwick (Chief Commercial Officer)
Yeah. Good morning, Lucas. I think you're right. It's been interesting to observe just how the market, market has responded. I think the us, particularly with urea, we're pricing in at, I think you'd call a fairly significant discount to market prices and ships are being, you know, India bid very heavily on the basis of their government support for tonnes, so I think they're in a reasonably good position now following their latest tender. And then you've also got Brazil trading upwards of where NOLA urea is at the moment. So I think there's some concern on product availability here in the US that may materialise over the next four, six, eight weeks as we work through the full season. And that's where I think it'll all bear out. Also, you'll probably see, I mean, Tampa Ammonia hasn't settled yet. That'll or should go upwards from where it is today. And as Mark said, we've got probably months before you see anything calm down after the Strait has reopened and then the world gets a sense of what plants have been damaged or what the restart profile looks like for that notwithstanding all of the other issues that you've got throughout the world with damage to Russian plants, Trinidad production being out probably for the long term, and then the typical interruptions you're seeing, like with Burrup in Australia being out for many weeks. So we're pretty positive, optimistic on pricing.
Lucas Beaumont (Equity Analyst)
Yeah, thanks, that's helpful. So then I guess just on the industrial side, you know, I know a large sort of portion of your book there is contracted. So. But I guess just how is like industrial demand responding more broadly and pricing there? I guess what, I guess one sort of, what are you guys doing initiative wise to try and capitalize most on the current market? And then secondly, I just had a question about, like, the difference between industrial versus fertilizer mix and sort of where we think the demand destruction in the industry is going to come from to equilibriate like demand with the lower supply that's available this year.
Damian Renwick (Chief Commercial Officer)
So our portfolio, I guess, is weighted pretty nicely, I would say, to mining and as I said in my earlier comments, mining activity globally, but particularly here in the US is very strong and there's a very strong pipeline for new projects. And so that's really underpinning very strong demand for ammonium nitrate for explosives. And we're leaning into that as best we can, and and optimizing our production mix to take advantage of the current situation, particularly here in the us, with some supply being out of the market. So we're certainly optimizing that and maximizing our spot sales into that market. In terms of other industrial demand, it's been pretty steady. We talked about nitric demand and what we see through polyurethane and mdi, and that is still strong here in the us and the fundamentals around that industry continue to hold true. And US producers are well shielded from some of the issues that you're seeing in the Middle east that other global producers are experiencing. And we're seeing them maximise production, which is maintaining very strong levels of demand for our products. In terms of demand destruction, as you talked about, you are going to see buyers opt out when their economics start to get too strained. And you've already seen that in phosphates, with those producers experiencing a double whammy with both ammonia and also sulphur. I mean, sulphur prices are at extremely high levels and sulfuric acid prices have followed. So you're seeing that happen. You'll also see through the nitrogen molecule, some regions of the world just simply decide not to apply nitrogen, particularly through parts like Africa or Asia, etc. And even countries that can't get their hands on product, they just simply won't have a choice. So you'll see that start to happen and the market will act rationally and efficiently, as it tends to always do.
Mark Behrman (Chairman and Chief Executive Officer)
I think one of the, just to add kind of one thought, it's not that security of supply wasn't thought about, but I think given all the activities that have happened around the world, and not just in this particular conflict, but going back to the beginning of the Russia, Ukraine conflict, I think people are now really focused on security of supplies. So when we think about our industrial business, industrial customers need that product because usually it's either a feedstock for another product, as Damian talked about, nitric acid, or you want to mine copper or gold or something else. I mean, you need an to do that because you need obviously to use some explosive to do your mining. So I think what it's really got people focused on, as I said, is security of supply, which is really, I think, creating some really interesting opportunities for us because we do have customers that are really desiring product long term and want to know that they have the product. So we May have some opportunities to really expand on our sites. Right. So some brownfield expansion or debottlenecking supported by customer contracts and customer demand.
Damian Renwick (Chief Commercial Officer)
I think just another point to make on that. Mark talked about security of supply. It is something that we've focused on as a supplier and with our three facilities, we have the ability to support our customer base through each of the three facilities with the core industrial products. And that's a huge strength of our business. And our customers certainly appreciate that and value that security of supply. And I think that will continue to be reflected in what we do going forward as well and customers being attracted to that value proposition that we provide.
Lucas Beaumont (Equity Analyst)
Great, thanks. And then just lastly on the free cash flow side, I mean it looks like you guys could easily do an extra 100 million this year. Maybe 200 million more in free cash flow than last year. Plus you're going to have the 20 million from the legal settlement that you called out. You mentioned sort of looking at new projects to kind of deploy that to I guess, is there any more detail you could kind of share there? I mean, should we go back and refer back to the last sort of investor day where you sort of outlined kind of, you know, incremental margin improvement or sort of the gold making projects or is there anything else that's under consideration going forward?
Mark Behrman (Chairman and Chief Executive Officer)
We've talked about on previous calls about the ability to expand the ammonia plant production at El Dorado. So that is. And we do have a USDA grant, to provide some capital for that. So while we haven't FIDd that project, we are doing our last, we will do our last stage of engineering before FID And I think there is a high probability that we would move forward with that project. With the current administration really focused on increasing domestic fertilizer production, we are thinking about how can we expand other parts of El Dorado and maybe even some new products at El Dorado with the support of the administration. Plus as you mentioned, certainly the capital that we have available to invest in that project. So I think, you know, that would be at El Dorado. That would be the plan is to try and figure out how do we expand given the current environment and the capital that we have and we're going to generate, you know, at our other two facilities. There are some things at our prior facility that we are looking at again, whether it's debottlenecking, whether it's increasing like a nitric acid production or other things. So I think we have the ability with our current assets to really invest that capital to get a really attractive return. And so we're currently focused on doing the work to make sure that our assumptions are correct before we move forward, obviously. But I think, again, the administration is really looking towards onshoring or increasing domestic fertilizer production, and we want to take advantage of that and support that.
Lucas Beaumont (Equity Analyst)
Thanks very much.
Andrew Wong (Equity Analyst)
The next question comes from the line of Andrew Wong with RBC Capital Markets. Please proceed. Hey, good morning. Thanks for taking my questions. Actually, I just wanted to follow up on that comment, Mark, around the administration support for fertilizers. I know that there was that funding from the USDA earlier. Is there anything else that has come up or maybe more recently? And is there anything that's larger that maybe the administration will look at that LSP could participate in?
Mark Behrman (Chairman and Chief Executive Officer)
Morning, Andrew. Yeah, look, I don't know that there's another USDA funding program like the original one that came out during the Biden administration. What I can tell you is, you know, I was in D.C. a couple of weeks ago as part of an industry trade group talking with the administration. And yes, there's a fair amount of capital that the administration has and would like to. To commit to increasing domestic fertilizer production. And so I think they want to support that. I think. I mean, they've done a number of press releases. I think they're in print a lot, talking about the abundance of natural gas that we have here in the United States and the cheap cost of that natural gas and nitrogen fertilizers just being a derivative of natural gas. And so I think they'd like to not import and depend on other countries to provide fertilizer. That's, you know, they look at it as food security, which is extremely important. And even to the point of, you know, if we ever got there, to be an exporter versus an importer. So I do think that there is capital available, you know, and I think for the right projects, they would support that. You know, the, the new projects with capital,
Andrew Wong (Equity Analyst)
that'd be great. And then just for this year, I understand there's a heavier turnaround schedule. Can you just talk about how flexible that is? Are you able to hold off on some of the work and maybe have the plans come on faster just given the current price environment, or is that maybe just too disruptive to the plan that you already have in place?
Mark Behrman (Chairman and Chief Executive Officer)
Yes. So we're currently in our turnaround at El Dorado, and we did have a conversation prior to going into that turnaround, but honestly, we pushed off that turnaround from last year. And when you do Major project work, like a turnaround, you know, to line up the contractors and get the right contractors and the right people at the those contractors. You know, if you start pushing things around, you run the risk of either not having, you know, the desired contractor or the people. So we elected not to push off that turnaround. I do think we're going to come out of it in great shape. I'm really excited about that because I think not only will we increase reliability, we've done a lot of work on the site, you know, that set us up for the expansion that I talked about going forward. So whether it's electrical work, whether it's other infrastructure on the site that allow us to really lever that to do some expansion. The work at Pryor. So we have a turnaround in Pryor in July on that one. I think we've got specifically one item that we need to address. And so what we'll do is we'll try and get through that turnaround as quick as we can, but I think we would run the risk of having some extended downtime if we don't go through that turnaround. So we're focused on that. I think we'll get through these turnarounds. And as I said, I don't think we're going to see pricing fall off a cliff later on in the fall. And so I think we'll get an opportunity to really take advantage of the pricing market since I think it'll last a lot longer.
Andrew Wong (Equity Analyst)
Okay, thank you very much for that detail.
Rob McGuire
Sure. As a reminder, if you would like to ask a question, please press Star one on your telephone keypad. And the next question comes from the line of Rob McGuire with Granite Research. Please proceed. Good morning and congratulations on the quarter.
Damian Renwick (Chief Commercial Officer)
Hey, Rob. Hey, Mark. So, MDI tariffs and countervailing duties. How are the MDI tariffs and duties affecting nitric acid demand and LSB demolishing plans? And how do you think that the tariffs and countervailing duties will shape the market from here?
Rob McGuire
Hey, Rob. It's a very positive story for us domestic producers of mdi. So. So we've got. Certainly our customer base is running flat out. They are also contemplating their own expansions going forward, and we're in some early discussions with them about what that might look like from a supply perspective. So, you know, I think there's a very positive tailwind here in the US because of that. And, you know, we're also seeing it more broadly with some of our other producers that we don't supply and then bringing on additional capacity. So It's a very positive story.
Mark Behrman (Chairman and Chief Executive Officer)
Thank you, Damian. And then with regards to the projects, what should we be looking for just exiting the turnarounds this year that relate to the progress with your value creation projects?
Rob McGuire
Well, I think as I mentioned in the prepared comments, you know, we expect to see a good portion of that $50 million in value creation as we come out of this year. So run rate and then we expect the balance of it to occur by the end of next year. So I would say again, we'll end this year having done, I think Cheryl put together a chart last quarter, the last earnings call, talking about where we are and sort of the steps that we're going through. So I don't know about half of it by the end of this year and the balance by the end of next year. And I'm talking run rate by the end of the year.
Damian Renwick (Chief Commercial Officer)
Thanks, Mark. And then on an should we be looking for a similar mix of an UAN in the second quarter that we saw in the first quarter and is there room for further AM production here?
Rob McGuire
Yes, you'll see the same mix. We're probably at our limit of what we can really lean in on. So that'll continue through, at least through to the end of the year. Rob.
Damian Renwick (Chief Commercial Officer)
Thanks, Damian. And just last sulpuric acid, do you still produce and sell on a commercial basis or is that, in other words, can you benefit from the recent increased prices here or is that really not a product at this point?
Rob McGuire
Yes, look, we are still in that market, although it's pretty immaterial to the profile. And yes, sulfuric prices are going up, but so too are sulfur costs. So the margins are pretty stable. Well, thank you so much.
Mark Behrman (Chairman and Chief Executive Officer)
Thanks, Rob.
OPERATOR
Thank you. This concludes the question and answer session. I'll hand the call back over to Mark Bearman for closing remarks.
Mark Behrman (Chairman and Chief Executive Officer)
I appreciate everyone's interest in LSB Industries. I hope you can see that we're making progress. We're excited about the progress that we have going forward and I hope to talk to you some, some of you guys at the conferences that we have coming forward. So thanks and have a great day.
OPERATOR
Thank you. This concludes today's conference. You may disconnect your lines at this time.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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