Statement from the Chief Executive Officer – Nassef Sawiris:
“We maintained our disciplined sales approach to weather the fluctuations of the fertilizer markets during the first quarter and positioned ourselves appropriately for the delayed application season in the US and delayed purchasing in Europe: we held back volumes when prices started to decline, and as a result our inventories reached record levels at the end of March.
In the past weeks seasonal demand has kicked in and our sales volumes have rapidly accelerated. We have shipped record volumes in April and May and for most of our products at higher prices than we would have achieved a few months ago, confirming the merits of our commercial strategy. Across the industry we also expect the ending stocks of nitrogen fertilizers in our markets to reach levels below the average of recent years by the end of June.
We achieved these significant additional shipments thanks to the strong execution of our operational teams and the logistical advantages of our operations. As a result, we expect the low first quarter to be followed by a record second quarter and continue our path of deleveraging.
In the US, there are currently significant bottlenecks for the transportation of product from the US Gulf into the Midwest as a result of heavy congestion on the rivers and railroads. We are able to capitalize on such issues due to our unique in-region positioning in the Upper Midwest. Our warehouses are near our end customers at the heart of seasonal demand, capturing the logistical premium as compared to product transported into the Midwest from New Orleans (NOLA).
In Europe, we are on track to ship record volumes of CAN during the second quarter and reach a higher level of sold CAN volumes in the first half of 2019 than during the same period a year ago, leveraging our robust logistical organization and proximity to key end markets.
In addition to the reduction in inventories, our production rates are looking healthy in the second quarter. Sorfert completed a major planned turnaround during the first quarter, when a new waste heat boiler was installed and other maintenance work was performed. This is expected to result in improved operating rates. After the turnaround, Sorfert’s standalone ammonia line has already been able to run close to its maximum design capacity. Natgasoline is now running well following a shutdown due to utilities supply issues, which have been fully resolved. We expect these two plants to contribute significantly to our results during the remainder of the year.
We expect further boosts to our production within the next few months. BioMCN’s second line is in its commissioning phase and is preparing for start-up in June, and the c.13% methanol capacity increase at OCI Beaumont is on track for mid-year.”
We expect continued growth in adjusted EBITDA and improvement of our leverage metrics in 2019, and we remain committed to our financial policy to prioritise expected strong free cash flows for deleveraging towards 2x through the cycle.
Our diversified portfolio of nitrogen products consists of fertilizer, diesel exhaust fluid (DEF) and melamine:
Our methanol business was affected by unplanned shutdowns in the first quarter of 2019, but production normalized towards the end of the quarter. With the imminent start-up of the second line at BioMCN and 13% increase in methanol capacity at OCI Beaumont, we are on track to reach 2.95 million metric tons of proportionate production capacity annual run-rate this summer.
Fundamentals of methanol markets remain positive:
Gas prices have moderated in both Europe and the United States since the high levels reached in 2018. We expect to see the full benefit of the materially lower gas prices in Europe from the second quarter onwards, benefiting from a combination of spot buying and hedges for part of our natural gas requirement for our European operations.
In the United States, we continue to benefit from low gas prices and hedges, with costless collars between around $2.40 to $3.50 for the majority of our gas needs at OCIB and Natgasoline, and prices below $2.40 for almost 70% of IFCo’s requirement for the remainder of the year.
Conference call details
A conference call for investors and analysts will be hosted on Friday 24th May 2019 at 3:00 PM CEST (2:00 PM BST, 9:00 AM ET) by Nassef Sawiris, Chief Executive Officer, and Hassan Badrawi, Chief Financial Officer.
Investors can access the call by dialing:
Standard International: +44 (0) 20 3009 5710
United Kingdom FreeCall: 0800 376 7425
Netherlands LocalCall: +31 (0) 20 715 7366
United States FreeCall: 1 (866) 869 2321
Conference ID: 7273919
A conference call replay will be available until 23rd June 2019. The replay access numbers are:
Standard International: +44 (0) 333 300 9785
Netherlands: +31 (0) 20 713 2967
United States: 1 (866) 331-1332
Conference ID: 7273919