Statement from the Chief Executive Officer – Nassef Sawiris:
“We successfully completed an ambitious turnaround and debottlenecking program at almost all our nitrogen production sites this quarter. Post the turnarounds, we achieved material improvements in onstream performance and cost efficiency. For example, IFCo’s ammonia plant has beaten previous record utilization levels several times since the facility restarted in August and has been running at consistently high levels of up to ~116% of nameplate capacity on average during the past few months. Sorfert’s ammonia lines have also reached higher levels than before the turnarounds, with one line reaching its maximum design capacity, and the second line that restarted in August achieving levels above 93%. We anticipate a step-up in annual volumes at both those facilities in 2020.
On a like-for-like basis, outside the downtime for the turnarounds and debottlenecking, our nitrogen operations performed well during the third quarter, despite ammonia prices being lower than the same period last year and reaching trough levels.
Combined with our efficiency improvements, low natural gas feedstock costs in both Europe and the US have strengthened our position on the cost curve. European gas prices dropped considerably through the second and third quarter this year, reaching close to record low quarterly levels. We did not get the full advantage of the lower gas prices yet because of a three-month hedge which expired during the third quarter. We expect to benefit fully from the low gas price environment from the fourth quarter onwards.
Our methanol operations were negatively impacted by the unplanned shutdown at Natgasoline due to damage to a waste heat boiler. The incident is covered by insurance and Natgasoline received an initial payment of $30 million for business interruption and repairs, which will be reflected in the Q4 results.
Methanol prices in the third quarter this year were also lower than a year ago, reaching trough levels below the global industry cost curve. Prices moved off their lows reached during the summer but are still on average ~30% below the 10-year mid-cycle levels.
The lower production resulting from the turnarounds and debottlenecking programs together with lower methanol and ammonia prices were the primary drivers of a decrease in our quarterly EBITDA year-on-year. However, despite the lower EBITDA and concentrated capital expenditure during the quarter, our net debt remained flat, which highlights the underlying strength of our diversified business portfolio and strong free cash flow conversion.“
With the completion of our capital expenditure program and the concentration of turnarounds and debottlenecking projects at four of our nitrogen sites during the third quarter, together with the consolidation of the Fertiglobe joint venture, we expect to benefit from a significant increase in sales volumes in the fourth quarter and beyond. We expect to continue to benefit from low natural gas prices in both Europe and the United States, maintaining a position at the low end of the global cost curve.
Methanol prices have weakened in 2019 to trough levels due to a number of factors including falling crude oil prices, MTO affordability and exports from sanctioned countries to Asian markets being offered at heavily discounted prices. While spot prices have risen modestly, prices remain well below 10-year mid-cycle levels.
In 2020, we expect to benefit from the first full year of the new methanol capacities (Natgasoline, BioMCN’s second line and the OCI Beaumont debottlenecking finalized in July this year), as well as the normalization of production following the shutdowns in 2019. This should result in a significant increase in our methanol volumes in 2020. Together with our position at the low end of the global cost curve, we will continue to be well-placed.
We expect to continue to benefit from low natural gas prices in both Europe and the United States.
In 2019, European gas prices have been substantially below those seen in recent years. We believe there has been a structural shift in the European gas markets this year and expect prices to remain within a core bandwidth of $3 – 5 per MMBtu, barring any surprise weather shocks, as a result of increased Atlantic basin LNG exports; competing with Russian imports into Europe.
In the US, Henry Hub benchmark prices have been significantly below the levels of last year at globally competitive prices. The forward curve suggests this will remain for the foreseeable future, which will continue to keep our US operations on the left-hand side of the global cost curve.
Conference call details
A conference call for investors and analysts will be hosted on Monday 25th November 2019 at 4:00 PM CET (3:00 PM GMT, 10:00 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: 8269319
A conference call replay will be available until 25th December 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: 8269319