Highlights:
Financial Summary
- Revenues increased 19% to $752 million and adjusted EBITDA increased 79% to $192 million in Q3 2020 YoY
- OCI-produced volumes sold increased 30% to 2.8 million metric tons
- Adjusted net loss of $67 million in Q3 2020 compared to adjusted net loss of $120 million in Q3 2019
- Net debt $3.9 billion as of 30 September 2020, up by $77 million from 30 June 2020 reflecting a $54 million FX impact on Euro-denominated bonds and a build-up of inventory ahead of Q4 seasonal sales
- OCI successfully completed c.$1.155 billion equivalent refinancing through a dual-tranche bond offering and $385 million refinancing at Fertiglobe in October, expected to result in cash interest savings of c.$32 million per year
Markets
- Methanol industrial end markets have strengthened significantly through Q3 and into Q4, as spot prices in the US Gulf have rebounded from below $150 / ton at the end of June to c.$300 / ton in November
- Global nitrogen prices have also improved, but the US nitrogen market remains challenged with prices at steep discounts to global benchmarks due to intense price-based competition for UAN and urea imports into the US priced below the point of origin
ESG
- OCI to supply ExxonMobil’s subsidiary Esso with bio-methanol as part of a biofuel alcohol mix, to be blended with all Esso’s standard Synergy grade petrol sold in the United Kingdom
- OCI has signed a letter of intent with RWE to develop green methanol from green hydrogen based on wind power in the Netherlands, reducing carbon emissions as part of an innovative electrolysis hydrogen project at Eemshaven
- OCI’s board of directors has formally ratified a decade-long group policy to not produce, sell or trade solid ammonium nitrate (AN), and has further committed to not do so in any future partnerships or transactions. Given the increasing concerns surrounding the explosive nature of AN, the product is easily substituted by much safer other nitrogen products
- OCI intends to publish long-term environmental targets in 2021, using 2019 as the baseline year
Statement from the Chief Executive Officer – Ahmed El-Hoshy:
“We reported another quarter of healthy volume growth in both our methanol and nitrogen segments, driving a material increase in adjusted EBITDA year-over-year. We remain on track to deliver robust volume growth in 2020 and, as we reach run-rate production, we expect to benefit from a further step-up in volumes in 2021.
Consistent with our last update, the COVID-19 pandemic has not had a direct impact on OCI’s operations, but our results were held back by significantly lower nitrogen and methanol prices compared to a year ago. However, we have recently started to benefit from an improving price environment, as global nitrogen markets enjoy positive tailwinds for the remainder of this year and into 2021 and the outlook for our methanol end markets has strengthened significantly.
Global urea prices have rebounded since reaching a trough in the second quarter and ammonia started to recover in October. However, US nitrogen prices are trading at severely discounted prices relative to global benchmarks. Despite being a deficit market, US urea imports continue to be priced below the point of origin in the Arab Gulf, a situation which could trigger anti-dumping investigations. UAN has been impacted by increased domestic volumes contributing to intense price-based competition in the US Gulf. Since July, it has been more favourable for Russia and Trinidad to export UAN to Europe inclusive of duties than to the US Gulf.
We continued to optimize our capital structure with the recent bond offering and the refinancing at Fertiglobe, both completed in October. These two transactions are expected to generate cash interest savings of more than $32 million per year, as we lowered our weighted average cost of gross debt by c.60 bps to below 4.5%, a significant improvement from c.6.0% at the end of 2018. We will continue to evaluate opportunities to achieve similar objectives and further simplify our capital structure.
We continuously strive to be a leading environmental steward and are committed to developing innovative and sustainable products, especially as our core products ammonia and methanol are some of the best-positioned products in a future hydrogen economy. We are therefore excited to work with RWE on a hydrogen project and to supply ExxonMobil with bio-methanol. We are also in advanced talks to develop other projects at our nitrogen facilities in the Netherlands, and will continue to identify, evaluate and develop more initiatives that reduce our environmental impact and grow our green portfolio.
While we believe our environmental performance is already amongst the best-in-class as a result of our $5 billion capital expenditure program to develop a young and world-class asset base, with even our oldest facility in the Netherlands achieving excellent ammonia energy efficiency at ~32 MMBtu/ton, we aim to improve further by setting long-term environmental footprint targets using our most recent year, 2019, for our baseline, in order to achieve a meaningful reduction taking our post-expansion capacity into account. We intend to announce our long-term targets during 2021, with key decisions and timings based on the scale and area of focus of US environmental policies, the EU carbon border tax mechanism, and governmental support and subsidies for green initiatives.”
Outlook
Nitrogen
- The outlook for our nitrogen fertilizer portfolio is looking favourable and we maintain a solid order book:
- Tenders recently awarded to Fertiglobe to supply total of c.700kt urea to India and Ethiopia
- Demand in importing countries is expected to remain healthy
- Global nitrogen demand supported by rising corn prices driven by higher corn imports from China
- We are seeing a favourable fall application season in our core US Midwest market
- Our order book in Europe is healthy following higher CAN sales in Q3 compared to 2019
- Chinese urea exports continue to be lower year-over-year (down 10% year-to-September), but the pace is expected to rise modestly in the fourth quarter on higher Indian import demand. Anthracite coal prices in China have started to recover rapidly which, combined with a recovery in industrial urea consumption in China, is expected to limit exports in H1 2021
- Industrial nitrogen markets remained subdued in Q3 2020 as a result of GDP/industrial activity slowdown, but are showing signs of recovery:
- Ammonia prices lagged urea, but have started to benefit from a recovery in industrial markets, high-cost capacity shutdowns and higher feedstock prices
- OCI’s DEF sales recovered to record levels in the US in Q3 2020. In August, sales volumes were back to pre-COVID levels supporting an improving trend for the balance of the year and into 2021
- Melamine demand in our core European markets is improving
Methanol
- US methanol spot prices have roughly doubled since reaching a bottom below $150 / ton in June
- Rising utilization rates of MTO plants in China on the back of healthy MTO economics versus naphtha crackers have been a key driver of a rebound in methanol demand
- The outlook for downstream demand has improved, with fuel consumption picking up, and a gradual return of global industrial and construction activity
- Following record methanol production for OCI in Q3 2020, normalization of production and improved onstream efficiency is expected to drive volume growth in the methanol segments in H2 2020 and 2021
Gas Markets
The recent increase in gas prices, particularly in Europe and Asia, supports selling prices. It also benefits OCI as one of the most efficient producers in the US and Europe, and strengthens Fertiglobe’s significant competitive advantage as a result of its fixed gas supply agreements.
A conference call for investors and analysts will be hosted on Friday 6th November 2020 at 4:00 PM CET (3:00 PM GMT, 10:00 AM ET) by Ahmed El-Hoshy, 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: 8457478
A conference call replay will be available until 6th December 2020. 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: 8457478
