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Good morning or good afternoon, and welcome to the OCI Global Second Quarter 2023 Results Call. My name is Adam, and I'll be your operator for today. [Operator Instructions]
I will now hand the floor over to our Investor Relations Director, Hans Zayed, to begin. So Hans, please go ahead when you are ready.
Yes. Thank you, and good afternoon and good morning to our audience in the U.S. Thank you for joining the OCI Global second quarter 2023 conference call. With me today are Ahmed El-Hoshy, our Chief Executive Officer; and Hassan Badrawi, our Chief Financial Officer. On this call, we will review OCI's key operational events and financial highlights for the quarter followed by a discussion of OCI's outlook. As usual, at the end of the call, we will wrap up with Q&A.
The results press release and presentation are available on our website at oci-global.com in the Investors section, we will be referring to slides in the results presentation, during this call. I would just like to remind you that any forward-looking statements made on this call involve risks, and the actual results could differ materially from those statements.
Let me now hand over to Ahmed.
Thank you, Hans, and thank you all for joining us today. We start every call with our top priority, safety. Our 12-month rolling recordable incident rate was 0.29 incidents per 200,000 man hours at the end of June. I'm pleased to report an improvement from the previous quarter, and that we continue to be well below industry averages. We also continue to work tirelessly on operational and process safety improvements and strive for zero injuries throughout the organization, which we believe is also a key indication of overall manufacturing excellence.
Nitrogen markets were facing headwinds at the end of 2022 that continued into the first several months of 2023, with selling prices dropping by up to 70% for some of the products, we had year-over-year during the course of Q2 due to a lower marginal cost environment, significant demand deferral and the concentration of new capacity that ramped up in late 2022 and early 2023 that was being absorbed by the market, all at the same time.
Effectively, while prices were dropping and trying to find the floor, buyers in agricultural and industrial sectors were sitting on the sidelines for as long as possible to avoid printing a loss, they came in too early.
With sound fundamentals intact, and as a reaction to some of that behavior, we've seen prices reach a bottom in June and rebound materially from trough levels. In the case of Egypt, urea prices, we've seen an increase of 60%, $470 per ton FOB with a continued positive trajectory. I'll get into it a little bit later why we've been seeing this pricing recovery in demand versus supply tightness.
Methanol markets remain challenged by macroeconomic drivers with lower pricing during the quarter. The silver lining for the methanol business, however, is captured in our recent announcements of green methanol supply for use, as a low-carbon marine fuel, as we continue to build on our leading position in this new market segment.
During the call, we'll also share progress with our hydrogen fuels transition initiatives where OCI aims to be a leader in both ammonia and methanol, as we leverage our development experience and globally advantaged existing facilities and distribution networks.
I'm particularly pleased to report on the market improvement in our operational performance during the quarter. After facing operational challenges during the second half of last year, Q4 of 2022 and Q1 of 2023, our plants ran smoothly and demonstrated a healthy onstream performance during the second quarter, with average reliability reaching almost 95% across the line, which is reflected in our production and sales volumes.
I'd like to thank our team for their tireless efforts. All this is a milestone, and is a key sign of moving in the right direction that we need to continue to build upon. Needless to say that our focus is to improve our plans on a sustainable basis going forward, rather than periodically or in any one given quarter, as our manufacturing improvement plan continues to take shape and drive future improvement in results independent of pricing.
Starting with the highlights of our financial performance during the quarter. I'll now hand it over to Hassan, our CFO, to walk you through some of the key highlights. Hassan?
Thank you, Ahmed. Starting with Slide 7 for a summary of our financial results. We reported consolidated revenue of $1.4 billion and adjusted EBITDA of $326 million and an adjusted net loss of $7 million for the second quarter. For the first half, we reported revenue of $2.7 billion, adjusted EBITDA of $662 million and a net loss of $22 million. Our Q2 results were lower compared to the record results achieved in the same quarter last year, which can almost be entirely attributed to lower selling prices. Specifically, nitrogen prices in Q2 dropped not only up to 70% compared to the same quarter last year, but even up to 50% on average compared to the first quarter. Methanol prices also dropped, especially spot prices due to a delay in the macroeconomic recovery, lower energy prices then a decline in methanol-to-olefins affordability in China. The total impact of lower pricing amounted to a negative swing in adjusted EBITDA of almost $1.2 billion during the quarter.
Own-produced volumes sold were back at healthy levels and at par with levels achieved last year. Volumes sold were 35% higher compared to the first quarter as demand returned, and we operated our plans well. We had a positive effect of lower natural gas prices year-on-year to the tune of $312 million or a net positive swing of $264 million, if we take realized hedging losses of $48 million into account, but that was not enough to offset the price declines.
To note, hedging losses were around half of the losses realized in Q1. The current forward curve implies lower losses in the remaining quarters than Q2. We continue to view our long-term natural gas hedges as a risk management approach, providing the company with a suitable long-term cost structure. Additionally, our Q2 results last year included positive EUA sales of $90 million, whereas this second quarter included only a marginal $2 million negative adjustment.
Turning to Slide 8. We recorded operating free cash flow, which we define as cash flow from operations less maintenance CapEx before minority distributions of $211 million. This compares to $151 million in the first quarter of the year. We also reported a consolidated free cash outflow of $222 million during the quarter, which captures the distributions to minorities. In April, OCI distributed approximately $800 million, which translates to €3.5 per share to shareholders.
Accordingly, as of 30th of June, our consolidated net leverage was one-third of EBITDA. On a segment basis, our European nitrogen business recovered to almost a breakeven result in the second quarter, reporting a negative $10 million of EBITDA. Noting that deliveries of own-produced volumes in Europe were up 3% year-on-year and up 112% compared to the first quarter, as demand returned in Europe, and we ended the quarter with much lower inventories. Natural gas prices were still elevated, which supported the import of ammonia through our terminal in Rotterdam to support downstream production.
The U.S. nitrogen business continued its strong performance, recording an adjusted EBITDA of $99 million in the second quarter versus $216 million a year ago, with an adjusted EBITDA margin of 52%, excluding third-party trading. Fertiglobe's own-produced sales volumes this quarter were 8% lower compared to the second quarter of last year, and flat year-on-year for the first half. However, the decline was partly due to the effect of lower starting inventory in the second quarter of 2023 versus the same quarter last year, and we ended the quarter with higher ammonia inventories in the second quarter. It's important to highlight, however, that the lower sales volumes are not a reflection of reduced operating rates, as our production was actually up 4% compared to the second quarter of last year, despite a major turnaround in Algeria.
Fertiglobe's second quarter 2023 adjusted EBITDA was $218 million with a healthy free cash flow conversion. Operating free cash flow amounted to $143 million before dividends to minorities. With regards to dividends, Fertiglobe is proposing at least $250 million of cash return – cash dividend to shareholders with respect to the first half 2023, subject to Board approval in September and payable October 2023, half of which, of course, is received by OCI.
Looking at the methanol segment, following the outages in the beginning of the year, the U.S. methanol business returned to consistent and healthy operational performance. Own-produced methanol volumes increased 9% in the second quarter compared to the same quarter last year, and 81% higher than the first quarter of this year. But the business was affected by lower selling prices, and noting also that our integrated ammonia volumes in Texas within the methanol segment also increased by 20% compared to the same quarter last year, and up 103% from the first quarter of this year, where we had the unfortunate outages.
In regards to our cost optimization plan, we have identified a further $50 million of overall non-gas cost reductions, which, combined with Fertiglobe's announced target back in May, takes the total to $100 million target, which we aim to achieve by the end of 2024. This will cover key focus areas of our operating model, logistical capabilities, as well as operational costs and overhead efficiencies.
In regard to some of our guidance for the year. For leakage due to minority distributions, given Fertiglobe's guidance for the October dividend of at least $250 million and the known accrued dividends to minorities, as highlighted in the financial statements, which includes $824 million of this in Algeria distributions to Sonatrach, we therefore expect around $1 billion of minority distributions in the second half of 2023. The Algerian distribution to Sonatrach is exceptionally high as it relates to distributions of [indiscernible] payments related to profits achieved in 2022. Based on year-to-date results, this would be expected to normalize going forward.
Our guidance for maintenance CapEx is higher than the usual run rate of $300 million and expect it to be – to exceed $350 million, reflecting timing of invoicing payments related to 2022 turnaround, and some voluntary scope changes in 2023 related to our manufacturing improvement plan, which already started to show a positive effect on our performance, as seen in the Q2 achieved operating rates. Our growth CapEx guidance remains unchanged to up to $450 million, as the Texas blue ammonia facility begins to take shape, as seen in the presentation.
Finally, we have confirmed our plan to issue a cash dividend from OCI of €0.85, equivalent to $200 million for next October with the exact date to be shortly confirmed. We will continue to manage our capital allocation priorities, balancing our IG credit profile, our growth initiatives in energy transition, focused projects and returns to shareholders.
And with that, I'll hand back to Ahmed for further commentary on the market backdrop, our ongoing initiatives and a few remarks on the strategic review. Ahmed?
Thanks, Hassan. I'll start with the nitrogen market, where we have seen a critical turning point during the past couple of months following a turbulent period with rapidly declining prices. The global nitrogen sector started the second quarter with high inventories after this prolonged period of hand to mouth buying and purchase deferrals, until the last possible moment. Much has changed since then. Nitrogen markets are tightening rapidly despite entering the usual summer lull for fertilizers that we typically see in Q3.
In the short-term, there are several factors driving the recovery, as you can see on Page 6 of our presentation. First, we have seen a rapid demand recovery during the season. Farmer affordability remains a major motivation for buying our products for the third year in a row now, and shows no sign of abating.
Also, forward grain prices have continued to move up on a general basis, giving a further boost to farm incomes and incentivizing nitrogen demand and application to be above historical trend levels, including the catching up of substantial pent-up demand from key importing regions. This is, of course, a significant change from the decline in demand we saw in 2022 and early 2023.
Secondly, the 2022-2023 fertilizer application season concluded with record low inventories post-U.S./European applications. This was particularly the case in North America, where carryout was down year-on-year for all nitrogen products. For example, UAN inventories were down 33% year-over-year, but also in Europe, where demand cleared inventories. Brazil is buying more nitrogen and is doing so earlier than usual. And India needs substantial volumes. We expect more than 4 million tons of imported urea from India in the balance of H2 2023, which is up from 2.5 million tons imported in the first half of the year. There's also potentially an additional one million tons for the balance of this year, taking us to five million tons of import depending on how things progress with regards to the rains and flooding in large parts of Northwest India, which prompts farmers to buy more urea. All the new Indian plants are now running well and largely absorbed in the market. These factors have prompted an earlier-than-expected India tender happening next week in an already tightening market.
Thirdly, supply started to tighten rapidly. In 2022, six million tons of run rate urea capacity commissioned, with most plants actually reaching ramp-up at full capacity in the beginning parts of this year. All this new capacity just have now largely been absorbed, with limited major greenfield additions expected over the next few years. Additionally, the extreme heat this summer has resulted in production curtailments in various locations as gas usage is prioritized for energy or power consumption. To date, we have not been affected, whether with an OCI vertical in any material way by such curtailments.
As of mid-June, there was also a normalization of trade flows after the EU removed import duty suspensions on ammonia and urea. So what I mean by that is that typically, EU charges a duty of 6.5% on imported urea and 5.5% on imported ammonia, except from duty-free or duty-exempted countries. They had put in a suspension of that duty to allow the free import of urea and ammonia without duties. The fact that duty suspension was revoked, i.e., duties are now back in place as of mid-June, means that we've seen a benefit to both Fertiglobe's production and sales because product from Egypt and Algeria is duty-exempt, and also our European nitrates operations because they have now another barrier against competition coming in.
Chinese urea exports remain capped and were one million tons during the first half of 2023 or almost 30% below the 2018 to 2020 averages, and we expect around two million tons to be exported from China during the balance of this year. Ammonia imports of China has increased substantially year-to-date, demonstrating a strong growth, approximately 170% or more than doubling and close to tripling of imports in the first half of this year, due to fertilizer industrial demand recovery.
And I'd like to leave a word on industrial markets. Ammonia markets have been particularly weak, but appear to have stabilized and seen recent increases with cost support and increased outages of ammonium, particularly in the East of Suez. A recovery in the demand on the fertilizer side, both nitrogen and phosphate, is boosting ammonia use. And imports into China, as I just mentioned, as well as into India, Turkey and Morocco have increased.
Global ammonia trade has been at trough levels of 17 million tons in 2022 and 2023, and [indiscernible] that increasing back to the 19 million ton per year level. And cost curve economics should start to put more pressure on producers once again. European gas futures over next winter and 2024 are implying cost support levels for ammonia, excluding CO2, of $590 a ton. And if you include CO2, $750 a ton. So materially have higher than the levels we're seeing in the mid-300s today, which could impact and result in temporary or potentially further permanent closures of European marginal ammonia production capacity, as we've seen in the past.
Only last week, one of our peers announced the closure of a U.K. ammonia site, making it the third permanent closure in the region in the last several quarters. Meanwhile, OCI's U.S. operations and Fertiglobe in the Middle East accounted for 93% of our consolidated gas consumption in Q2, and continue to enjoy first quartile position on the cost curve on production and distribution economics.
If I turn now to methanol. The macroeconomic recovery also did not materialize, as industrial activity in major economies stagnated and the recovery in China was much slower than we expected. And I think the broader market expected during the second quarter. This, combined with lower coal cost support in China, in turn also had an effect on methanol prices, which were lowered comparatively year-over-year from Q2 2022 to 2023 as well as from Q1 to Q2 of this year.
The recovery may not happen in the short-term, as we can also see from a further decline in pricing in Q3 so far, and it will depend on the economic recovery and when it’ll materialize – and how it materialize, particularly in China. We have seen some improvement in MTO operating rates though, which are sitting at around 70% recently when they were just in the 60s, a few months ago. But there's still some way to go in terms of more capacity utilization and taking up of demand.
However, despite that, we remain constructive on the short-term, as we've seen a recovery in oil prices, and that is a driver of over 50% of methanol demand today as well on a medium and long-term basis on the methanol side because there's very limited new supply coming to the market. Methanol as a fuel continues to grow for fuel use on the road. Actually, oil prices affect that as well. And most importantly, significant new and sustainable demand for methanol as a marine fuel is coming and has already started. The order book for methanol fuel chips keeps growing by the day.
If we turn to Page 11 in the slide deck. Since we last spoke in May, the amount of methanol vessels on order has grown from 130 to over 200 vessels to be rolled out between now and 2028. In terms of dual fuel propulsion order book, we've seen methanol take market share and ultimately outperform LNG, as was evident in the previous quarter as well for new ship orders. For example, Maersk ordered another six vessels in June to a total of 25 container vessels that are dual fuel with methanol. Evergreen ordered 24 vessels, and they're also now retrofit on order by major container ship lines and owners. We estimate that since May, when we did our Q1 results, the incremental demand for methanol growth for methanol has grown from four million tons per year to six million tons per year solely from marine fuel basis, based on our updated tally and analysis.
Recent legislation is also giving a further boost, as you can see on Page 12, with the revised strategy by the IMO, which we're looking forward to see more advancements on the decarbonization side, and by fuel EU maritime. That drives significant further upside for the use of methanol and ammonia for that matter as a marine fuel, which will enable shipowners to reach their fuel EU goals at the fleet level.
That leads me nicely to our next topic, which is energy transition focused growth initiatives. As the largest green methanol producer in the world, we have a strong competitive advantage to benefit from this growth in marine fuels. We've made some big steps forward with a number of exciting announcements in the last couple of months to demonstrate OCI Global's leadership in supplying and trading renewable and low-carbon fuels to decarbonize this energy-intensive industry that accounts for 3% of global greenhouse gases today. And at the same time, we're providing proof of concept for green methanol as a safe, efficient, commercially ready fuel for global shipping.
Firstly, we recently announced a new partnership with Maersk, where we are fueling the first-ever green methanol-powered container vessel with our OCI high fuels ISCC-certified green methanol. This will be along its entire maiden voyage, which started in Korea where the ship was delivered a few weeks ago and will end in Copenhagen in September, stopping along the way in Egypt and the Port of Rotterdam. The bunker in Korea went very smoothly, and we actually refueled the ship at its first bunker stop in the Port of Singapore just last week.
Separately, we also signed an offtake contract to supply Xpress Feeder Lines, the world's largest container feeder operator headquartered in Singapore with green methanol for the new methanol dual-fuel container feeder ships, starting to be delivered in 2024. This completes another piece in the puzzle in the chain to decarbonize shipping. All this paves the way for ammonia, with ammonia engines expected by 2025 and 2026. As the only producer with both ammonia and methanol on a low-carbon basis in production, we're learning a lot from methanol as a fuel, that we can apply to our business, as well as what it takes to support future customers of the fuel in setting up supply in various parts and ports of the world.
Looking at our other initiatives. Our 1.1 million ton blue ammonia project in Texas, which has once again advanced significantly over the past few months, remains on track to start production in early 2025, which means this will be the first new build ammonia plant to capture the incremental regulatory value arising from the Inflation Reduction Act or IRA and the Carbon Border Adjustment Mechanism or CBAM in Europe, several years ahead of other ammonia projects announced as highlighted on Slide 13. We're having great discussions with potential buyers of that product when it comes online.
On Slide 13, we shared some new photos of the site. Piling is now complete, foundations and civil works are well underway, and we've started the steel structures, as you can see. We're pleased to report that the Texas blue project, alongside the logistics initiatives in Iowa – sorry for that feedback – has been selected as a potential candidate for funding under the USDA's $900 million fertilizer production expansion program, which aims to increase U.S.-produced fertilizer. We applied for the $100 million award available under the program, and were informed in June that we have been selected as a potential candidate for funding in the second round of the program, pending an environmental review process.
We also continue to progress our other sustainability-focused projects at Fertiglobe, including the Ta'ziz, 1 million ton per annum low-carbon ammonia project in Abu Dhabi, where we expect FID in the next few months. And as you know, this is a project where Fertiglobe is the minority investor, but also one of the key developers in the project. Our green hydrogen projects in the UAE and Egypt are also progressing as we start the feed process for this during the second half of this year. In the context of all these initiatives, we are pleased to be included in the FTSE4Good Index series as a recognition of our performance and commitment to sustainability goals and actions.
Finally, as I'm sure this is a topic of focus for our shareholders, we've provided a brief update in our press release on the strategic review that we initiated a few months ago. We have onboarded advisers to support the process and continue to progress. At this point, it's still too early to share information, but we expect to report key decisions during the course of this year, and we'll keep you updated. Let me conclude by thanking the OCI and Fertiglobe teams globally for what they have achieved so far.
And with that, we will open the line for questions.
[Operator Instructions] Our first question today comes from Christian Faitz from Kepler. Christian, your line is open. Please go ahead.
Yes. Thank you very much. Good afternoon, Ahmed, Hassan and Hans. Two questions, if I may, for now. Then I'll step back. First of all, given the rapid price increases as of late in urea, for example, can you remind us of your current EBITDA sensitivity to nitrogen and maybe also overall product basket, so including methanol? And second, I mean, Ahmed, you just mentioned the strategic review and further communication down the road, this year. But any update on your thoughts concerning a potential listing of OCI shares outside of the EU, which you mentioned during the Q1 release? Thank you very much.
Thank you, Christian. I'll start with the second question, and then we'll get to the first question. Yes. As I mentioned in the prepared remarks, when there's something to announce, we'll come to the market and talk about it. Like I said, we have advisers with us also thinking through that question with regards to the listing in another jurisdiction, evaluating the cost of pros and cons, the benefits, et cetera. And we aim to come back to the market, as we work together with our Board to come to a decision on it.
Okay. Fair enough. Thank you.
With regards to sensitivity...
Yes.
Yes. So with regards to sensitivity, obviously, there's going to be kind of the consolidated EBITDA sensitivity and then kind of a proportion of EBITDA sensitivity based on each of the products. Maybe I'll start with methanol and then, hand it over on the nitrogen side to Hassan. But on the methanol side, obviously, we had a difficult quarter in Q2, given the hedging losses, some of the – and some of the very low pricing we saw during the quarter. We produce, proportionate to our production, roughly 2 million tons of capacity a year. So I think, that's relatively simple math in terms of the increases and decreases in the realized price of methanol, which is either the spot price or we tend to contract over 50% of our volume, a discount to the contracted price, right? So just that number, multiplied by $2 million up and down. With regards to nitrogen, Hassan, do you want to take a stab at that one? Giving you a more complex one?
Yes. I mean, we've shared a similar sensitivity before were – across the board, if we apply a $25 per ton price increase, it's around north of $300 million of EBITDA increases. But I mean, there's a couple of factors that obviously weigh on that, but that will be – that's the sensitivity that we shared previously in the market.
Okay. Thank you very much.
And I'll add that, as we trend – and Christian, just I'll add that as we continue in the energy transition, we'll start seeing that probably change a bit, right? You might see that we're off of different benchmarks. For example, on the marine fuel side, these are product prices that are different because it's a green methanol product that comes at a significant premium, obviously at a higher cost as well. And for now, it's taking – if you think we have $2 million run rate of methanol production, then 100,000 to 200,000 tons may be completely outside of that market because we're selling it into a fuels market where product pricing is typically in the 1,000-plus dollar/ton range and not one that we probably come out with at this stage.
Very helpful. And well understood. Thanks.
The next question comes from Rikin Patel from BNP Paribas. Rikin your line is open. Please go ahead.
Good afternoon. Thanks for taking my questions. I had a question on the supply environment right now. I think you mentioned in the release that we're still seeing disruptions to ammonia production worldwide. Just curious, what you see on operating rates in Europe and also whether some of the marginal supply on the nitrate side has re-ramped through the summer. And secondly, just on the cost savings and the additional $15 million. Could you maybe remind us which regions of France we should be outpacing those savings, too? Or is it best to assume that they're evenly spread across the business? Thank you.
Yes. So to take the first part of that question with regards to the supply. So broadly, we've seen a redirection in some cases of gas into the power sector in certain markets. So that's happened, for example, in Egypt, in India. We believe it's happened in Trinidad and in Nigeria. Those are kind of affecting ammonia production rates and potentially urea production rates in India as well. First, starting with Egypt because that's one where we have operations. I'm happy to say that at Fertiglobe, we've lost about less than 3,000 tons worth of ammonia production despite that just because of the lower gas pressures, but we continue to operate at the rates unabated by the gas, gas has not been a constraint.
With regards to India, interestingly, if you were to look year-over-year, India in the first half of the year imported 4.5 million tons in 2020 – in 2022, and that number was 2 million to 2.5 million in 2023 for the first half of this year. And that's because of that new supply of urea that I mentioned came on to the market. When you look at June and July, actually, we see India is actually – from the numbers we're starting to see, producing on a net base – producing less than it was in the summer of last year. So for offshore, kind of the drivers behind that, but it's something we're monitoring very closely. And obviously, we're intrigued by the fact that the India tender came a few weeks early. Elsewhere, we've seen outages in Australia. We've seen outages in Saudi. That's helped to tighten the East of Suez market. We've seen some outages in the U.S. Gulf Coast for operational issues.
Now moving on to Europe. Now I'm talking about kind of with other producers. Moving on to Europe. We've seen since late last year, early this year, because of the drop in TTF gas price in Europe, an increase in capacity utilization. Even some of the oldest, most inefficient plants started to run in Q1 and Q2 in Europe. So we think nitrates is getting – coming up towards 90% capacity utilization. And despite that, we continue to see several weeks of nitrate pricing increases. We think urea's also ramped back up to the extent it possibly can, but we'll probably see that more in the kind of the 65% to 75% range.
And like I mentioned during the prepared remarks, we have seen kind of some ammonia plants around the side of importing ammonia and shutting down permanently, as is the case in the U.K. and Germany, and we suspect that there could be a little bit more of that just given the difficulties Europe is facing. So I think for the most part, that's our global view of supply right now, and why we see a tight market is that demand is growing. It needs to go back above trend to replenish stocks, inventories or at these decade-low levels in certain regions, a lot of agricultural markets went on allocation. And you're even seeing some industrial demand for deNOx from urea starting to tick back up as well.
Yes, maybe I'll take the question on the cost optimization, Ahmed, if that's okay with you.
Yes.
On the cost optimization, what we've classified so far and our – and the information we share with the market – the cost optimization into two parts. The part that was announced by Fertiglobe back in May, which amounted to $50 million to be achieved by the end of 2024. We believe we can – one-third of that can be achieved during the current year. And we further identified $50 million in sort of ex-Fertiglobe business that OCI has. We haven't delved into the exact composition of these cost reductions. In terms of disclosure, we obviously – internally, we've been working on this for quite some time.
I would add that there is no significant restructuring costs associated with those. These are various efficiencies identified that both the site and corporate spend efficiencies that we're looking at. And also without compromising our manufacturing improvement for the road map, there is a priority, which I would say is the revenue side. The optimization that's not included here, and that will manifest as a better operating rates and better energy efficiency over time, as Ahmed mentioned during his earlier comments. As we aspire to achieve a higher sustainable operating rates, not just in any particular quarter, but through a longer period of time.
Great. Thanks both.
The next question comes from Faisal Al Azmeh from Goldman Sachs. Faisal, your line is open. Please go ahead.
Hello, good afternoon, and thank you for the presentation. This is Waleed Jimma from Goldman Sachs asking a few questions on behalf of Faisal Al Azmeh. So just wanted to get your thoughts on El Nino and how that could impact the application season over the next six months in your opinion? And second, on supply-demand dynamics, prices have been recently supported by the supply outages we've seen, over the last few months. Going forward, do you feel that prices would go back to where they were post – like as more of these capacities go back to full utilization rates? Thank you.
Thank you, Waleed. Yes, the El Nino effects or one can kind of have multiple effects on our markets, both directly and indirectly. Obviously, the weather being unseasonably warm that we've been seeing in certain markets has caused higher power demand and could affect the demand ultimately for natural gas and tighten the global gas/LNG market and have the indirect knock-on effect to JKM or Asian gas and ultimately, TTF gas in Europe. So we're actually seeing a JKM to TTF spread widen, where pricing is getting higher in East Asia versus Europe. And I think, that puts Europe in a more difficult position because then you start having gas being attracted to the Eastern Hemisphere and the Southern Hemisphere. And, if it is a cold winter, it may be hard to pull that back again into Europe.
More directly, in terms of El Nino, we think that it could affect crop yields. If you have the difficult conditions for growing, crop yields could go down and exacerbate the already low grain stock-to-use ratio, which ultimately will continue to drive the incentive for farmers to use more nitrogen and kind of applies to get the large income that they reported, given the large spread between their cost and what they're selling at. Obviously, at times, if it gets – if the weather is very difficult to plan, it could cause some demand destruction in certain areas, but net-net, we think it should have a positive effect on nitrogen demand.
One other counterbalance that we have to weigh is that sometimes when you have El Nino, you'll have very good weather in the Northern Hemisphere, which could improve crop yields. Unfortunately, in the last couple of months, we've been seeing the crop conditions, corn conditions, for example, in the U.S. despite the El Nino phenomenon, the crop conditions in the U.S. look like they're lagging a few percentage behind average conditions. So that's something we continue to monitor. But generally, we feel that it probably is neutral-to-better, in terms of nitrogen demand in terms of support.
With regards to your second question, Waleed, in terms of the outages, I mean, typically, you do see Q3 being an outage-driven quarter. So like I said, Q3 is usually the one where you have lower pricing. It's post-season in Europe and the U.S. And so we would typically expect to have turnaround scheduled for Q3 because producers ultimately want to do so during periods where they're seeing lower prices. But we think that it's relatively normal, maybe a little bit on the higher side because of this gas curtailments to the power sector. But from what we see on the demand side and just the producer availability from those that are running, we think a lot of production well sold out into August and several big sales happening through September.
And when we tally it all up between the Brazilian import demand that's upcoming, the Indian import demand that's upcoming. Bangladesh looking to potentially do a tender. And the U.S. uncharacteristically looking to attract funds now to just to get inventories back to normal levels and the extended seasons in Europe and the United States, partly due to weather and partly due to product availability, we think directionally, it's moving in the right direction in terms of tightening, and it's finally reacted to that situation where you had the catch-up falling night issue with regards to the drop in TTF marginal costs pricing, and the big new supply that came online at six million tons. And lastly, as I mentioned in the prepared remarks and in the press release, you can see, we just don't see that much new capacity coming online for the next three, four years outside of really Russia and small plants in Turkey here or there.
Very clear. Thank you.
Thanks.
The next question comes from Charles Bentley from Jefferies. Charles line is open. Please go ahead.
Hey guys, thanks for the opportunity to ask a question. I just wanted to ask a question related to the OCI and just the ammonia capacity? I know obviously, you're expanding the import terminal capacity for Rotterdam. Obviously, the capacity is very similar. I just wanted to understand what the kind of book value of the ammonia capacity was as well as kind of how integrated the production of downstream products is and therefore, kind of the level of sourcing flexibility. And then the second question was just a clarification on the comments on the Super [indiscernible] margin in the second half. And just the total for the year, that would be helpful. Thanks.
Sure. Thanks, Charles. So with regards to OCI and – we'll take a look, I don't know off the top of my head, the book value of the ammonia plant split out. I don't think that we've shared that before. We'll share, but I'll give some thoughts. So the capacity is about one million tons, right, in Halen, In the Southern Netherlands. It's on the river. And it is able to import not just from Rotterdam, but from elsewhere on the river, ammonia and can use railcars as well as barges in terms of moving ammonia in and out.
Since September of 2021, so we're closing in on two years here, we've been running at approximately 40% capacity utilization. Sometimes it's been 50%, generally maybe for a few brief moments, a little bit higher than that. But we've been running at kind of 400,000 to 500,000 out of the one million tons. Why that is, is that we found that we can make more money by buying in ammonia cheaper than buying natural gas and producing ammonia at that site. So that's been what we've done, and that's why we've also looked to expand Rotterdam.
Now just in terms of Rotterdam going from – originally two, three years ago, we had a 150,000-ton input. We tripled it to 400,000 tons. And now, we are looking by early next year to get to 1.2 million tons of throughput. That's to add more flexibility, not necessarily for OCI specifically, but also for other ammonia distribution out of Rotterdam. We enjoy the only ammonia import terminal in Rotterdam today. It allows us to do the expansion more easily, with adding just loading arms and a cheaper endeavor where we're not adding a tank.
And that's one where we service not only OCI nitrogen, but other ammonia plants, other ammonia consumers looking for ammonia in Western Europe. So from our perspective, the downstream can continue to run while we're running one of the two ammonia lines. And there's two ammonia lines, I should have mentioned, two by about 500,000 tons each. We're running one of them. We can keep the other one down and import ammonia cheaper than natural gas. And we tend to do that over the last 10 years from time to time during the winter when that happens, but we've seen that be more of a phenomenon when ammonia drops.
In terms of downstream integration, we can run nitrates, so CAN with imported ammonia. When we want to produce melamine, BDF, which we'll be adding, or UAN, then we need to have at least a portion of our ammonia plant running to produce CO2 because the urea that comes out – the urea that's producing to come from ammonia plus yield. Is that clear, Charles? Or did you have something more specific?
No, no. It's very clear. I guess just thinking about the comments around shutdowns of competitor capacities and curtailments and so on and so forth. I guess, thinking about the future of those lines, particularly as you add import capacity and whether or not there's kind of a question around looking – I mean that kind of is the nature of the question around the balance, what's on the balance sheet for the ammonia facilities.
So I don't think we're going to be able to give you a breakout of the balance sheet value for that ammonia plant. But we have the flexibility, right, and not just in the downstream operations to go between UAN, CAN. We're going to add the EFCN plus multiple products, but also these ammonia plants have been invested in quite heavily. We bought these plants from DSM in 2009. We've continued to invest hundreds of millions of dollars in those plants. So interestingly, we have a conversion of 31 gigajoules a ton roughly, which is one of the best in Europe and among the best in the world. And when I see other – when we see other capacity – other plants shutting down, we think that they may have more challenged environments in terms of their cost conversion. They could be smaller sites, so kind of leveraging and capturing the fixed cost. So it's that flexibility. It doesn't mean we have to shut down one of those two lines, but it is also a potential – it's something that we can do if we want to keep one of the two lines running.
Great. And then the other one was just a clarification on the [indiscernible] the comments you made earlier?
Yes, I'm happy to take that. No, we're just clarifying in the [indiscernible] that the dividend related to distributions to our partner, Sonatrach, from Sorfert. That takes place in the second half of 2023. These are pertaining to record profits achieved in 2022, but the actual distribution takes place in the second half of 2023, and it's a very sizable number of $824 million which is already – it appears on our balance sheet and our financial statements, as dividends payable.
So combined with all minority distributions, we expect the figure for minority distribution in the second half of the year to be around $1 billion. Obviously, this is because of the nature of the results we achieved in 2022. You'd have to look through that on a normalized basis going forward because, obviously, based on year-to-date results, the [indiscernible] figure disappears and the number becomes significantly smaller going forward.
Great. Thanks guys.
The next question comes from Aron Ceccarelli from Berenberg. Aron your line is open. Please go ahead.
Hello. Hi, good afternoon. Thanks for taking my question. I have one on Brazil. May you provide some comments about the demand recovery you've seen there? Any color would be appreciated. And the second one is on CapEx. Is it – is your capital intensity increasing? Now, you're moving towards more bio-methanol and blue ammonia. Or is it in terms of maintenance CapEx remaining the same going forward? Thank you.
Yes. So I just want to understand the second question again, please?
Yes. The second question is on CapEx. I'm asking if you – the capital intensity of your business is actually increasing. At the moment, you're moving towards bio-methanol and blue ammonia applications.
I mean it's a hard question to give you one single answer on, but we continue to look for ways to decarbonize while creating value. So the way we think about any sustainability-type growth or project, we line up at each of our plants, we have nine plants globally. We line up and look at the opportunities and what the price of CO2 to be. So when you say something like blue ammonia or low-carbon ammonia, right? That does come with CapEx because you need to capture the CO2 and put the CO2 in the ground. But in the U.S.' case, it gives – the U.S. government gives you $85 a ton of CO2, which is approximately $145 a ton of ammonia, as a tax credit versus the direct pay for five or six years and the balance tax credit for 12 years to do so. And that's where we can put in additional CapEx and see a very quick payback. So that's driven our investments in carbon sequestration to do blue ammonia in Iowa and in Texas, for example.
With regards to green ammonia and some of the other things we've done in the Middle East, other things we're evaluating in low carbon methanol, in some cases, we could be just procuring a more expensive green feedstock. So instead of natural gas or methane that's gray, we consume a low-carbon methane like a biogas, which is more expensive, but doesn't have us change our plans in terms of any additional CapEx. Or we could be consuming a green or blue hydrogen over defense where it doesn't require CapEx except other than just potentially tie ins.
So that's why it's tough to give you a general answer, but if I were to kind of generalize where we stand right now, we do see that from a maintenance perspective, other than regular inflation, we shouldn't see a big step-up in maintenance CapEx. The maintenance CapEx, if anything, probably on a run rate basis, if you kind of solve for inflation, probably goes down a bit. I think we've been spending in the last year or two, a bit more than typical to help bolster our operational excellence program, changing our heat exchangers, compressors and the like to help improve our utilization rate.
And on the growth CapEx, it's going to be a bit more case-by-case basis in terms of how we invest. And often, we don't really have to invest on our balance sheet. And it's helpful to be investment grade because as an offtaker of these low-carbon feedstocks, we end up helping to potentially allow somebody else to invest on our behalf and potentially with a much lower cost of capital trading on a much higher multiple. Is that clear?
Yes. And on Brazil?
On Brazil, we've seen stocks lower, as we've seen earlier imports than normal. Typically, with the season there, you'll see that September is kind of a peak month, but there was buying in June and July. And if you look at kind of the publications over the last few weeks, you'll see that Brazil is really just trying to screen for product. It's really been competing initially with the U.S. before India came in, right a battle with the U.S. defined product to make its way there. Because NOLA or the New Orleans U.S. market for urea was really running quite strong into July and now into August, given the shortage of inventory.
So very robust imports. We still think significantly more needs to come in. I think, we're seeing 7 million to 7.5 million tons for 2023. We've seen incrementally in 2023, 3 million hectares of growth in both corn and soy production. And despite that, we've seen margins despite the additional crops being produced, margins continue to be strong, and we expect growth next year as well.
Thank you very much.
[Operator Instructions] We have no further questions on the phone line. So I'll hand back to Hans for webcast questions.
Yes. Thank you. We have some questions on webcast that we have to see here. So the first question is from Chetan Udeshi from JPMorgan. And the question is on the ongoing strategic review, the comments in the press release seems to imply that status score on the structure of the business, i.e., nothing around the change in listing location is a less likely option. Is this the right interpretation?
I think all options are on the table, Chetan, but definitely, we're spending a lot of time on some of these strategic initiatives, particularly looking at things like the change in listing location. And we're not – you're right to think we wouldn't be doing that in vain. So we are thinking through this seriously, yes.
Next question is what is the 2023 CapEx and minority dividend guidance?
Yes, I can take that. I mean we've clarified in earlier remarks and the Q&A, the expected minority distributions that are happening in the second half of the year, which I think takes us to around $4.4 billion for 2023. In terms of the CapEx guidance, again, we reaffirmed our growth CapEx guidance that was between $350 million up to $450 million. Our maintenance CapEx, as Ahmed mentioned, and also in my earlier remarks, a little bit elevated compared to the normalized rate that we've seen that we typically have of $300 million. We're seeing exceeding $350 million, reflecting timing of invoicing payments related to turnaround in late 2022 and some voluntary scope changes that are pertaining to the manufacturing improvement program, which we're very focused on, but we expect these normalized rates to drop even on an inflation – even with inflation in future years as our program is completed.
The next question is on the methanol. It is, are you able to give an estimate on the market share that OCI can achieve on the methanol fuel container vessel in the near future?
I'd say, it's hard to give you a specific number. I can tell you we're targeting and having a lot of the right discussions with the right players. So we announced with Xpress Line, we announced with Maersk. We've been speaking to almost every other player that's ordered new vessels. And the fact is that we've been able to provide supply here. So we're very excited to be sitting in pole position. We're the largest producer of green methanol today. And I think we're very well positioned to continue to capture market share for methanol fuel container vessels and other vessels in the future that come out in terms of dry bulk or other types of vessels.
So, I think we sit in a very good position, and we're in a down run right now with just these two announcements we've made over the last couple of months. And these are – I will also want to point out that these are also for vessels delivered this year, next year. So some of the earlier ships, there's an [indiscernible] also coming in, 2025 as well, 2026, 2027, 2028. And we are, as a team, very much focused on sitting and trying to provide those supply.
And as I mentioned as well, what's really exciting for us is as a methanol and an ammonia player, these are the same partners that we'll be speaking to potentially for ammonia-driven vessels. And [indiscernible] has come out in the last few weeks and said that they had a successful test of their ammonia engine. They anticipate the engine to be ready for 2025, to potential in order 2026. So we just kind of learned from what we've been doing here, the trial and error over the last few years in some of these methanol consumers we've been speaking to for a couple of years on the vessel side and try to apply that on to the ammonia space and leverage our global footprint and presence in the trading and distribution of storage of these products.
Thank you, Ahmed. The status of the methanol. What is the current status of BioMCN in the Netherlands?
So BioMCN continues to be shut down. We have been shut down since, I believe, June of 2021, so a little over two years. To help offset some of the costs, we've been able to sell CO2 units or credits. And I think that's some of the decision making that I was – to the question earlier from one of the people on the line in terms of shutdowns. One of the decisions that people make when they're deciding whether or not to shut down isn't I want to just reduce the CapEx fleet, but also potentially, I can sell the EUAs or the credits that are now 85-plus euros a ton to help offset some costs. So we've done that – we continue to have the plant shut down, and we'll report to the market if there any further developments.
Thanks, Ahmed. The next question is, given the elevated H2 dividend and payments to minorities, where do you expect full-year 2023 leverage to get to? It feels like you may exceed the 2x targets.
I can take that. We don't typically give leverage forecast, because it implies what we expect on the underlying components. We did adjust our dividends to $200 million, so it's not an elevated dividend at the base level, which is what's going to be paid in October. On leverage, we do expect some increase as we cycle through the – some of the lumpy minority payments related to last year, as I mentioned earlier. However, with current leverage at one turn, we have meaningful headroom. And we continue to manage our balance sheet prudently going forward.
Thanks, Hassan. I think we have time for one, maybe two more. So one of them is, as you mentioned in the press release, the results of the strategic evaluation coming the course of this year. In which quarter or month in the second half of 2023, can we expect a final decision and will that finally be shared as quarterly results or also intermediate?
I won't be able to give you a date on whether it's on the third quarter or full-year. But to add to the last part of that question, is it on quarterly results or immediate? Obviously, if something – if something warrants that it needs to go the public investors and it's material, we will go immediate and not wait for quarterly results. So the answer is that it would go, when it's appropriate and ready to go out to the market if we have something strategic reviewed.
Thanks, Ahmed. And the last question will be how likely are the points that Jeff Ubben mentioned in his letter to the Board will be followed?
I mean, I think as we mentioned when the letter came out that we would undertake the strategic review, obviously, as the second largest shareholder outside of [indiscernible] family, we take – we take seriously a letter from a sizable shareholder and we've had dialogue with Jeff Ubben, over the last several months as of June. So definitely, things are taken into consideration, but we look to create value, first and foremost. And from our perspective, our focus is going to be on all shareholders across the company and the stakeholders. And as I said, we will report back to the extent there's something that we need to report to the market on an immediate basis and not during quarterly results.
Thank you, Ahmed. I think there's time for one more question, and the last one will be roughly, what is the cost of the green methanol being supplied before shipping?
So also a good question. The answer is that it depends on the carbon footprint of the green methanol and other certain attributes. It's definitely more expensive than the green methanol, materially more expensive than green methanol, but the sales price is materially higher, obviously, than green methanol. The way we think about it within OCI high fuels and OCI fuels is that we look at the margin that we typically get on methanol for green methanol production, methane into methanol or natural gas into methanol that we want to continue to generate and then have a premium above that generated by the more expensive green feedstock and the more expensive green sales price. So that, that team is incentivized to make a margin over and above typical grade margin on this lower carbon feedstock. And that's how we run it, but I wouldn't be able to share with you the exact details behind the cost. As you can see, in our OCI fuels result. We continue to generate EBITDA, good EBITDA in the last several quarters and last year, going into the vehicle fuel space into the chemical space and now are excited to get to the brain fuel space with our low carbon platform.
Thanks, Ahmed. I think that's it with the questions, and I'll hand back to you for final remarks, Ahmed.
Well, thanks all for joining today. Good questions and look forward to our next discussion. Stay safe and stay [indiscernible] the spot environment. Thank you.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.