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Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the OCI N.V. Third Quarter 2021 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Hans Zayed, Investor Relations Director. Please go ahead.
Thank you. Good afternoon, and good morning to our audience in the U.S. Thank you for joining the OCI N.V. Third Quarter 2021 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. And as usual, at the end of the call, we will host a question-and-answer session. As a reminder, statements made on today's call contain forward-looking information. These statements are based on certain assumptions and involve certain risks and uncertainties, and there I'd like to refer you to our disclaimers about forward-looking statements. Let me hand over to Ahmed.
Thanks Hans, and thank you all for joining us today. This quarter has been highly eventful with many corporate developments, including the recent listing of Fertiglobe in Abu Dhabi and some exciting ESG growth initiatives. We've also seen the positive momentum of our products to continue, which has accelerated our goal to achieve a strong balance sheet as we capture the fruits of our expansion over the last decade. We can now fully focus on future transformational value-accretive growth opportunities and on returning capital to our shareholders. Our competitive business model, diversified exposure and state-of-the-art production platform are really starting to show how we are differentiated from our competitors. I'll touch upon these topics, but I would like to start by covering our top priority, safety, as we want all our employees and contractors to go home safe every day. Our 12-month rolling recordable incident rate at the end of September was 0.83 incidents per 200,000 man hours, well below industry average. This is still not where we would like to be, and I'd like to reiterate that our goal remains to prioritize, process safety and to reduce occupational safety incidents to 0 at all our production facilities across the board. I think I mentioned 0.83 -- I meant 0.38 incidents, sorry, for 200,000 man hours. I'd like to give some highlights of our performance during the quarter. Despite multiple large turnarounds during the quarter, namely IFCo full plant, Natgasoline full plant, ESG, 1 of the 2 lines, and the melamine line turnaround and lower volumes as well as the shutdown of our European methanol operations since middle of the year and significantly higher feedstock prices in Europe, our EBITDA and cash flow from operations improved significantly year-on-year. Our business model showed its effectiveness during the quarter as we continue to operate and maximize our downstream production in Europe by sourcing ammonia from multiple locations, including from Fertiglobe in the United States. By doing so, we are able to weather volatility in feedstock pricing and help agricultural markets by addressing product shortages and food security concerns. We also continue to enhance our ammonia logistics with the addition of a dedicated fourth quarter vessel and increasing throughput capabilities at our ammonia import terminal in Rotterdam, further strengthening our world-leading ammonia production and treating platform. Our own product sales volumes were down 11% to 2.5 million metric tons during the Q3 2021 period compared to Q3 2020 period. Total owned nitrogen product volumes were relatively flat year-over-year as a 21% increase in volumes at Fertiglobe were offset by the IFCo shutdown I mentioned earlier. IFCo is now back to running at high levels, which bodes well for in-season sales in Q4 and next year. Methanol volumes were down substantially as very good performance at our OCI Beaumont plant was offset by the turnaround at Natgasoline, the first one since starting of the plant in 2018. Before I hand it over to Hassan to discuss the financial results in more detail, I'd like to thank all our employees for making this another excellent quarter and for their strong commitment to improving and growing our business. A lot of hard work has gone in to bring us to this point, and I'm excited about what our team, assets and aspirations can accomplish with this balance sheet and market backdrop. Hassan?
Thank you, Ahmed. Firstly, I echo Ahmed's gratitude to our employees for their resilience and commitment that has been instrumental in achieving the results that we had here. Turning to the results. Our third quarter showed strong financial performance despite, as Ahmed mentioned earlier, the sizable turnarounds at several of our facilities. Our consolidated revenue increased by 104% to $1.5 billion, and our adjusted EBITDA rose by 161% to $501 million in the third quarter of 2021 compared to the same quarter of last year. Our adjusted EBITDA margin also improved considerably from 23% in the third quarter of 2020 to 34% in the third quarter of 2021. We continue to benefit from the increasing prices for our products. Selling prices improved across the board in the third quarter and this third quarter compared to the same period last year, with increases ranging from anywhere between 80% to 200%. Prices of our key cost inputs, natural gas, was on average hire for the group in the third quarter of 2021 compared to last year, especially in Europe, which resulted in the total consolidated negative impact, which we quantified to be around $103 million. Our consolidated net income line saw a significant improvement with a return to profitability. Our reported net income after minorities for the quarter turned from a negative $37 million last year to a positive $53 million. Adjusted net income was at a similar level as the reported net income at $56 million with an impairment of our European methanol facility BioMCN of $162 million, offset by a couple of factors, including the recognition of a deferred tax asset at our Iowa plant, IFCo, of $97 million. Turning to the group's balance sheet and cash flow performance. Ahmed described us here as a transformational year for OCI, and this could not be more true for our strong balance sheet as we reach another milestone by dropping to a net leverage of 1.7x. The positive trajectory continues into the fourth quarter as we expect to drop below 1x during the first quarter based on our outlook and subject to market conditions, of course. This continued the improvement in the company's leverage profile has translated into a BBB+ rating, up from BB by S&P, which we hope is a start of a series of similar improvements as we maintain our path toward a stronger balance sheet. As a result of higher EBITDA, we achieved significant increases in cash from operations from $56 million in the third quarter of last year to around $400 million in the third quarter of 2021. The operating cash flows were offset by a payment of $43 million, resulting from the acquisition of a 15% stake from minority shareholders in our Egyptian ammonia EBIC facility, and $237 million of dividends paid to minority interest, primarily related to minorities in Algeria, and [indiscernible] from upstreaming dividends to OCI from Fertiglobe. Total cash expenditures were $76 million in the third quarter of 2021 and $164 million in the first 9 months of 2021 and for year-to-date, and we continue to expect to achieve our guidance of $300 million of total capital expenditure for the year as per our earlier guidance. Maybe just to cover some recent developments as well in some detail, OCI and Fertiglobe have been active with a number of transactions during the past few months. During the third quarter of this year, Fertiglobe reset its capital structure and obtained a $1.4 billion financing, which consists of a $1.1 billion bridge loan at LIBOR plus 105 bps with an 18-month maturity expandable to -- in total to 30 months, and a $300 million revolver facility maturing in 2026 at an interest rate of LIBOR plus 175 bps. A Subsequently in October, Fertiglobe repaid the current ESG and Fertiglobe outstanding loans and dividends and returned dividend of $1.165 billion to its 2 shareholders, OCI and ADNOC, with OCI's share proceeds at standing at $676 million. This sort of -- this reset was done in the lead up to the IPO as you are all -- as you all should be aware by now, on the 27th of October 2021, OCI and ADNOC successfully listed a 13.8% stake in the Fertiglobe on the Abu Dhabi Stock Exchange, known as the ADX, which generated further proceeds to OCI of around $461 million. Following this IPO, OCI continues to own just over 50% of Fertiglobe's shares, and we will continue to fully consolidate the company just for clarity's sake. Given all these movements in October, which came after the close of the financial quarter, we have added a table to our press release showing OCI's pro forma net debt adjusted for the resetting of the Fertiglobe's capital structure, the IPO and ensuing dividend distributions as of 30th of September. On that basis, consolidated net debt was around $3.1 billion. I'd also like to tend to highlight the progression of our cash interest, which continues to drop. During the third quarter, we reduced recurring interest expense, excluding debt restructuring costs by $53 million in the -- year-to-date versus the same period last year. We continued these efforts in the fourth quarter, and we have redeemed $540 million of our 5.25% senior secured notes and another [ EUR 400 million ] of our 3.125% senior secured notes. Almost $1 billion of redemption. These will further provide benefits in terms of recurring interest expense reduction in excess of $40 million per annum from 2022 onwards. And finally, to our -- to the additional commentary that we provided in our earnings release on dividend policy. We've already indicated in our previous conference call and earnings release, if you recall that we expect to begin paying cash dividends from 2022 onwards. Now we've added that this will be with the first semiannual dividend to be announced in February at the time of our annual results expected to be paid in April 2022. We see this as a very exciting development as we have not been in a position to return capital to shareholders since we've been listed in the Netherlands in early 2013. Going forward, our dividend policy states that we intend to maintain a robust and disciplined capital allocation policy designed to balance the availability of funds and excess free cash flow for dividend distribution while pursuing the value-accretive ESG and other exciting growth opportunities that we see before us. All, of course, while maintaining a disciplined commitment to a target of 2x net leverage through the cycle and an investment-grade profile. And with that, I'd like to hand back to Ahmad for additional commentary on the markets and our outlook and group strategy. Ahmed?
Thanks, Hassan. The outlook for OCI remains positive for the balance of 2021, at least into 2023, supported by strong underlying demand for nitrogen fertilizers, driven by low grain inventories and healthy farm economics. We also see continued good demand in our industrial markets for ammonia, methanol, melamine, DEF and other industrial area products. We have good visibility into Q4 2021 and in the first half of 2022 with a healthy order book across our core markets and are benefiting from further increases in selling prices compared to Q3. If I start with the outlook for nitrogen market. Low-grade inventory levels of top-use ratios globally will take at least 2 years to replenish. Together with the higher demand for feed and ethanol use, this is supportive of sustaining crop prices at current levels, which amplifies the need for the application of nitrogen fertilizers to protect crop yields and ease food security insurance. OCI with its low-cost global platform, growth scale young assets and strong logistics can help address these range work falls by delivering essential nitrogen products to the food supply chain. Current crop prices are supportive of farm incomes in key grain exporting regions even with the higher price input prices, incentivizing farmers to expand crop area and maximize yields. USDA highlights tighter global grain markets in 2022 versus 2021, with forward corn futures in the range of $5 per bushel to the end of 2024. We are seeing robust fertilizer demand is -- we are seeing robust fertilizer demand in key import markets with U.S., Europe and Latin America and India all competing for product ahead of the spring season in Q2 2022. The U.S. nitrogen outlook remains small -- strong, supported by low inventories and strong demand with high grain prices driving expanding comp area in the next 2 seasons. We are seeing a good start to the fall ammonia season, which began last week around our IFCo plant, with current ammonia prices in the Midwest over $1,200 a ton. And the system is expected to be empty going to the spring season, providing more upside for Q1 2021. We Brazil still imported an additional 1 million tons before the start of the safrinha season in February of next year. In Europe, we maintained a healthy order book as nitrogen demand is very strong with limited prebuying this season and low inventories across the system. Sustained production curtailment due to high gas prices could lead to further market tightness in the spring. The UAN market balance also remains extremely tight in Europe for the 2022 season with lower imports through the less supply from Belarus, Russia and Trinidad with more products being shipped to the U.S. as U.S. UAN prices have been strong on the back of reduced domestic supply. This is likely to lead to increased substitution to our main products in Europe, which is CAN. India, a key urea import market, needs to be -- to import at least an additional 3 million tons before the end of Q1 2022, which means at least 3 more tenders, and this is expected to continue to drive urea price strength east of Suez with the absence of Chinese participation in future upcoming tenders. At the same time, the medium-term supply outlook is tightening as projected new urea capacities are below the level seen in the past 5 years, below the projected demand growth and startups are currently being delayed. In the short term, global supply has been severely curtailed in 2021 and is expected to remain at a lower level, at least until H2 2022. Higher feedstock prices have significantly raised EU ammonia import demand due to capacity being shut in on the ammonia plant side urea export bans from China, at least until the end of their domestic season in H2 2022, and Russia also recently placing export quotas on urea nitrate until June 2022, altogether tightened global balances further. These factors suggest that strong fertilizer demand could last beyond 2022 as some regions may be unable to secure enough product, lowering yields and deferring demand into future planting season. India is a prime example of where a lack of available product has hampered demand in 2021 as domestic production is around 850,000 tons lower year-to-date October and imports have been limited by key buys in most of the markets. Significant rebound is expected in 2022 in Indian demand with continued -- with continued expansion in crop area and government subsidies supporting urea. We expect markets such as Africa and Asia to step up in H2 2022 with the end of the season in the Western Hemisphere and purchased large quantities of urea to cover their needs into these markets. On the industrial side, we're also benefiting from a strong rebound in all major global economies and in many sectors. This gives us good visibility on our end markets and will boost demand for methanol, melamine DES and ammonia, which are used in many downstream products across various end markets, including transport, health care, construction, automotive, excels, among others. Furthermore, and specifically on the transport side, we're seeing increased and bolstered demand for our products, keeping the markets quite tight. Ammonia markets have been buoyed by structural timing this year and merchant ammonia availability is expected to decline with minimal net capacity additions between 2021 and 2024, whereas the merchant demand is expected to grow by over 5 million tons over the same period, supporting sustained price increases over the medium term. Melamine prices have continued to be -- as -- melamine market, sorry, have continued to be tight, driven by strong demand from home renovation and construction markets, high supply in Europe and low global inventories across the supply chain. Quarterly contract prices in Q3 2021 increased by 20%. And in Q4 -- in the beginning of Q4, we announced an additional EUR 750 per ton increase in October and another further increase of EUR 250 per ton in the month of November. DEF now represents more than 30% of our sales volumes from IFCo, and DEF prices have been highly supported by the recovery in transportation demand and higher urea benchmark prices as well. The higher netbacks for this product enabled us to continue to enhance our returns for our U.S. nitrogen operations going forward and provide a very good playing field to generate significant free cash flow out of our IFCo plant and direct product towards what we feel to be a very high-margin product. Methanol markets remain -- methanol market fundamentals remain positive. U.S. spot and contract prices have been supported by low global inventories. Demand continues to recover and new supply has been delayed and is slow to ramp up. Strong demand is set to continue its operating rates for major derivative segments, including formaldehyde, acetic acid, MTBE and MMA are reported at higher rates in the U.S. and provide good visibility on our sales and prices in Q4 and into the beginning of 2022. Oil-linked demand for methanol is strong and olefins prices are holding near $1,100 a ton, supported by the strength in oil and related feedstocks and building well for an increase in capacity utilization rates of the MTO sector, which has been very highly muted falling and a significant turnaround season in Q3 on the methanol side. In the long term, supply and demand fundamentals are tightening with new capacity additions of about 2% per annum needed to meet expected demand growth of 4% per annum from 2021 to 2026. This, like in the case of ammonia, doesn't consider the additional upside from clean fuel demand. For example, Maersk has ordered up to -- Maersk, the shipping, company has ordered up to 12 methanol consuming container ships which alone are expected to consume north of 1 million tons per year of methanol if run for the entire year on methanol and long-term demand growth for methanol and marine fuels represents meaningful upside for this market. Higher marginal costs are also providing support to all our markets. TTF futures are currently pointing to [ $16 ] a MMBtu for 2022, which is lower than today's price, and/or around $10 MMBtu for 2023 and 2024, which is 2x higher than the levels we saw on average from 2016 to 2020, which raises the cost floor and the lower utilization rates -- and lower the utilization rates for marginal producers providing support for selling prices over the medium-term period. I'd like to also give an update on our ESG initiatives. We continue to make good progress in our efforts to capture value creative opportunities for emerging demand for clean ammonia and methanol as we evaluate blue and green projects across our platform, which fits well with our ESG strategy. Fertiglobe recently announced a 70,000 ton scale-up of blue ammonia capacity through a low cost debottlenecking program in Abu Dhabi and partnering with ADNOC to sell blue ammonia from the UAE and customers in East Asia. Fertiglobe will join ADNOC and ADQ as a partner in a new world scale 1 million fund per year flat, that is the producer of blue ammonia at the TA'ZIZ project in [indiscernible] in UAE. In October, we entered into an agreement with Scatec and the Sovereign Fund of Egypt to develop an electrolyzer project of up to 100 megawatts produced green hydrogen in the feedstock and EBIT -- in Egypt for up to 90,000 tons of additional green ammonia production. Egypt is an ideal location given it's one of the best solar and wind corridors in the world, which allows for robust future growth of hydrogen production using attractive renewable energy and supported by a funded land to place that enable energy. Location, the recipe is near the Suez canal, which is ideal, given the future bunkering potential with the ability to go East Asia industrial markets and West European markets to serve key importing regions for ammonia. To conclude, before we go into Q&A, we are excited about the prospects of the company. Shorter term, we expect a meaningful step-up in adjusted EBITDA in Q4 compared to Q3 2021, driven by higher selling prices, advantaged feedstock costs in MENA and the United States as well as additional volumes. We expect to drop in net leverage to below 1.3x by year-end 2021 and to below 1x during the first quarter of 2022, which positions us well to start returning capital to shareholders and focus on ESG and other projects across the group. Our end markets are looking positive into 2023 and potentially longer and nitrogen and industrial markets continue to be the strongest that we've experienced in years with robust underlying demand-driven fundamentals supporting our medium to long-term outlook. We also see large upside from additional demand in a range of new applications in sectors as a result of the energy transition where ammonia and methanol are ideally positioned as the 2 major hydrogen uses. We are ideally positioned as we leverage our low cost global platform, growth scale young assets and strong commercial and logistics asset base and harmonize our ambitious sustainability agenda with our relentless focus on shareholder value. With that, we'll open the floor for questions.
[Operator Instructions] First question is from the line of Christian Faitz from Kepler.
Three questions, if I may. First, can you please give us an idea of how much of your current capacity is idled, particularly in Europe? And would we see any shutdown still in the course of this year or early next year? Additional shutdowns that is. Second, also pretty much on that European plant shutdown topic, could you please share with us how much of your North African capacities are geared to European demand? And how has that shifted considering the recent European shutdowns? And then third question and final question, can you remind us of the payment schedules for the dividends to Sona Truck? When is the next payment due?
Sure. Thanks, Christian, for the question. So I'll try to take them here one by one, Hassan and myself, [indiscernible]. Current capacity in Europe that is idle, we are currently idle on our methanol capacity in Europe. And you can see that in the less volumes that were there in Q3. And just given where gas pricing is at right now and the replacement cost for methanol, we're okay with that continuing to be idle until gas comes down and/or methanol rises. And as you know, that's been kind of more of a swing plant for us when you have these higher feedstock pricing environment. On the nitrogen side, OCI Nitrogen has significant downstream capacity, right? It produces UAN, CAN and melamine, which are enjoying very strong margins right now. It has 2 ammonia lines, so has the flexibility to turn down or turn off one of the both lines or turn off one of those lines. So kind of the view has been to the extent we can import ammonia or lower than the price of procuring natural gas to continue to run our downstream operations and feed our customers, we're doing so. And so we definitely have reduced production on the ammonia side, given the north of $20 per MMBtu gas cost we see today. And what the OCI has actually been able to do well on is basically buy that ammonia at pricing that is much less than replacement costs and generate additional margin versus running those lines and keeps the downstream lines operational. So that's the approach that we've been looking at, and we've expanded logistics capabilities significantly. And we're in a very unique position being an inland class that can sell to customers with the position of Southern Netherlands with a proper supply chain enjoying the only ammonia terminal in Rotterdam, which is one of the -- as you know, one of the most liquid hubs globally. So the team has done an excellent job of moving record amounts of ammonia into that plant and also going to see its customer base and kind of that's how we look at the overall European landscape for production. To your second question, which is regarding how much of our capacity is geared towards North African production -- sorry, how much of the North African production is geared towards Europe, I mean that question, I think the simple answer is we do have some contractual customers in Europe for ammonia, right? But when it comes to urea and some of our spot ammonia, we're fully flexible. We're fully agnostic at Fertiglobe. On the Fertiglobe side, our view is go where the highest priced product -- market is. Today, for example, you see NOLA urea's finally caught a bid going just above $800 a short ton, which is $880, $890 a metric ton. That's a debilitate price into nitrogen importing market. We would not sell any Middle Eastern products into the U.S. and get a lower netback than we can get, for example, in India, like we just participated heavily in this last tender. Similarly, if go with its flexible production would rather produce DEF at a premium to urea and UAN, which is a bigger premium to urea than granular urea and of itself and also capitalized on the ability to not have to sell into that low price market for urea right now, which we're seeing in the United States side being a deficit market. And so when it comes to our allocations and how we think about capacity, we do have some contractual customers that are in Europe that we're feeding but we've also been increasing our trading capabilities to be able to buy from the Baltics to be able to buy from the Black Sea to buy from the Arab Gulf ammonia and service the European market. And we've also even moved some tons from the U.S. into Europe, which we saw were underpriced when the Tampa market was well below the price of natural gas replacement to produce that in Europe for the marginal cost producer. Is that clear?
Yes, absolutely.
And then the third question, which is with regards to -- I think -- can you repeat the third question again? Dividends?
Sona Trucks dividends. Dividends schedule, so to speak. Yes.
Yes, [indiscernible]. So maybe Hassan, do you want to -- I think you're asking about when is the next dividend and how that all works?
Exactly because you had a relatively high payment...
Yes, we had a little bit of lumpiness in terms of minorities leakage. As we approach the IPO Fertiglobe, there was -- we wanted to clear some of the backlog there, which was done efficiently. So the leakage that you see of $237 million represents effectively -- majority -- the vast majority of that relates to dividends from Algeria attributable to previous years, not yet for 2021. That gets paid annually, so that will show up in 2022. And of course, any upstream leakage from Fertiglobe to OCI as now we have minorities representing ADNOC and [indiscernible]. So this is going to be consistent. So it's a little bit lumpy. Let's know how big the numbers will be in the future. It might be nominally big because of the results that you see now, but as a percentage of change, yes.
Next question is from the line of Chaudhry Mubasher from Citi.
Just coming back to your comments around the European market. Can you talk about the overall European market, please? And just how much of the capacity do you see currently shut down? And at what point do you think the capacity can kind of restart? And then just a couple of comments around your dividend policy. I think Hassan mentioned, it's going to be focused around capital availability. I mean market conditions are quite supportive, to say the least. Going forward, if the market will turn and we need balance sheet to look a little bit tougher, would the dividend go far as being suspended? Or would you kind of go to a bare minimum and kind of carry on paying that? But the question is, is there a payout ratio that you're working with? That's the second question. And on the green ammonia, can you just provide some comments on the time line and kind of what kind of end market or kind of customers you'll be targeting? And are you already in conversation with customers for the offtake there? Or is that kind of too [indiscernible] at the moment or just trying to figure out the feasibility and whether you actually will come out?
Sure. Thanks, Chaudhry. So the 3 questions there. Maybe I'll take the first question with regards to how much has been idled and the third question with regards to green ammonia, then I'll hand it over to Hassan for the second question, which you said regarding dividend policy. So in terms of what we believe to be idle, we believe approximately 11 million tons or so of ammonia has been idled in Europe, given the pricing and where it's at right now for natural gas. And on kind of downstream products, it's a little bit more difficult to ascertain because downstream products are making a margin right now in terms of just where pricing is for urea and nitrates. But we think potentially over 6 million tons are offline, maybe 7 million or 8 million on the downstream product side, depending on where you are overall in Europe. Those who have the flexibility like OCI Nitrogen to import ammonia, which is what we're doing and continue to generate good margins on Melamine, UAN and CAN, they'll try to do so with some of the other ones that are land blocks that don't have the ability to import ammonia could have a bit more difficult or just have to stomach the higher gas pricing and eat into their margin on the downstream side and may still continue to operate. So I'd say definitely the ammonia is going to be more of the story of what's offline right now on the nitrates and urea side, probably not as much offline a little bit more difficult to see and the market does feel despite that quite tight. On the time lines for the green ammonia, this is one of the projects that we announced recently with Scatec, our goal is to move extremely quickly on this one. We see an opportunity, just given our development history in the Middle East as well as ADNOC, the development history as well and our relationships with the key players on the construction side, on the government electricity side and now this new partnership with Scatec and the Sovereign Wealth Fund of Egypt, a lot of good alignment. I mean COP27 is going to be in Egypt next year. So a year from today, there's a big focus on the hydrogen economy out of Egypt, and we're looking to move and get into a position where we're in a competitively priced hydrogen over the medium to long term, not kind of taking a build it and they will come mentality. So all of the above is being worked on right now. We hope to come back to the market with further developments on the project, but we're highly focused on it and are happy to be participating with the involvement of the Norwegian as well as the Egyptian government. Maybe hand it over to -- further questions on those -- questions 1 and 3, ill maybe hand it over to Hassan, but I will say one thing that's kind of an interesting one, and that's why we were thanking the team, both Hassan and I, earlier, that we've been very busy looking at projects, looking at opportunities, looking at ways to decarbonize given the positioning of our U.S., European as well as our Middle Eastern assets. So one of the question marks not just how the pricing of the product is, but just what's the growth CapEx look like. So we're looking for the right return opportunities and hope to have more developments and share that with the market over time because there are a lot of interesting developments in the U.S. that we've been seeing recently with the recent bills have been passed as well as in Europe with the positioning of some of our assets that can take advantage of very strong downstream capabilities and bring on renewable hydrogen as a feedstock and generate a good return. Hassan?
No, that's very true. And that kind of fits well into the response because as we've designed the dividend policy, which we've yet to flesh out further with the heavier results in terms of quantifying what that would look like and takes a bit more shape, we do believe that the -- this year has been extremely transformational for us in terms of our gross debt reduction and leverage improvement. There is a bit of a catch-up game, as you can see with all our -- being able to sort of -- being able to reduce our interest expense and the restructure our debt. We still have some opportunities that lay ahead in that regard. But -- having said that, we believe we have sufficient capacity and firepower to pursue the growth opportunities that will be extremely disciplined in approach. And of course, they take time in terms of deploying the growth CapEx, balance that against what we have been very disciplined and committed in terms of managing optimizing our balance sheet. I think that will continue, and you'll see another drop of our interest expense in the coming years as we continue to improve. But we also have, because of our free cash flow conversion, capacity to return capital to shareholders next year and onwards. Because we haven't announced amount, so I can't really answer your question very specifically, but we will be looking to create a baseline going forward for our returning capital to shareholders and not at any point be sitting on a lazy balance sheet. We want to be efficient in how we allocate capital, and that also includes being able to manage our cash flows accordingly, including returning capital to shareholders. The unique feature of our business allows us -- even if you look at our performance in a completely different set of environments, which is not -- we believe the market environment is quite robust for looking -- going into 2023, but we can really forecast too much beyond that. But even in a downside scenario where our EBITDA as a business gets significantly reduced, I believe we still have the capability to continue to pursue the key opportunities we're looking at and balance that with our other goals, including a dividend policy.
That's very helpful. If I could squeeze in 1 follow-up on your comments. The [ trending ] growth CapEx, what should I be thinking about for the 2022 CapEx?
That's a bit of a moving target because that's afunction of the opportunities that we're evaluating today. So some projects have already are on the runway, like our participation in the TA'ZIZ project alongside ADNOC and ADQ. But this CapEx project in Egypt the partnership with Scatec and Sovereign Fund as well.
And our blue ammonia project in -- which we talked about there as well. I will say maybe the kind of give a high-level guidance before actually giving America guidance. At the end of the day, these projects we take engineering in the beginning and we do some [indiscernible] items after you reached [indiscernible] so I wouldn't imagine kind of a very material step up in got CapEx, we're talking about a very significant number in terms of mating that out. So we hope to provide further clarity of the market as we continue to kind of make progress on some of the various initiatives we're working on will close [indiscernible] and go through the [indiscernible].
[Operator Instructions] Next question is from the line of Lisa De Hansen from Morgan Stanley.
I'm Lisa De Neve. So I have 3 questions. So first is -- you talked about strong demand outlook supported by low grain stock [indiscernible] ratios, high farm profitability are still healthy and sort of a rebound in GDP levels. Now my question to you is, I mean, where do you actually see the possibility for potentially lower demand next year or normalization? So that's the first question. Secondly, I mean, the maritime fuel opportunity seems like one of the more sizable alternative revenue rates for methanol ammonia. And as you're a producer of both, it seems to me that so far, there's somewhat more announcements related to methanol, particularly as it relates to dual fuel engines. And I understand that both chemicals have different market sizes. How do you see the adoption of methanol and as a maritime fuel versus ammonia? And how do you see that developing? And specifically, what is the appetite you're seeing from shipping companies and sort of engine builders. What are their sort of opportunities and reservations around that? And then lastly -- sorry for the long speaking. What are your thoughts on the Russian fertilizer export control, specifically as it relates to nitrate simply because the most prominent players in the market are Europe and Russia? How do you think that will impact the Americas and European markets?
Thanks, Lisa, and good to hear these questions, all very relevant. So on the grain stock side in terms of demand and where we can see reduced demand, we discussed this a bit on the Fertiglobe earnings as well. I mean the farmer incomes are still strong from what we can see despite higher input. But there could be those marginal acres in certain locations where they say, okay, I'm going to a lower intensity soybean rather than the corn acre, for example. We still see from what we can see on this next upcoming spring, strong demand in the U.S., in Brazil, in Europe. There may be some marginal acres in some of those locations that don't apply and maybe a function of actually not being able to receive product, like we were talking about with a lot of the underbuying it's in a lot of the markets and just getting the product to the markets there. So potentially, there could be some in Europe. Nitrate prices are very high as what we're seeing switching into urea to some extent. But overall, like we said, it's a delay, not a destruction in demand because you're going to have to make up that inventory of grains to be able to support the global markets. And I think the big wildcard that's really come up heavily in the last couple of months, particularly in the last month has been ethanol, which we've seen really take off in terms of demand with what's happening in the oil markets. Now that's relevant moving to kind of your next question, which is methanol mean as you know, we are the largest producer of bio-methanol and marketer of bio-methanol globally. And we use bio-methanol as a blend, for example, into the U.K. fuel market with petrol both as a blend direct with petrol also blend an alcohol mix with ethanol. So it's an ethanol, bio-methanol mix. And that bio-methanol is a second-generation biofuel that's not based on crops, but actually based on waste. So we're seeing a lot of demand in the outlook for road transportation on methanol there. And we do see that recovery in transportation demand that we've talked about the last few quarters being lagging. It's finally started to take effect in some of the key markets we go into. Now moving from the road transportation to the sea transportation, we're having very interesting discussions with multiple players in the market. As you know, we announced earlier this year, development of methanol and ammonia fuel ships with MRN engines with Eastern Pacific out of Singapore and the Heartland Group out of Hamburg, Germany. And those are progressing quite well. But if I were to look at that kind of the microcosm what we see in the market, methanol ships are already in the market and are on the water today. And it's -- we've seen the order from Maersk with potentially 2020 for a significant amount of demand starting to hit that market. So I'd say that similarly, we see for low carbon and lower emission fuels, methanol being the first winner and then ammonia to follow that kind of towards the middle of the decade as we see the ammonia driven engine for shipping kind of in the middle of the decade time period and capitalizing on that going forward. Both -- you said dual fuel, both are kind of looking at, for example, LPG and ammonia together or methanol and other more traditional fuels together as kind of a shipping engine driver. And we think that the market for heavy fuel is so big that there's space for both to grow significantly, and I put methanol a little bit ahead of ammonia, just given the development of the engine around that. And this is a very significant demand, right? When you think about 1 million tons from Maersk alone for 8-plus ships, that 1 million tons of demand is 1% of the global methanol market today, right? And so anyway, we'll continue to see developments on that front and our global footprint between Fertiglobe as well as the Rotterdam [Technical Difficulty]
Ladies and gentlemen, thank you for holding. The conference will continue shortly.
All right. I think we...
Please go ahead.
Yes, I think we got disconnected. Lisa where did I [indiscernible] -- I don't remember.
Well, in the middle of the maritime fuel opportunity and that in Europe likely lag methanol a little bit just before my third question.
Sure. Okay. I think we've covered that, and what I was spending with on that was the price of CO2 can help equalize and actually make green ammonia more attractive than heavy fuel oil when you price in CO2, depending on that price of CO2 and also low carbon methanol for overall product costs. The third question was with regards to [indiscernible]?
Nitrates.
What about them?
Basically, I just want to get your thoughts on potential Russian fertilize export controls and specifically on the nitrate market because they're such a big player, and specifically see the European market and secondly, the Americas market. What could be the impact of that?
Yes. I mean, it's something that we have an eye out on. I mean we're on the nitrate side, particularly AN, which is a product we don't produce solid AN, and we do expect to see less of that entering the European market. which means that, that supports UAN and CAN and even urea indirectly in terms of just a further tightening of that market, and we could see additional we could see additional demand come out of it.
Do you think that means that there's some substitution potential?
Yes. I mean generally, they're not as substitutable, but what we've seen actually is that urea demand has really picked up a bit. We're continuing to build an order book on nitrates for UAN and CAN in Europe at these very attractive pricing. There might be some marginal acres in the U.K. and the kind of Western European markets that can take on a little bit more urea because it's still priced on a bit of a nitrogen discount versus the nitrates, but generally, there's not that much substitution on that front.
Next question is from the line of Adrien Tamagno from Berenberg.
I have 2 questions, please. The first is that one of your peers mentioned that we have been not in sales for the next couple of months and since your talking about order book. I was curious to see how much fuel production volumes are so as to group as of today for Q4 and Q1 next year, especially in the U.S. And Second question to you is that during your ESG Day in March this year, you mentioned around $75 million of EBITDA improvement. And that was when urea was at the line $350 per ton. So is it fair to expect an increase in this contribution by the same magnitude as prices go up?
Yes. I mean it's relevant questions with regards to our order book, we did say we expected quite a strong Q4, and that applies in the Fertiglobe parts, but as well as the non Fertiglobe parts of the business. For example, the U.S., the ammonia season is going on right now for our IFCo plant. And in terms of order book, we don't guide in terms of how forward sold we are. But say that as we've seen the pricing as it's kind of evolved, we have looked to book out some of this higher pricing we've seen on the way up here for UAN, CA and some of the other products. The one thing I can point to that we said publicly is back in the Fertiglobe side because we had participated in the public India tender, we put in over 300,000 tons of $295 million sale for November and early December deliveries at $890-plus a ton from Egypt and UAE. So with that, obviously, we've had some extra inventory ending the quarter and kind of we're able to sell and benefit from the pricing that we've seen now in those markets and have additional tons to sell at these higher urea prices. But on the nitrate side, on the DEF side and some of the ammonia market side, we don't provide good visibility. We don't provide the actual order books, but we do say that we have pretty strong visibility on our performance for Q4 being very robust relative to Q3. And it bodes well for the early part of next year on what we're seeing in potential sales during that period. On the second question -- Yes. The answer in short is, yes. Obviously, the operational excellence guidance of $75 million was on much lower pricing than what we're seeing today. We didn't update that number, but the focus has continued to be on improvements this very significant turnaround [indiscernible] we had, particularly in the U.S. with Natgas and IFCo getting a significant reduction in volumes is around getting that higher reliability going forward. And post turnaround, we've continued to experience after turnarounds replacements of catalysts adjusting kind of known bad actors in the plant, et cetera, experienced better performance and utilization rates going forward and energy efficiency rates to consume less natural gas per ton.
Next question is from the line of Vijay Singh from Sierra Capital.
Just one question from my end. The previous -- I mean, all have been answered the previous questions previously. In terms of the U.S. plants, could you kindly throw more light on the utilization and the shutdown periods in the third quarter? And what is the expected sort of a utilization given where we are for the fourth quarter?
Yes. Vijay, I mean, good question. For Q3, we have pretty deep -- we have this U.S. segment that we segment out and you can see much lower DEF volumes, much lower UAN volumes, which should -- the only time that produces that is the IFCo plant in the U.S. when you think about the U.S. segment. And so on the U.S. side, utilization rates were quite low for the nitrogen business, and we see much, much stronger rates with the rates running at right now and see much stronger rates post turnaround to allow and capitalize on the higher price period we're seeing now here in Q4. On the OCI Beaumont side, that performed very well as we said, and you can see that in the figures for methanol, but we don't have the volumes from that guessing because that had a major turnaround as well. So we anticipate stronger volumes overall on the methanol side in the U.S. relative to Q3.
Sure. And was IFCo down for close to 2 months in third quarter? And is it now running? Is it now operating fully?
Yes.
There are no further questions at this time. And I would like to hand back to Hans Zayed, Investor Relations Director. Please go ahead.
Yes. I will read some questions that we have received. The first one will be, why not buy back stock itself paying dividends? Dividends are very tax inefficient.
Thank you for the question. We anticipated this discussion, of course. I think, as I mentioned, we've yet to give more guidance and explicit plan -- We feel announced to the market as part of our year-end results, which are typically in February. And that will include, for sure, a cash dividend, but we will also study all other avenues that are available to us. Noting, of course, that as we now will be benefiting from a semiannual dividend from Fertiglobe, where the policy there is clear to distribute excess cash flow and upstream to OCI, our partner, ADNOC, and of course, the free float. But -- so I think that's a foundation to build on but we will explore, as I mentioned, all avenues for returning capital to shareholders.
The next question comes from Mr. [indiscernible]. Are there any other current -- any developments the methanol business regarding the decisions about the strategic review earlier this year?
Yes. nothing to report at this time. And obviously, if there's anything that changes, we would come back to the market.
Yes. At least, Ahmed, I think we have clarified in our previous call that we had -- that the result of our thinking and the fact that there is such a strong clean fuels angle now being looked at in terms of the methanol segment, in terms of new opportunities for methanol to be deployed that provides potential growth. I think if we explore anything in the future, I think we believe you mentioned that it will be in the form of partnerships that add value these projects will come in many forms, but that's something that continues to be the foundation of any thinking we do for the methanol segment going forward.
[Operator Instructions]
Next question is what will be the publication date of the fourth quarter results? And is it possible to communicate earlier than 1 week before? And the answer is yes, we will be publishing a calendar. And we will also have a target to publish within 45 days of the end of the quarter. And the next question is, can you please elaborate on your plans for your capital structure? Are you planning to keep bonds in the capital structure in the future?
I mean we -- as we mentioned earlier, we've done almost $1 billion of redemptions in terms of existing bonds which resulted in the $40 million run rate savings. But we do believe that going forward, the bonds would provide the bulk of our core debt structure as we look to a more sort of permanent capital structure base to work from, but we did still have some work cut out for us ahead [indiscernible].
And the next question is, you have given the impact of higher natural gas prices for Q3 '21. Are you able to guide for the impact for Q4 '21, assuming the natural gas prices will not change from the current levels?
I think that, that one, I think probably that investment potentially or the research analyst could potentially try to use public information around historical gas prices and current gas prices we're seeing in Q4 and the projections in the forward curve results of this year. I will say that our goal has been to try to get a better benefit and offset it by buying an ammonia below the price of production. My view to produce a ton of ammonia that is in kind of the mid- to high 30s per MMBTU on average, and where gas prices are today, plus cost of CO2, you're really at very point seeing that we can buy an ammonia at a cheaper price that we can grab some of these lower-priced products, for example, in the Air Gulf right now and where they trade. And as you know, when you think about our overall business, Between the U.S. and the Middle East, we have significant implicit hedging in place. So we have guided that we've had significant hedging in Texas in our Natgasoline plant and our OCI Beaumont plant, which caps at $3.50. And in Fertiglobe, we have the low-cost feedstock with some profit sharing with the government, but despite that profit sharing, getting benefits and aside benefit on the EBITDA margins, when we when we participate. So overall, there's kind of an implicit hedge when you think about the blended business, including our European nitrogen business.
Yes. And the next question is, can you describe the benefit of DEF? It is based on more efficient use of fuel? So as fuel prices rise, DEF is more valuable? Or just a function of rising demand lead to tighter market and price increases?
It would be a function of both. So I mean it's a mandated product for the -- DEF is a mandated product in the U.S. and Europe and in other markets for diesel consumption for new engines as they come out. And consumers of that DEF are looking to increase dosing rates because it actually improves the fuel economy of diesel. And when you improve the fuel economy of diesel, then at higher prices, diesel, you're more incentivized to try to dose at a higher rate of DEF. So -- to your question, yes, you would like to use more DEF when it's a higher price environment, but also the higher price environment is a result of more transportation demand and less supply. So we're also seeing volume growth year-over-year continuing very robust levels and being one of the largest DEF producers and marketers in the U.S. We're looking to serve customers. I think the team did an excellent job with the 4-plant network between Dakota Gasifications plant, Iowa Fertilizer plant, the 2 Dyno Nobel plants that we market for to not skip a beat in terms of delivering that DEF to the customer, not [indiscernible] measures, delivering it to that customer in June -- in the July, August period in the times where that has to be there. You have to realize on the trucking side, if a trucker stops to fill diesel. And once the refuel DEF and DEF is not available there, that really damages the relationship of that truck stop with the trucking fleet or the trucking customer. So for us, our focus is on making sure that the customer has that. And we think that we've built, I'll call it, brownie points over and above our positioning in the market, given that we are a reliable supplier despite having a turnaround at a fertilizer company.
Okay. We have one more telephone question from Kenny King from JPMorgan.
And thanks for the opportunity for asking questions. So I want to ask about if there's any potential target for acquisition in the pipeline, and the fact that you emphasized on dividend distribution and also debt payment, does it mean you don't see a sufficiently good target so that you'd rather allocate the capital otherwise?
So I mean, it's a good question. I think when we think about growth CapEx, we're thinking about not just organic growth, but inorganic growth, we always keep our ear to the ground. I mean that's something that we would look at now what we do is we would look and see how does that compare to where we're trading. How does that compare in terms of what type of synergies we can get out of something that comes up. So we're always open to it. Generally, if we provide CapEx guidance, it's not be part of our CapEx guidance because it will be more lumpy around something like that from an acquisition perspective if we would do so. And that includes also potentially logistics assets and things like that. Any other questions?
There are no further questions on the telephone lines, and I would like to hand back to the speakers if there are any closing comments. Thank you.
No. Thanks all for joining this call. Look forward to speaking to the next one on behalf of Hassan, Hans and myself from the OCI team. Thanks for your continued interest. Okay.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.