Highlights:
- Revenues increased 36% to $811 million and adjusted EBITDA 49% to $193 million in Q1 2020 versus Q1 2019
- OCI-produced volumes sold increased 62% to 2.7 million metric tons in Q1 2020 compared to Q1 2019
- Adjusted net loss of $82 million in Q1 2020 in line with a loss of $82 million in Q1 2019
- Net debt $3.97 billion as of 31 March 2020, a reduction of $94 million compared to 31 December 2019
- COVID-19 has not caused disruption to production and distribution to date, all OCI’s products deemed essential
- On track to deliver a healthy increase in volumes in 2020, in addition to the full consolidation of Fertiglobe
- In order to maximize value for stakeholders and in light of COVID-19 uncertainty, OCI postpones methanol process
Statement from the Chief Executive Officer – Nassef Sawiris:
“We reported an improved result for the quarter despite lower selling prices as we delivered a step-up in operational performance and ramped up volumes by more than 60% during the quarter. We achieved this with an excellent safety record and best-in-class 12-month rolling recordable incident rate. In addition, production has to date not been disrupted by the COVID-19 crisis.
The nitrogen business was the main driver of the growth in sales volumes. Utilization rates of our nitrogen plants were significantly higher during the quarter than before their extensive turnarounds carried out in 2019, with particularly our Algeria and Iowa facilities reaching record rates.
We are also expecting our methanol production to reach higher utilization rates. Following a major turnaround, OCI Beaumont is already achieving steady production levels near its maximum potential since it restarted successfully in February. We expect methanol volumes to ramp up further after completion of an on-going turnaround in the Netherlands and Natgasoline improvement activities.
As a result, we maintain our forecast that we are on track to deliver robust volume growth in 2020.
All OCI’s products are regarded as vital by governments to ensure uninterrupted supply of food and other essential products for everyday life. Our team has made it priority to keep our plants running and provide critical inputs for the global food supply chain, at the same time ensuring the safety and well-being of our people, partners and communities under significantly enhanced safety measures.
Despite COVID-19 challenges across the globe, nitrogen demand is looking favourable for 2020. Our order book for the second quarter is healthy as the spring application season across our main end markets is developing well.
In the US, spring planting is ahead of last year with the latest USDA data showing corn planting currently more than 50% complete. We expect this, coupled with forecast record corn acreage, to result in a strong increase in nitrogen demand compared to 2019. Additionally, urea imports into the US are significantly below last year, which would imply ending the season with minimal carry-over inventory.
In Europe, the application season started towards the end of March. Weather conditions are currently optimal for growing crops which we expect to underpin strong demand in May and June in our core European nitrate markets. Similarly, Fertiglobe benefits from ongoing demand in major importing countries or regions for urea, such as Europe, South Asian & Pacific countries and our previous commitments to East Africa.
The methanol business, which represented c.14% of adjusted EBITDA in the first quarter, has seen a decline in methanol prices as a result of COVID-19 and the significantly lower oil prices in the past few months. However, there are a number of factors that can mitigate anticipated lower demand in the near term and support the balance in the market. Many marginal cost producers, particularly in China, are already operating well below cash costs and are expected to shut down if prices continue to stay low. In addition, existing production curtailments and postponements of key projects already announced by other producers eliminate supply and will also help offset weakness in global demand.
Furthermore, OCI is one of the lowest cost producers globally and maintains a solid competitive advantage with cash costs of production significantly below current methanol sales prices. We expect to remain a beneficiary of the current natural gas price environment in the US and Europe for the foreseeable future, especially in the Netherlands where the drop in natural gas prices this year has been the most pronounced.
Our priority remains to optimize free cash flow generation and we remain committed to our financial policy to deleverage towards 2x through the cycle, with timing to achieve this greatly dependent on the pricing environment.
In an environment of low selling prices, we are fully focused on what is within our control – operational and commercial excellence, volume growth and controllable costs. Our consolidated liquidity of around $1.3 billion as of the beginning of May, consisting of c.$550 million cash and c.$750 million undrawn committed facilities, is very healthy and has been helped by our strategic and refinancing actions over the past two years.
We are fortunate that we finalized our heavy-scope turnarounds for the nitrogen business last year, and that we had brought forward and finalized our major methanol turnaround activity to the first quarter this year, before the escalation of the COVID-19 pandemic. For the remaining turnarounds planned for 2020, we have the potential to postpone some capex activities without affecting safety and reliability of operations.
We have also identified additional c.$20 million of cash savings at Fertiglobe, to be realized over the next 3 years. In addition, we continue to evaluate our capital structure to identify further cost-effective refinancing opportunities.
In light of recent developments, and COVID-19 volatility, OCI has decided to postpone the methanol process to H1 2021, allowing for an improved transaction environment for both the business and interested parties. OCI believes this is in the best interest of its stakeholders from a value creation perspective.“
Outlook
COVID-19
- Internal COVID-19 taskforce established to ensure safety of our employees and business continuity
- Production at OCI’s facilities has not been disrupted by the COVID-19 challenges
- All OCI’s products deemed as essential to ensure uninterrupted supply of food and other essential products
- Supply chains and distribution channels continue to perform resiliently
Nitrogen
- The current application season is progressing well, and our order book is healthy
- Expect strong demand for nitrogen fertilizer in our core markets this season amidst favourable weather conditions, including:
- Direct application ammonia has been strong in the US this spring, which should minimize end-of-season inventory levels
- In our core US Midwest markets, the urea and UAN application season is expected to be robust, driven by a return to normal corn planting conditions and a forecast increase in planted acreage
- The European application season is currently ongoing with healthy nitrate demand developing in our core northern European markets
- Demand in several importing countries is healthy, including India, East Africa and Australia
- Impact of COVID-19 on nitrogen demand and supply:
- In the short term, we expect some weakness in industrial nitrogen end markets as a result of GDP/industrial activity slowdown
- There is currently uncertainty regarding the outlook for ethanol demand, but whether this will ultimately result in reduced corn demand in 2021 will depend on a number of factors such as government incentives to farmers and a recovery in transport demand
- Several production curtailments and shutdowns have been announced, e.g. ammonia in Trinidad and short-term curtailment of urea production in India, and it is likely that there will be delays in completion of new projects as construction, delivery of equipment and commissioning is more difficult, resulting in less supply in short- and medium term
Methanol
- A portion of global methanol demand is oil-related; methanol prices are down as a result of COVID-19 and drop in oil prices
- In the short term, global demand for methanol could be affected as a result of economic slowdown:
- However, likely curtailments of high cost methanol production and postponements of key projects already announced by other producers are mitigating factors that support supply / demand balance
- OCI is one of the lowest cost producers globally, and expected to benefit from the ramp-up of methanol capacity as well as the normalization of production and improved onstream efficiency in 2020 compared to low asset utilization rates in 2019
Gas Markets
We expect to continue to be a beneficiary of a low gas price environment for the remainder of 2020:
- At TTF gas forward prices (c.$2.73 / mmBtu as of 1 May 2020) for the balance of the year, OCI’s gas input costs in the Netherlands would be c.$100 million lower in 2020 on an annual basis compared to 2019, all else equal
- In the US, natural gas benchmark prices have remained at globally competitive prices below $2 per MMBtu, and current natural gas futures indicate that prices are expected to stay below $3 per MMBtu through 2024
Conference call details
Standard International: +44 (0) 20 3009 5710
United Kingdom FreeCall: 0800 376 7425
Netherlands LocalCall: +31 (0) 20 715 7366
United States FreeCall: 1 (866) 869 2321
Conference ID: 9863369
A conference call replay will be available until 11th June 2020. The replay access numbers are:
Standard International: +44 (0) 333 300 9785
Netherlands: +31 (0) 20 713 2967
United States: 1 (866) 331-1332
Conference ID: 9863369
