OCI Global (Euronext: OCI), a global producer and distributor of hydrogen products providing fertilizers, fuels, and feedstock to agricultural, transportation, and industrial customers around the world, today reported second quarter 2023 revenues of
Own-produced sales volumes are up slightly compared to the same quarter last year, but increased 35% from Q1 2023, on a healthy operational performance across our platform during the quarter.Despite the decline in EBITDA, OCI Global generated operating free cash flow (before minority distributions) in Q2 and H1 2023 of
Nitrogen markets bottomed during the second quarter and are tightening rapidly, with recent significant price increases for urea and a stabilization and slight recovery of ammonia despite the traditional summer lull for fertilizers.
We are also excited about the opportunity for our methanol business, despite the price declines during Q2 and a delay in demand recovery due to the continued weak macro environment. Methanol as a shipping fuel is kicking off now, with the first methanol-fueled container vessel delivered last month, which we estimate will create more than 6 million tons incremental methanol demand over the next 3-5 years. We are pleased to be partnering with some of the leading global shipping companies, including Maersk and Xpress Feeder Lines, and continue to see robust demand from many other ship owners.
Finally, the team did an outstanding job, as all plants demonstrated healthy on-stream performance during the quarter, resulting in a significant rebound in our sold volumes. We remain fully committed to our operational excellence program, to enable us to safely deliver higher organic volumes, supporting EBITDA and free cash flow over and above the effects of a market pricing recovery, and coupled with our capacity growth from our new initiatives.'
Progress on hydrogen fuels initiatives
Green methanol: OCI is the largest green methanol producer in the world and recently announced it is fueling the first ever green methanol-powered container vessel with OCI HyFuels ISCC certified green methanol along its maiden voyage in a new partnership with
In July, OCI successfully bunkered the ship at the start of the voyage in
OCI will continue to fuel the ship at each of the bunkering stops on its voyage to
This demonstrates OCI's global leadership in supplying and trading renewable and low carbon fuels to decarbonize energy-intensive industries
It provides proof-of-concept for green methanol as a safe, efficient, commercially-ready fuel for global shipping, establishing it as the low-carbon fuel catalyzing the decarbonization of the shipping industry
This also paves the way for ammonia, with engines by manufacturers such as MAN, WinGD, Wartsila expected to be commercially available by 2025/26, and providing upside for bunkering. OCI is gaining important learnings from methanol as a marine fuel
OCI continues to build out its marine fuel offering and has signed an offtake contract to supply Xpress Feeder Lines (XPF) with green methanol for their new-build methanol dual-fueled container feeders ships, starting in 2024 in the
XPF is the world's largest container feeder operator and will be the first common feeder operator with methanol-fueled vessels on the water in
This new partnership will complete another link in the chain for the decarbonization of shipping, building on the commitments of container companies such as Maersk and creating end-to-end green fuel solutions in European ports
Texas Blue Ammonia: the 1.1 mtpa project remains on track to start production in early 2025. Piling for OCI's ammonia plant is complete, foundations and civil works are well underway, and erection of steel structures has commenced
Our Texas Blue Ammonia project and the logistic expansion program in
The total potential grant amount is up to
Expansion of our
We are on track to start production of DEF / AdBlue in
In addition, the Final Investment Decision (FID) on the Ta'ziz 1 mtpa low carbon ammonia project in
Cost savings
We recently launched an initiative to further optimize OCI's and
In
OCI has identified further run-rate savings in the rest of the Group targeting at least
In addition, OCI's and
Market outlook
OCI believes the outlook for nitrogen markets continues to be supported by crop fundamentals, elevated European gas pricing and tightening supply dynamics in the medium-term
Nitrogen prices bottomed in Q2 and have begun rebounding into Q3, underpinned by several factors including:
Demand recovery: the recent decline in nitrogen pricing has improved affordability for farmers by 20% since
Record low inventory levels: the 2022-2023 fertilizer application season concluded with the lowest inventory levels in the past five years particularly in
Tightening supply: new capacity that was added and ramped up during 2022 and early 2023 has been absorbed, with limited new supply additions in the next four years
El Nino impact: the rapid emergence of El Nino has raised concerns about crop yields in the southern hemisphere, which could lead to higher crop prices, supporting the use of nitrogen fertilizers in the medium-term; it is also reducing gas availability for the production of ammonia
Normalization of trade flows: following the EU's removal of duty suspension on ammonia and urea in
Medium to long term nitrogen fundamentals also remain healthy, with anticipated demand recovery supporting the rebuilding of global grain stocks and a return of industrial demand:
Global grain stock-to-use ratios remain at the lowest levels in 20 years, and it will likely take at least until 2025 to replenish stocks
Forward grain prices (US corn futures >
Ammonia markets appear to have stabilized, with higher cost economics, particularly in the East of Suez region, setting a firm floor. The increased fertilizer demand due to improved affordability is currently offsetting the lag in industrial demand recovery
Industry consultants expect a recovery in global ammonia trade from trough levels of 17 million tons in 2022 and 2023 back towards historical levels of 19+ million tons per annum
Nitrogen supply is expected to be tighter over 2023 - 2027: In 2022, 6 million tons of new urea capacity were commissioned, with some plants ramping up in 2023, but now largely absorbed
Industry consultants do not anticipate any major greenfield urea supply additions in 2023 and limited additions from 2024 to 2027, located mostly in
Chinese urea exports are expected to remain low over the medium term in the range of 3 mtpa
Feedstock pricing is expected to remain well above historical averages: Despite a recent drop in gas prices, 2023 - 2025 forward European gas prices are c.
It is expected that El Nino could increase the demand for natural gas for summer cooling, which could result in upward pressure on natural gas prices and increased marginal cost of nitrogen production
Current ammonia and nitrate prices are below the marginal cash cost producer in
OCI believes methanol fundamentals remain positive on a tentative recovery in the global macro environment, support from oil prices, new marine fuel demand and limited new supply
Key methanol end markets have been weaker than expected this year, especially the recovery in
Despite the lack of an immediate recovery amid on-going macro-economic challenges, methanol prices are supported by the marginal cost producer in
In addition, improved methanol affordability should support higher methanol-to-olefins (MTO) utilization rates which have remained at low levels YTD
There is potential meaningful upside from demand for hydrogen fuels, notably as a cleaner alternative for road and marine fuel applications:
Methanol as a marine fuel continues to gain significant traction with over 200 vessels expected to be on the water over the next 5 years, including existing vessels, newbuilds on order as well as retrofits
Incremental demand from the maritime sector is expected to be more than 6 mtpa from the mid-to-late 2020's based on current orders for new vessels
Other than new-build orders, we are seeing methanol dual-fuel retrofit projects being announced which will lead to further incremental demand
There are limited new methanol greenfield supply additions in the medium term, which should result in tightening methanol markets when end markets recover and demand from the maritime sector accelerates
Dividends
In
Contact:
Email: hans.zayed@oci-global.com
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