Thank you for joining the OCIMV Second Quarter 2021 Conference Call. With me today are Ahmed Alhosi, 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 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 therefore, I would like to refer you to our disclaimers about forward looking Let me hand over to Ahmed.
Thank you, Hans, and thank you all for joining us today. I'd like to start, as always, 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 June was 0.31 incidents per 200,000 man hours. But unfortunately, during the quarter, a contractor tragically lost his life at one of our facilities in the Middle East. Our thoughts and prayers go out to his family and loved ones, And the accident is under thorough investigation as our goal remains to prioritize process safety and reduce occupational safety incidents to 0 at all our production facilities across the globe regardless of their employment affiliation.
I would like now to move to our performance during the quarter. We're pleased that nitrogen and methanol markets have recovered from a multiyear downturn and that we've reported another record quarter as we start to benefit from the ramp up of our state of the art production and Faaf. Our free cash flow generation has accelerated and we're now rapidly approaching our through the cycle target of 2x net leverage. Our own produced sales volumes were effectively flat at 3,200,000 metric tons during Q2 2021 compared to Q2 2020. Total owned produced nitrogen volumes were down 9% due to the phasing between quarters in particular for CA in Europe, which we'll discuss in more details as well as turnarounds at EFC in Egypt, offsetting strong growth in ammonia, melamine and DEF volumes.
On the methanol side, we had another quarter of strong performance as we reported an increase of 69% in own produced methanol sales volumes in Q2 2021 compared to last year. This was driven by good on stream performance resulting in steady utilization rates and a Significant step up in production in all three of our methanol sites. Combined with strong pricing of Support and access to key European and U. S. Markets, the methanol business together with Wurtec Globe stood out.
Our methanol facility in the Netherlands continued to achieve high utilization rates Both production lines in April May resulting in a significant increase in EU methanol sales volumes, but it was decided to temporarily shut down the facility from June 2021 onwards due to the high gas price environment we're experiencing today in Europe. Overall, total owned produced sales volumes were up 4% in the first half of twenty twenty one compared to the first half of twenty twenty, and we continue to strongly focus on accelerated operational excellence at all our sites As we stick to our commercial strategy of maintaining a disciplined sales approach and look to capitalize on exciting sustainability opportunities. I'd like to thank all our employees for their continued dedication to OCI and its values. And with that, I'd like to turn it over to Hassan to discuss the financial results in more details.
Thank you, Ahmed. As usual, I'll take you through the financial highlights of the quarter. Our consolidated revenues increased by 67 percent to $1,500,000,000 and our adjusted EBITDA rose by 144 percent to another record of $535,000,000 in the Q2 of 2021 compared to the same quarter last year. Our adjusted EBITDA margin also improved considerably from 25% in the same quarter last year to 34% in the Q2 this year. The biggest driver of this growth was the recovery in our end markets.
Selling prices improved across the board in the Q2 compared to the same period last year, with increases ranging from around 50% to 150% across all our products. Prices at our key cost input, natural gas, were on average higher for the group in the Q2 of 2021 compared to the Q2 of 2020, especially in Europe, which resulted in a total negative impact of circa $123,000,000 We believe this performance shows that the benefits of our competitive asset base are really starting to Sure. We have a diversified stream of global revenue and a very competitive position on the global cost curve with a young asset base and strategic locations. And with around half of our total gas requirements emanating from assets, which benefit from fixed gas price regimes. VertiGlobe has been a star performer in our portfolio, so I would like to put it a bit more in the spotlight as I take you to the highlights.
In the current pricing environment, with attractive long term fixed gas price arrangements in place, the recovery of nitrogen end markets has benefited Ferdyglobe in particular in light of higher feedstock pricing in other regions, Europe and Asia in particular. VertiGlobe achieved revenue growth of 92%, and adjusted EBITDA was up 2 19% compared to the same quarter last year and 31% compared to the Q1 of 2021. As a result, Vertigo's adjusted EBITDA margin expanded from 26% in Q2 2020 to 42% in Q2 2021, which is 1 of best in class in the sector. This performance was partially driven by the increase in volumes that Ahmed just alluded to as well as a strong increase in prices. But it also has some other competitive advantages as our commercial strategy and synergies continue to materialize.
As the largest nitrogen in the world with production facilities east and west of the Suez Canal. Fernti Global has a large scale strategically located platform with the ability to direct volumes to highest netback markets. This flexibility forms an integral part of our commercial strategy and in our realization of the synergies post the merger that we completed in 2019 with Fertig. Fertig Group also benefits from The higher realized prices relative to other exporting regions due to go freight costs, duty free access to key importing markets and a direct to customer strategy that we have been growing and focused on for the past several years. With excellent free cash flow conversion, we expect extremely healthy dividends from Fertiglo in 2021 and on a continuing basis.
Turning to the group's balance sheet and cash flow performance, which is a key KPI for us. As a result of our record EBITDA, we had another quarter of healthy operating free cash flow. And we're able to deleverage a further $390,000,000 which resulted in a net debt position of around $3,000,000,000 as of the end of the Q2 of 2021. This brings the total reduction in net debt to almost $700,000,000 so of this year. Below the EBITDA line, the total cash expenditures were $31,000,000 in the second quarter, which is relatively low, but we continue to expect Around $300,000,000 total CapEx for the full year as guidance.
We continue to significantly benefit from our recent Refinancing activities with a reduction in recurring interest expense of $29,000,000 in the first half of this year As we reap the rewards of reductions in our weighted average cost of debt, which is now close to 4%, as well from capital structure simplifications and reductions in gross debt as the business continues to perform in a strong market backdrop. The capital structure activities undertaken year to date will provide further benefits in recurring interest expense and our weekly average cost of debt in the second half of twenty twenty one. For example, the strong deleveraging that she's in the first half will deliver an immediate 200 bps reduction
This is the operator. We apologize for the pause in the presentation, and I hand back over to Hafsund.
Yes. Our apologies for the technical problems because This is definitely a first. But let me cover briefly the remarks on the financial performance of the business and then hand over to Ahmed for the remainder of the presentation. Our consolidated revenue increased by 67% to $1,500,000,000 and our adjusted EBITDA rose by 144 percent to another record $535,000,000 in the Q2 of 2021 compared to the Q2 of last year. Our adjusted EBITDA margin also improved considerably from 25% in Q2 2020 to 34% in Q2 2021.
The biggest driver of this growth was the recovery in our end markets. Selling prices improved across the board in the Q2 compared to the same period Last year, with increases across our product groups from 50% to 150%. Prices of our Key cost input natural gas were on average higher for the group in the Q2 of 2021 compared to the Q2 2020, especially in Europe, which resulted in total negative impact of circa $123,000,000 We believe this performance shows the benefits of our competitive asset base I'm really sorry to show. We have a diversified stream of global revenue and a very competitive position on the global cost curve, benefiting from a young asset base that is strategically located across key markets, with around half of our total gas requirements related to assets with fixed gas price regimes. First, we've typically has been a star performer in our portfolio, so I would like to put it a bit more in the spotlight.
In the current pricing environment with attractive long term fixed gas price arrangements In place, the recovery of nitrogen end markets has benefited Protected Global in particular in light of this feedstock arrangement and compared to other regions like Europe and Asia in particular. Perfect Global achieved revenue growth of 92% and adjusted EBITDA was up 2 19% compared to the Q2 of 2020 and 31% compared to up, up from the Q1 of 2021. As a result, Fertig Group's adjusted EBITDA margin expanded from 26% in the Q2 of 2020 to 42% in the Q2 of 2021, which is one of the best performing makes it one of the best performing assets in Texas. This performance was partially driven by the increase in volumes that Ahmed mentioned earlier in the call as well as the strong increases in prices. But it also has some other competitive advantages as our commercial strategy and synergies continue to materialize.
As the largest exporter nitrogen in the world with production facilities, traveling both east and west of the Suez Canal, Priti Global has a large scale strategically located platform with the ability to direct volumes to the highest netback markets. This flexibility forms an integral part of our commercial strategy. Turkey Global also benefits from structurally higher realized prices to other exporting regions due to low freight costs, Our ability to access markets on a duty free basis, key and a direct to customer strategy that we've highlighted in many of our previous calls, and we have been growing and focused on this strategy. With excellent free cash flow conversion, we expect very healthy dividends from Fertig Global 2021 and on a continuing basis. Turning to the group's balance sheet and free cash flow performance, which is we consider a fundamental KPI for our business.
As a result of our record EBITDA, we had another quarter of healthy operating free cash flow, and we're able to deleverage a further $390,000,000 resulting in a net debt position of around $3,000,000,000 as of the end of Q2 2021. This brings the total reduction in net debt to almost $700,000,000 so for this year. Below the EBITDA line, total cash expenditures were $31,000,000 in the Q2 of 2021, which is relatively low, but we continue to expect around $300,000,000 in total CapEx for the full year, so our guidance remains in place. We continue to significantly benefit from our recent refinancing activities with a reduction in recurring interest expense of $29,000,000 That we posted in the first half of twenty twenty one compared to the same period last year as we read the rewards of reductions in our weighted average cost of debt that is now close to 4% as well as from capital structure simplification and reductions of gross debt.
This is the operator. Apologies for another interruption in
the presentation. You'll hear hold music until we've reconnected the line.
This is the operator.
Sir, the speaker line is now reconnected. Please go ahead.
I think the capital structure optimization activities undertaken here today will provide further benefits in recurring interest expense
and with the average cost
of debt. And The strong deleveraging with our Chief so far this year will deliver an immediate 200 bps reduction in our revolving credit facility, taking us down from a margin of 3.5 percent to 1.5%. We have consistently prioritized free cash flow for deleveraging and have reduced our net leverage gap between just the last 6 quarters from 5.4x to 2.1x as reported in June because of the underlying strong performance of the and our free cash flow conversion capabilities. Our gross debt came down by around $400,000,000 this year, and we expect further reductions of gross debt leverage and the weighted average cost of debt over the course of the year. And we shared with you our net target to drop the loan Importantly, within a framework of strong commitment to our disciplined capital allocation and as we have strengthened our balance Considerably, we expect that we'll be able to start returning capital to shareholders from 2022 onwards, either in the form of dividends or in combination thereof with share buybacks.
We see this as a very exciting development as we have not been in a position to do so since we have listed the company in the Netherlands in early 2013. Just a brief few remarks on some of the corporate actions that we report in the second quarter, As I'm sure there will be some questions on this paper, but we continue to work on preparations for the potential IPO of Fertiglo With a close eye on market conditions, although market backdrop continues to be robust and the opportunity continues to look attractive. We also announced this morning that Fertilob has agreed with the KBR Lab Consortium, which includes Mitsubishi, JGC and it also to buy their combined 15% Stake in EBIT, our dedicated ammonia plant in Egypt, for a total consideration of $43,000,000 This brings Fertigglobe's stake in EBIT to 75%, further streamlining our group's ownership structure. As Akhmad will also The company is very well positioned for the energy transition. Specifically, this facility Ipik is the only world scale dedicated ammonia of Plant.
We will therefore continue to work with KBR, which is the leader in this field and have started to develop Potashri Egypt's 1st green ammonia pilot project, for which KBR has been involved in engineering studies. Again, I apologize for the technical difficulties and with this, I'd like to hand over to Ahmed to discuss the market outlook and the group strategy.
Thanks, Hassan. I'll discuss our outlook and some exciting recent developments as well as achievements in our ESG Strategy. The outlook for OCI remains positive for the balance of 2021 and beyond, supported by strong underlying demand for nitrogen fertilizers, driven by healthy farm economics and a continued recovery in our industrial markets for ammonia, methanol, melamine and DEF. We have good visibility into Q3 with a healthy order book across our core markets and are benefiting from further increases in selling prices compared to Q2. If I start with the outlook for nitrogen market.
Nitrogen markets reached an inflection point this year following a 5 year downturn with significantly higher prices compared to 2020. Summer reset pricing, which was pronounced in the past 5 years, has been muted in 2021 with support from very low global inventories for our products across the value chain, robust fertilizer demand, limited new supply and a strong rebound in industrial demand. UAN Summer Fill, one of the indicators of the health of the nitrogen market at this time of year came out at $2.85 per short ton in mid July, more than double that of last year. And we've already seen market increases in selling value since film was announced several weeks ago. Looking at the remainder of 2021 and 2022, nitrogen fundamentals and farm economics are expected to remain healthy with positive prospects in all major agricultural markets, and we expect to remain in a demand driven pricing environment.
A key driver of strong agricultural demand has been the rally in crop prices, which is expected to remain supported at least until the end of 2022 by continued high Chinese corn imports and tightening global stock to use ratio and lower corn exports from Brazil due to weather issues and high demand for feed and ethanol. Forward corn futures are in the range of $5 to $6 per bushel and the soy to corn ratio favors corn planting, which is very important in major corn exporting regions. And as you all know, nitrogen demand He is positively linked to corn and is more nutrient intensive. In Europe, we maintain a healthy order book and expect to see continued strength in pricing on the back of high feedstock prices and low inventory across all European producers compared to the prior year. The market balance remains extremely tight in Europe for the 2021 2022 season with lower UAN imports Due to less supply from Belarus, our U.
S. UAN prices and several turnarounds likely to lead to increased substitution for our main product in Europe, CANS. Robust import demand in Latin America, Australia and India is driving a healthy increase in Ferdyglobe's urea volumes in 2021. Particularly in Argentina, Higher crop pricing is also supporting strong demand as imports in H1 2021 were circa 80% higher year over year and a further 850,000 tons is expected to be imported over the balance of the year. More than 70% of these volumes in H1 with Applied from Egypt, which has a 6.5% duty advantage in this market, therefore benefiting Vertiglo and more specifically our EFC urea export The resulting healthy farm economics coincide with the slowdown in new plant commissioning compared to the past 5 years and likely delays and commissioning of new projects.
Urea exports from China are also declining, underpinned by robust agricultural market fundamentals and a strong rebound in industrial end uses driving Chinese urea to 5 year highs. Last week, there was news that state owned fertilizer players in Europe will temporarily suspend exports to ensure sufficient and affordable supply remains available to the domestic market. On the industrial side, we are benefiting from 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 and ammonia, which are used in many downstream products across various end markets, including construction, automotive and textile industries. Furthermore, the recovery in transportation applications increasingly bolster demand for our products, keeping market conditions tight.
Ammonia markets have been buoyed by a strong structural tightening this year and merchant ammonia availability is expected to decline with negligible net additions between 2021 2024, whereas merchant demand is expected to grow by more than 5,000,000 metric tons over that same period, supporting sustained price increases over the medium term. OCI's DES sales in the U. S. Reported another strong quarter in Q2 2021 with truck sales up sharply and freight Has broadly recovered to 2019 levels, which combined with the higher urea sales price, supports and provides benefit on the Proving trends for the balance of 2021 2022 for DEF, which is in a much, much tighter market than it was in prior years. Nelomine markets have continued to tighten by a rebound in demand from home renovation and construction in Europe and the U.
S. Nelomine's quarterly contract prices have increased 23% in Q2. And in this quarter, we're seeing another 18% increase to decade highs. OTI's EES sales in the U. S.
Are benefiting from an improved trend for the balance of 2021, 2022. And as I just stated, the melamine markets have continued to tighten in both our core markets. Methanol market fundamentals also remained positive as spot prices are supported by a recovery in fuel and oil markets from trough levels reached in 2020. This has supported contract prices in the U. S.
With Strong demand set to continue as operating rates are major driven from aldehyde, MTBE and MMA are reported to be The near maximum rates and provides good visibility on our sales prices in Q3. Demand from methanol to Olefins, MTO plants in China also remained stable Q3 stemming from higher energy and olefins pricing and downstream demand is expected to continue to benefit from a recovery in industrial activity. Global inventories are also low as demand continues to recover robustly, planned and unplanned outages reduce supply and new supply has been delayed and is going to ramp up. Lastly, higher marginal costs are also providing support to all our markets. EPS futures in Europe are currently pointing to about $14 MMBtu, raising the cost Floor and lowering utilization rates for marginal producers and providing support for selling prices over the medium term.
I'd like to close by giving an update on our ESG initiatives. Since our last update, new announcements and studies continue to materialize in the shipping sector. For example, last month, Belgian shipping company Euronaut announced a joint development program for ammonia fitted tankers with the largest shipbuilder in the world, Hyundai Heavy Industries. And Classification Society, Lloyd's Register and DNB, who also helped accelerate the development of dual fuel ammonia fitted DLCC and Suezmax vessels. In July, Maersk also confirmed that it has signed shipbuilding contracts to the world's 1st container vessel fueled by carbon neutral methanol with expected delivery time in 2 years.
We see tremendous momentum building up from ESG that has resulted in many tangible opportunities across almost all our sites globally, which we are which the team is actively evaluating. In that context, we are pleased that we continue to make good progress in our Expanding our offering of low carbon products to our customers rapidly in order to fulfill these exciting developments. We're now capable, as we He announced earlier producing blue ammonia at OTF-one in Texas, up to its full ammonia production capacity of 365,000 tons a year. And given our strategic location near one of the largest hubs for blue and green ammonia customers in the United States as well as being close to the coast, we can sell into the domestic U. S.
Market for Export International. During the Q2, we also announced that Firdi Global joined Taziz to partner in a 1,000,000 ton per atom Blue Ammonia Project in Abu Dhabi, the 1st world scale blue ammonia facility in the MENA region. These is an investment platform for our partner for our partner ADNOC as well as ADQ. The project benefits from its location in the purpose built Saudi Industrial Chemical Zone adjacent to the Ruwais Industrial Complex, which will supply the project with attractive over the past low carbon hydrogen and nitrogen feedstock, which will keep required CapEx limited compared to a normal WorldCare plan. Final investment decision is expected in 2022 and start up targeted for 2025.
As Hassan mentioned, the purchase of an additional 15% of EBIT is exciting given the bright future we and being able to decarbonize ammonia production at such an ideal location for renewable energy supply, distribution of sales and the state of the art ammonia line. In the Netherlands, Purek, in partnership with RWE to purchase green and circular hydrogen from The application has also continued to progress. After our 1st round, it was invited amongst the best ranked participants to submit its application to the 2nd stage of the EU Innovation Fund, which is another exciting development since this can make a big positive impact on our carbon footprint at our OCI Hydrogen site. Decarbonizing the feedstock supply will be one of the main avenues for our customers to benefit from the decarbonization of their own footprints. We continue to evaluate blue and green projects across our platform and are pursuing several initiatives to scale up Blue Ammonia Capabilities in the near term.
To conclude, before we go into Q and A, nitrogen industrial markets Continue to be the strongest that we've experienced in years with robust underlying fundamentals supporting our medium- to long term outlook. Against this backdrop, We can leverage our asset base, which is uniquely positioned to harmonize our ESG agenda with our relentless focus on shareholder Finally, we believe that based on current visibility on volume and pricing, we see 2021 as the year of free cash flow growth and deleveraging. And as a result, based on our net leverage target and commitment to disciplined capital allocation, we expect that we will be able to start returning capital to shareholders of 2022 onwards, while maintaining our growth strategy. With that, we'll open the line for questions.
Ladies and gentlemen, at this time, we'll begin the question and answer session. The first question comes from the line of Christian Faitz with Kepler Cheuvreux. Please go ahead.
Yes, thank you very much. Good afternoon, Ahmed, Hassan and Hans. I have three questions, if I may. First of all, tax rate for the remainder of the year, can you give us any idea of how your tax rate will evolve in the second half? 2nd, how has OCI's gas spreads moved in this quarter so far?
So I'm talking about Q3, obviously. And what would it mean for your margins going And then lastly, can you give us any update on your plans for the Fertigloppe IPO? Thank you very much.
Sure. Thanks, Christian, for the question. Can you just repeat the second question? I'll start with that, which is what The gas price movements will be asking how it's affecting Q3?
Yes, indeed. I mean, gas prices have been up. You have, obviously, quite different contracts From region to region, so how have your gas spreads moved in this quarter so far versus, let's say, Q2, for example?
Sure. So when we think about our overall gas exposure, and it's our number one expense, obviously, Approximately 50% of OCI's gas consumption is at Ferroglobe, which is the effectively fixed price contract. Looking outside of Turkey globe, we have exposure to natural gas price fluctuations in Europe and the United States. Starting with Europe, we've seen obviously a market increase in TTF, which is the main hub we buy from for our 2 Dutch facilities. And as we said earlier in the remarks, we stopped production at our methanol plant in the Northern Netherlands due to the high gas prices, And we anticipate restarting after gas prices temper to a lower level or we continue to see this sizable increase that we've been seeing on the methanol spot market.
That's obviously one of our smallest contributors of the BioMCN plant to the overall cash flow production of OCR. With regards to the Southern Netherlands where we have our Helane plant, we are seeing gas price increases. And as we said, this is overall Supportive for the OCI business at Fertigold and on the U. S. Side, and we're seeing significant price increases on our downstream product out of that facility.
That's been very supportive actually because what we're doing is we're seeing more and more increases on the CAN market, the melamine market, UAN market, which are our major derivatives where we get good and solid upgrade margins above the price of gas and we continue to run those facilities. It keeps the ammonia market at Cosmo. In the U. S, we're exposed to Henry Hub, and we have different bases of exposure, including Oklahoma as well as Texas and Louisiana, that effectively get us a bit under the Henry Hub cost for our gas The margins are quite strong still on the methanol and the nitrogen side for production. And as we stated earlier, we have cost of collars that were in place in our Texas plant.
So we have a large portion of our Production hedged at the caps of $3.50 per MMBtu. So those are working well now to offset Some of the increases that we're seeing with over 50% of the gas hedged in the U. S. Via these caps for the balance of the year.
Okay, thanks.
And in regard to your yes, regard to your two other parts to your question, I believe One was regarding our effective tax for 2021 and the Second was on the status of the IPO, correct?
Yes, indeed.
Okay. In terms of the Naturally, as the outlook has gotten has improved significantly from the initial guidance we gave in the year, There is also growth in the assignment of the potential tax bill that we have. So I would say that the initial guidance that we were given of sub $60,000,000 Probably, we'll be close we'll probably be close to double that Yes, on a consolidated basis. But we're starting but it's difficult to give you an exact number right now Because there's
a lot of moving parts
and it depends on which part of the business is contributing. As you know, some of our assets such as Our assets in Abu Dhabi is subject to the tax rate of circa 25%. In Egypt, it's a little bit more opaque because we have various Goodwill and transitioning in EBIT. EBIT 1 is seasonal case, So doesn't pay taxes, but in EFC, yes, I'm a goodwill that gives us cover for the period of time. And in Algeria, we don't really pay tax.
So again, it depends on which assets are contributing the most. But I would say Arna, circa doubled the initial guidance of $56,000,000 is appropriate.
And then maybe just before we go to the next question, We had approximately $1,200,000,000 worth of tax loss carrying forward in the United States, which is obviously helpful due to the accelerated Appreciation and the amount of CapEx we put into our plants over the last several years. And we do have some tax losses in Europe as well to offset the Dutch That's
correct, because we all stand with our existing units.
Thanks very much.
On the IPO, as I mentioned On the and I believe there's information on that in our financial statements and annual report as well. The report you may find helpful in that regard. On the IPO, as I mentioned earlier, we continue to work on preparations for this potential IPO. We've always said that it's subject to market conditions, but we wanted to share with you, at least from where we stand today, The market backdrop for our products, specifically the nitrogen export market, is extremely robust. I'm sure Ahmed has covered some of the commercial highlights of of that specific market niche.
During his early speech on the call, I'm sure we can answer more questions on that. But that certainly goes well for this project, and we continue to work on this opportunity, which we believe
is an attractive one for Volt shareholders.
Okay. Thank you very much.
The next question comes from the line of Elia DeNeve with Morgan Stanley. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. The first one is, you stated this morning that you anticipate To shareholders in 2022, given current market dynamics, which are very favorable, can you provide a bit of more color how you think about the different form of returns? Like Would you opt for an ordinary dividend or something maybe, let's say, less committal, like a special dividend? And what will be the reasoning around that?
And then the second one here is, in the presentation, you've outlined your green and blue ammonia projects, including your U. S. Blue ammonia project And your biofuel agreements with ExxonMobil and Essar Oil. Can you share some details on how your conversations with current and potential customers are And basically, really, what I'm interested in is their willingness to pay premium price for a blue ammonia Than or CleanView. And if that's a bit difficult today, I mean, what do you think needs to happen in a market for Them to be willing to pay for that.
Thank you very much.
Yes, sure. Maybe I'll start with the second question first. It's obviously a very relevant question, which is how does this get paid for. So we've been having very interesting customer discussions, And I think there are a couple of key points. One is the fact is we've been a biomethane producer for several years now, and we've been able to generate good margins over and above our additional carbon costs for the decarbonization of our feedstock in supplying biomethanol to customers globally.
When it comes to blue ammonia, which is obviously more nascent, We're having good incremental discussions. We hope to be sharing news with the market around additional value generation In the bromony space, and that's why we're focused on it. I mean, our view is that we can decarbonize and hopefully, in the final price of the product, it goes to Consumer as well as in the form of and when people take into account carbon costs, we're able to generate additional margins. So it's still early stages, but we hope to provide a bit more color to the market on some of the exciting developments we've been seeing On the Blue ammonia side from a sales price perspective, one key element is going to be on certification. The global market industry has been doing has been putting a lot of effort into certifications to make sure that people are truly Getting decarbonized products downstream to the customer base and Cotai's team has been actively working with others in the market to ensure that we have the right And looking from the playbook we did with ISTT for certification we did on the biomethanol side over the last several years.
Another key component, which is the FINCHER 55 program that came out a couple of weeks ago, the The pushing forward of things like carbon border adjustment mechanism and that carbon tax into Europe will help limit carbon leakage and allow for a more than a playing for our European production assets and even be helpful for our FERC GLOBE assets given The feedstocks they use as well as the conversion capabilities of those assets. So developments like the carbon border adjustment mechanism, if implemented Correct. It can be another way to have more transparency on carbon pricing to allow for additional margin generation out of our
On the dividend question, I think we've shared with you before that we've maintained a flexible dividend policy, which is effectively designed to balance the availability of funds for Prudential dividend with some of the potential high growth opportunities that we have, but the ultimate priority And then to continue our pre acquisition trajectory and getting to what we described as 2x that leverage in the cycle, effectively Achieving an investment grade profile. That completes here a priority. We do believe, and this is the reason why we've sort of integrated the statement to Communicate and manage expectations of our stakeholders that we are now at an exciting inflection point where we feel We're able to do all of the above while retaining our sort of leverage objectives. At this year, we've clearly enjoyed an acceleration of our free cash flow generation And our conversion capabilities have really shown through. We our balance sheet optimization activities will also gather pace as we benefit from the overall I think with this healthy outlook and the way we see and the way we see our market conditions continuing to be Relatively healthy.
We think we're in a very good position to consider returning capital shareholders in 2022 onwards. So I don't think We're in a position to quantify at this point what that would look like, but I would expect Yes, we would not be too far from our peers. But as we This week as we progress in the year, I think we'll be able to share more specific parameters on this subject. Thank you for your help.
Thank you.
The next question comes from the line of Henk Wiehrmann with Kempen. Please go ahead.
Hi, good afternoon, gentlemen. Thank you for taking my questions. I have 3 actually. The first one is on the volumes for the remainder of the year. I think a normal seasonal pattern, I think, what we've seen in the last year is that the second half In terms of volume, it's always a bit higher than the first half, given that you now have the BioMCN shutdown And also given your maintenance schedule, which I appreciate you can't share in a lot of detail, but should we expect sort of a normal seasonal Better still where volumes are a bit higher in the second half or will this year be an exception given also the strong first half?
That's my first question.
Yes, we don't generally guide on volumes, but
you're right to point out, obviously, Or it doesn't make sense to produce in the case of BioNTN, we feel that volumes are that plant specifically. I think that it's important to know just kind of as you think about the performance of the overall business. Obviously, pricing in Q3 is much better than even what we saw in Q2 with the results we're presenting today. And there are Some sometimes planned outages that could affect the volumes and how we distribute our product over the course of the next several months.
Okay. Second question on the Ebix transaction with the 15% incremental acquisition of the 5th percent ownership. Can you remind us who is still who are the remaining minorities and Maybe a reason why they have not participated in this transaction. Do you see the other sort of minorities as long term partners? Or do you also intend to acquire the remaining of the shares outstanding?
Yes. The residual minority stake is held by a combination of private Investor and e Gas, which is the state owned gas provider. I mean, we've as we mentioned earlier, We value the opportunities to streamline the ownership at the sort of appropriate Trustholds. In this particular case, it was a highly attractive opportunity on a free cash flow year basis, Also reflecting the fact that this is not a controlling position in the company and the spinoff transaction was attractive to both parties.
I'll just add that this is a bilateral discussion with the exiting shareholders. So we haven't had discussions with the residual shareholders.
Okay, clear. And then on the let's say, the cash out of the dividends to minority shareholders Across the group, including Fertiglo. Yes, what I see in the financial statements is there's sort of a €260,000,000 payable Outstanding as per period end, is that correct? Like should we subtract the €34,000,000 being paid in Q2 and then €225,000,000 is being paid in the remainder of the year or do I see that incorrectly?
No, that is a correct observation. I mean, there's obviously, as the business performed better With the Antwerp Global also's contribution and relative competitiveness on the cost curve, we think gas price regime Positions it for better dividend performance than initially thought in the year, and that obviously results in That's a lead. So I would say it's a positive indication of the overall performance of the business. But you're right, I mean, In addition to that, we have the usual quarterly dividends to add, not as we upstream cash. So I would say that number is indicative of The Director of the minority interest for the year.
Okay. That's very clear. Thank you.
The next question comes from the line of Adrian Timagnolo with Berenberg. Please go ahead.
Hello. Thanks for taking my question. I have 2. The first one is on the European Metallol Plant. What do you need to see for restart?
And should we think about Your CapEx going forward if the plant remains shut down for a while? And the second one is with regards to your China Export assumption, do you expect more restrictions going forward or that assumes situation remains in place? Thank
you. Yes. So with regards to the BioMNTN class, We are we don't see this as a long term outage. The forward curve for natural gas starts We'll come down in the beginning of next year, kind of late in the winter period. So we're using the opportunity to do Some adjustments to the plant while they're down so that they can have solid run like they were having before we saw this very high gas price environment We've seen the low storage levels of natural gas in Europe.
With regards to the with regards to what level we would restart, I think it'd be a combination of Methanol pricing in Europe reflecting the higher prices that we're seeing in the spot market, methanol pricing here is set on a quarterly basis. And We've seen spot prices in Europe come up materially as well as in the U. S. And see significant houses still Over the next several months and good outlook on the methanol side. So that in combination with the tempering of natural gas pricing should allow for the funds to come online again and also gets additional support from its biogas feedstock and the biomethanol we produce, which is at higher margin out of that plant.
So we see this as a, as I said, a kind of temporary outage, and we're going to continue the market To monitor the production out there and see about restarting. One other element of this is that energy efficiency has been a big focus of ours as part of our operational of the availability program. And so we anticipate seeing some slightly improved conversion rates that allow us to come back online as well at even slightly higher gas prices than we normally would. With regards to the second question, in China, we do, as we've been seeing, lower Chinese exports versus last The state owned entities have now been restricted on exports, and we think that that's going to likely hold in the near term. There's still robust demand for Chinese nitrogen, more than we've seen in the last 5 years.
And the non signal We could have some export, but we see that coming down in the next few months. I think the market is not capturing the fact that not only does India We need to import a significant amount of tonnage for the next several months, but Ethiopia I had to pull some tendering that it had in the market given the tightness in the market. So we think Ethiopia is going to come down in supporting East Suez market. And also we have a different view that I think what's in the market with regards to demand in Brazil, we think that Brazil still needs to buy a little So we think that the supply demand mix, as we stated earlier, looks slowing into 2022 on the Urea side. Thank you.
The next question comes from the line of Kyle Khand with Citigroup. Please go ahead.
Hi there. Just one question left for me. Just On the nitrogen market and the outlook, I think your assumption is based on around $5 a bushel of corn, which is obviously down below the recent levels around 630, 650. Does that imply that if portability is going I hate that we're at Heat Nitrogen right now. And going forward, it will be a good and must not necessarily a brilliant market.
So you're saying is your question whether we're at peak nitrogen right now given the price of corn has come down versus a a few months ago.
Yes. I think in your presentation, you were questioning $5 in your outlook, which is Lower affordability levels of farmers looking forward.
Now we see that there's still strong affordability levels, and we have to Keep in mind what nitrogen makes up as a total of the farmers' costs. So we see corn being favored in the $5 to $6 range That's what our outlook is on that front. We see that the non nitrogen the non Farming and non agricultural demand for nitrogen in the form of ammonia as well as industrial grade EBITDA has been strengthening. That's part of why we're seeing domestic prices Strong in China where we see industrial demand for nitrogen continuing to go up. We don't see the word At peak nitrogen, we're above mid cycle, but we tend to have a more bearish view on the additional supply coming into the urea market.
So between that, the slow addition of supply coming into the Urea market and demand and affordability is still being strong in Not only China, but countries like the United States as well as Brazil. It's very robust. We think that 2022 is going to have a significant amount of Chinese of Chinese imported corn as well, similar to 2021, which is vastly up from 2020. And the stock through youth ratio is Still very low, so very strong fundamental on the ag side. We don't think this is a short lived recovery on the ag side that favors corn planting and we're Even though people were expecting very strong point flattening this last year, We didn't get as much planted as expected.
And this next year, we think that we're in kind of that 94,000,000 acres range in the United States, up from 90 just under 93 in 2021. So we see the agriculture outlook to be Quite strong and also supported by the industrial and financial.
Great. Thank you.
The next question comes from the line of Faisal Azmayt with Goldman Sachs. Please go ahead.
Yes, hi, and congratulations on the great set of numbers, and thanks for the opportunity to ask questions. Just two questions on my side. The first is just on the acquisition. Do you see any opportunity to increase your stake in any of the other subsidiaries? Or do you actually plan to take your ownership in Ebix to 100% if the opportunity allows?
And my second question relates to BioMCN. Again, kind of thinking about the recent announcements that you've made in terms of supplies into the U. K. And clean energy, How does this impact you in any way? And how do we think about those contracts and how it Q2 or Q3 or Q4 this year.
Thank you.
Sure. Thanks, Kjutta, for the question. I think with regards to the KBR question, as Hass and I were saying, this is a bilateral negotiation with The KBR is definitely the best piece on EBIT. And obviously, everything will depend on things like price in terms of whether we were We like the streamlining of the structure and having more consolidated ownership, but our partnerships with the other minorities is still very stable and very good within the Ebix side. So I'd say this is more of the what makes sense for this specific deal at this specific time.
And obviously, as we are in terms of our DNA at OCI, we're always Kind of look at opportunities as they arise and evaluate them on a case by case basis. On your second question, I think it's a relevant one and why it's very important for Our commercial strategy
is that we look
to have redundant supply points with regards to which is the best supplier for a specific customer that can get the best net back. That is the essence of why we created N7 in the United States and now we're distributing for 4 DEF plants, even though OCI Only owned one of them, which is Iowa Fertilizer Company. So to the extent there is doubt having one plant that can be supported by another plant. And in the same case, when it comes to SOR Exxon and some of our other customers in Europe on the biomethanol side, we have redundant supply points where We don't necessarily have to serve customers out of Europe, and we're often anyway serving them out of
the U. S. Due to
just freight economics being favorable exporting from our export facilities in Texas and going straight into those markets. So that's not an issue for us. We, on the OCI side, look very highly on
Perfect. Thank you.
We have a follow-up question from the line of Elia DeNeve with Morgan Stanley. Please go ahead.
Hi, Lisa again. So a small question. What are you seeing in the CA and in the UAN market at the moment? So I've seen listed prices moving quite substantially higher by yourself and some of your peers, but what are you seeing in terms of demand? Thank you.
Yes. So I'll start with CAN and then UAN. On the CAN market, we actually announced the price increase Good morning. We have a very healthy order book on the TAN side from our facility in the Netherlands. And the reason is, I think customers understand it as well, feedstock prices are higher.
So some of the types of downstream integration Are looking for additional pricing to maintain margins. So that's deep talk whether it's those that also Buy ammonia in, which is less advantaged versus those that use natural gas. So for us, it still makes sense to use natural gas Versus buying ammonia in our Perusia nitrogen plant. The farm economics is still healthy and inventories are extremely low in the European markets. They're the lowest they've been in a number of years.
So we feel very strongly about the PAM market and Continue to see it, we think, tracking up towards the balance of the year, even following the price increase we announced today. Activity at this exact moment It's going to be a bit on the lower side in August due to holidays and vacations, but we've seen good customer activity looking to buy out further at higher prices on the TAN side. On the UAN side, starting with Europe as well, I mean, our pricing is north of €300, so €315 a ton, that market is also extremely tight given the sanctions on Belarus and the FIDumping duties in Europe. So that market continues to be well supported and very low inventories as well. So we think the outlook Continues to be strong, particularly those that are buying at more costly natural gas pricing levels and and Portimonia.
With regards to UAN in the U. S, as we stated, the field program came in at $2.85 per short ton. NOLA, our plants in Iowa has gotten materially higher levels because it's located in the Midwest. So it enjoys the Midwest Premium, but even since the initial fill levels, we've seen some sales $30 to $40 above that already in the last week. And so we see this as a strong trajectory as well going forward, tight supply demand at the moment.
And basically, the fertilizer customers looking to lock in their pricing before the prices get away So we think that in addition yes, okay.
I didn't know You could tell me more.
Yes, no, no. One last thing I was just saying while I was my train of thought was just the significant amount Turnaround in the last couple of months in the U. S. I mean the A number of our players in our market are undergoing turnarounds right now. A lot of them are delayed from last year when there was COVID.
So there's been a big backlog of turnarounds. Other than just the winter freeze we had in February, we had significant downtime in May, June, July, August in our industry. So that just happens to Really tight inventories and there is a lot of concern around supply just in the next few months and where pricing comes up.
Okay. Thank you. And can I just follow-up on this one because I know you can't say much in terms of maintenance rounds given your competitive landscape, but the number of Maintenance you've seen in the first half has been quite limited? Would it be normal for us as sell side modelers to assume That your maintenance runs will be more normalized than in previous years and therefore the second half may be a little bit more pronounced on the maintenance side?
Yes. Hassan, do you want to take that one or Sean?
No. I mean, I think one of the indications one of the obvious indications is the CapEx. We've given guidance for €300,000,000 for the year. We will sub €90,000,000,000 in the first half. So I think our second half will be a little bit busier in terms of maintenance runs and turnaround you have scheduled.
We don't obviously give exact details on those, and we don't But I think that's sort of one area I would point at. But you also have the market backdrop that Ahmed described where we are seeing better performance on prices. And because of the tightness in the system and the low inventories that it's hard to tell what the degree of offset In our case, in terms of prices, we'll have effect. So it's can we give you further guidance beyond that?
That's great. Thank you so much.
There are no further telephone questions at this time. I hand over to Hans Zayed for webcast questions.
Yes, thank you. There are actually 2 webcast questions from Rutger Beitenhuytenhuyt. The first one is, Thanks for the presentation. When can we expect a further update about the IPO of Fertigloppe? And is it essential that Afnac first complete their IPO of their drilling business before the Fertiggo IPO will be done.
That's the first one.
Yes, I can take the first one, Hans, before but I guess as I mentioned earlier in the call, We will as soon as there's material information to communicate on the IPO, we will share it. In the one note, I will show the audience that Obviously, markets this particular market and many markets in the region are similar. You Can only manage certain amount of transaction at
a time.
So there needs to be some degree of sequencing there, but that's all I will share. But as soon as we have something material in terms of timing Andy, appropriate window subject to market conditions, we will communicate that actively with the market.
Thanks. And the second question is, is it expected that The Q3 will be even better than the Q2. 2nd quarter was already much better than the first.
Yes. I mean, the guidance we're coming out with now is just with regards to the year end that we will continue to deleveraging in terms The target of being 2x leverage. And we think that, Like I said, pricing is significantly better in Q3 versus Q2 and Q1, and we expect with our order book That are in place today as well as the trajectory of results of the year, be in a good position on the second half
and for the opening year as well.
There's no further webcast questions. I think I'll hand back to Ahmed for close.
Okay. Thanks, Hans. Thank you all for joining us today. Stay safe and looking forward to our