Ladies and gentlemen, thank you all for standing by, and welcome to today's OCINV first half twenty eighteen results conference call. At this time, all participants are in a listen only mode. Question, you will need to press star and then move on to the telephone and wait for a name to be announced. I must advise you all that this conference is being recorded today, Friday 31st August 2008 I'd like to hand the conference over to your speaker today. Mr.
Hans Zayed, please go ahead, sir.
Thank you. So Good afternoon and good morning to our audience in the U S. Thank you for joining us on the OCI NV first half twenty eighteen results conference call. Point all the details of our results in our press release and financial statements, which we posted on our website this morning. With me today are Nasak Sarias, our Chief Executive Officer and Hassan Badrawi, our Group Chief Financial Officer.
On this call, we will review OCI's key operational events and financial highlights for the second quarter and third half 2018, followed by a discussion of OCI's outlook. As usual, at the end of this 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 risks, uncertainties, and therefore, I'd like to refer you the same as about forward looking statements. Now let me introduce a good Chief Financial Officer, Hassan Badari.
Thank you, Hans, and thank you all for joining us on this call again. Yeah. As Hans mentioned, we this morning, we posted our results for the second quarter and the first half of twenty eighteen. Which we achieved another record for our sales volumes, continue to demonstrate step up in our EBITDA compared to last year. And improvement in our leverage metrics.
During the second quarter of this year, our self produced sales volumes increased by 47% to 2,500,000 tons. Our average realized selling prices improved over the same quarter last year. Because of the higher volumes and higher selling prices, 2nd revenues increased by 43 percent, around $793,000,000. Reported EBITDA increased by 92% in to $215,000,000. And our adjusted EBITDA increased by 22% to $204,000,000, around $204,000,000.
So that is mostly due to the release of a provision for the insurance claim, received for the software shutdown. For which we received the first payment of $20,000,000 in May. We also reported a net loss of $40,000,000 and an adjusted net profit of $3,000,000 in the second quarter of this year. The decrease compared to the same period last year is mainly due to the first time accounting for IFCO this year in 2018, which has resulted in higher depreciation and non capitalization of interest. There were also $29,000,000 of FX translation losses that relate primarily to the appreciation of dollar debt in our euro denominated statutory financials, so it's an accounting representation.
More importantly, on our primary measure operational growth. We achieved a healthy free cash flow of $133,000,000 during the quarter, representing a 62% conversion of our reported EBITDA. This takes the total free cash flow achieved during the first half of twenty eighteen to $247,000,000 compared to $20,000,000 in the same period last year. The free cash flow number excludes the trailing end of our growth CapEx plan for which we have spent $51,000,000 in the first quarter and around $74,000,000 in total for the first half of this year. Turning to our balance sheet.
Our net debt stood at $4,336,000,000 as our 30th June 20 18, a decrease representing a decrease of $100,000,000, from, 31st March Our net debt was impacted by a seasonally low EBITDA compared to Q1. Total capital expenditures of $89,000,000 of which maintenance capital expenditure was around $38,000,000 and the balance of the group CapEx was related mainly to buy MCN expansion, in Europe. It was also impacted by the $20,000,000 of cash received as down payment from insurance related to the shutdown at surface. Positive currency translation differences in the balance sheet of $73,000,000, which are the result of the appreciation of the U. S.
Dollars against the euro and the Argentina during the quarter. And other nonoperating items of $44,000,000 relating to a number of items, including debt restructuring costs, such as the convertible, which we retired, and some short term loans, to Nigeria. During our last conference call, we discussed our expenses and successful refinancing activities that took place in the 1st And Second quarters. Since then, we have further improved our capital structure to re buy out of the minorities at OCI Partners, We have finalized the transaction on 17th July for a total cost of about $120,000,000, and this is now a 100% owned subsidiary. This transaction allows for simplification of the group's corporate structure, streamlining of our methanol commercial operations and the elimination of public listing costs.
At this point, I would like now to hand over the call to, not just a years, our Chief Executive Officer, for further commentary on the results and the outlook.
Thank you, Hassan. First of all, I would like to thank the entire team for all the progress we made during quarter, both operationally and particularly. I'm pleased that we reported a healthy level of operation and free cash flow and a reduction in our net debt during the quarter, which reflects our large 5,000,000,000 CapEx plan coming to an end. The benefits of our commercial strategy of limiting forward sales coupled with our well diversified portfolio are clear as you achieve this improvement even with planned turnarounds at some of our clients during the quarter. We have started the second half of the year on a strong note all our patients are running at good utilization rates at the moment.
We continue to ramp our volumes and our underlying end markets are looking increasingly positive. During the second quarter, we also made good progress with positioning the organization to capitalize on this growth. We strengthened our position in North America with the start of our marketing joint venture called N7 with the Dakota gasification company. This platform gives us an an enhanced sales platform and extended geographical platform. We optimized our corporate structure with the buyout of the OCI Partners minority.
If we look at our prospects in more detail in 1st years with respect to our own volumes in 2018 compared to a year ago, we are seeing a big step up in volumes coming through from Iowa and our plants in North Africa. In addition, as I mentioned in May, we you'll start seeing the benefits from some productivity improvements that will help us achieve higher run rates going forward. For example, EBIT increased utilization rates from just over 90% to, above main trade capacity currently following the short turnaround in at Natgasoline at the end of June. The speed of the ramp up has been impressive and exceeds the industry average for startup plans. The plant has been running consistently above 100% in the past few weeks, and we've already shipped significant volumes of methanol around 200,000 tons.
The plant is also proving to be very efficient and has achieved gas consumption that have been better than the design rates. We now have 1 growth project we mean, which is the refurbishment of buyer MCN 2nd line, which we expect to start production around the end of this year. If I now look at developments in our end markets, first, I'll talk about nitrogen fertilizer. Our realized selling prices increased on average during the second quarter compared to a year ago, but ammonia prices remain depressed. It is only in the past few months.
That prices for all our products started to turn and are now at a much higher level than a year ago. Urio prices have moved to $310 per ton or a $100 higher than a year ago, and up 25% from the average urea price of 244, reported in the 2nd quarter. Other fertilizer products, prices are witnessing the same momentum. Price dynamics and the nitrogen for fertilizer markets are looking very positive supposedly by healthy supply and demand fundamentals. We continue to believe that net supply additions have peaked and the demand will will outpace minimum global urea capacity additions over the last at least the next 4 years.
We expect exports from China to stay at factory lower levels going forward. Exports have been imminent immaterial this year so far, only 800,000 tons. Price increases are also supported by high production costs for margin producers in China and Europe due to high coal and natural gas costs. Finally, exports from Iran, one of the largest area exporters globally, are at risk of significant curtailments following US challenging. Sanctions.
As of now, Iran is fully exporting, but this situation could change. So what we see in current prices reflect full utilization of the Iranian capacity. So if that happens and Iranian exports all production, get curtailed. That's when we'll have a significant result and an additional tightening of the supply demand balance. The only product that we think has, a mismatch and has a further room to grow is ammonia.
Where ammonia is trading at the same level of urea prices, which usually should not be decreased. Umonia typically creates a premium to urea prices, given that it takes one ton of ammonia to make 1.8 tons of your year. I'll move now to the industrial chemicals market. In the second quarter, our industrial Temicus portfolio was once again a solid performer and the outlook remains positive. We have had good visibility for methanol markets for the next for 4 years, where we expect limited capacity additions relative to the non growth in the high single digit.
Like urea, some methanol capacity additions and exports from Iran, maybe at risk. The outlook for Nevermind remains healthy, Finally, we continue to enhance and grow our diesel exhaust fuel platform to position us for growth above the 20%, which is the annual growth of that product consumption worldwide. In summary, our volume growth comes at a time when our end markets are on a positive trajectory and are more positive than most market participants were expecting for this year. We are one of the lowest cost producer in the industry globally. And as such, we believe we are best placed in the industry to take advantage of these improvements in our underlying markets.
I'll now open the line for questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session. Again, as a reminder, should you wish to ask a question, you may press star and the number one in your telephone and wait for anything else? Did you wish to cancel that request and request the pound or hash key? And the first question comes from the line of Roger Spitz.
Your line is now open. Please ask your questions
Thank you, and good afternoon. First, can you speak to North Africa's net profit versus q118? Why was it down versus q118?
On the segment, on the specific ones, we have to, to go on a plan by plan basis because EFC and E becomes offered while they're consolidated Some of them had, turnarounds in the second quarter. EBIT, for example, had the 5 year turnaround in the second quarter. And, other than that, EFCs also had a part of the turnaround that went into a little bit into July took place. So it's mostly and as we said in the announcement today, H2 has practically very little, turnarounds, plant, limited maintenance that are sub-seven days.
Okay. And in terms of the, 700,000,000 OCINV revolver, Could you say how much of that was drawn on June 30th? And how much is drawn now post the OCIP minority takeout? Is if that is how you financed the OCIP minority takeout?
No. We're not gonna comment on numbers past June 30. I mean, quite common. The detailed details of the Q3. We'll have to wait for the Q3 quarter.
Okay.
But, you can extrapolate from the free cash flow generation in Q2 at significantly lower prices. So Q3 pricing environment significantly improved from Q2. So yes, we have that OCIP payment, but we also have a higher cash flow generation in July, as expected.
And June, the revolver, the 700,000,000 OCINV revolver, what, at June 30th, what was the outstanding amount?
Please. We don't segregate, each significant credit line. In general. So you have our net debt, but basically the revolver we use, I as one facility that has the most flexibility, of course. So, we reduce it as cash comes in and we tap into it when there are needs.
There is also a big impact of the gross debt versus net debt. And that is work in progress. It's improving now. We expect post the 20 percent acquisition of the government minorities and, other milestones and on some other plants. That we will have a significantly lower gross debt by yearend in relationship to the net debt.
And that will be positive also for bringing down the revolver. Okay. We are handling daily treasury in a completely different approach, then, we work when we had to take care of certain minorities, or we had to take care of certain covenants like in Iowa during construction and all that. So, you will see a collapse, between the gross debt and the net debt. And overall, our aim is, to finish the year with a significantly improved net debt number and significantly lower interest expenses moving forward for 2019.
All right. I guess I have a request for you to consider is, you know, quarterly, maybe consider providing us with the detail of your debt components, each quarter and also while you give sales by, sort of segment entities, if if it's if it's possible to give DNA and EBIT by segment entities. I know you give that on an annual basis, but it'd be interesting to get that on a, quarterly basis. You do provide the net profit, which gives some indication, but it'd be nicer to have EBITDA just just for your consideration to provide more information. Thank you very much.
The next question comes from the line of Christian Faitz. Your line is now open. Please ask your question, sir.
Yes. Good afternoon, gentlemen. A couple of questions if I may. First of all, can you give us kind of a sales bridge, in terms of your volume, price, and FX, development into through versus q 2 17. Just trying to get my head head around about, around the price increases you saw, of, I would believe, some 10% or so in the mix, and your volume Sorry.
I'm not covered. I Yes. Yes.
And which product? Sorry. I didn't hear you.
No. I I would believe, if I if I look at your, mix sold, I would believe your prices should have been up, probably in a high single digit percentage, range and your volumes, I believe, are up 47%. So I'm just trying to get my head around the, plus 43%, group sales development. And then, I'll I'll follow-up with another question.
Some of the negative, that affected that could be the, the higher gas cost in Europe, level 1, that took, a bit of wind out of the 2nd quarter, early. So, as clean as that plus, the, The volumes, included also, some of the some of the external on produced. You're talking about on produced volume or total volumes, including,
I see. Yeah.
Well, primarily, the the the the key highlight is the, is the, first of all, the, higher gas in Europe. And then on the net profit basis, you see also the, the start of the impact of the depreciation in, in Iowa, which at the latter part of last year was still producing, but 1 in capital. I start the capitalization based on accounting, which is, starting from 18.
Okay. Perfect. Then, as another, question, a basket, so to speak, can you give us an update on on the performance of a couple of your plants like for example, how is EFCO running at the moment, the methanol facilities in Beaumont, including maybe comment on, net gasoline, ramp. And then, finally, do you see any drought related impact into 3 in Europe, simply because it was so dry that farmers couldn't apply any fertilizers in late Q2, potentially early Q3 still, especially in the late safeguards.
So on the first I'll start by the operational performance of the plant. We're very happy with the Iowa plant. Actually, we are excited about a lot of the potentials of improvements that continue to exist. To give you an example, on an average day, we least about 115 percent of the nameplate of urea, which goes down to, downstream with DEF and granular urea as well as UAN. We also see a higher nameplate performance on ammonia around 110% with a lot of rooms to improve, especially once the weather gets colder after the summer on the ammonia side.
So we're very pleased with that plan. We are actually doing very small investments in Iowa as we speak with adding more storage capacity, in DEF. DF is our highest margin product, by far, and, our intent is to grow that production platform. We have also introduced almost 300 railcars to, to be able to access, more destinations for DEF. The beauty of DEF also is that that product disappears from the ag market.
So it tightens the ag market while it goes down into the trucks and disappears. So we're very excited about DEF as a product in general and the growth that we're seeing in new usage for DEF in construction equipment, in agriculture. So it's not just trucks and private diesel passenger So on the Iowa side, there is a lot of work being done on the DRF front. We're very happy with where the plant is performing. Going back to Texas, both, Beaumont has continued to run extremely well.
And, Natgasoline was, a nice surprise that, after a startup We had practically very little downtime from the day we started the plan with
the plant
actually exceeding main plate capacity and with a good potential to do so on a sustainable basis. In addition to a very important thing that we look at very is energy efficiency in the plant is below our calculations for how many MMBTUs of gas we need to produce a ton of methanol. And we think that number also is going to be improving further, with the colder weather.
Okay, great. Thank you. And then, as I said, finally, the, do you see any drought related impact in terms of volumes in late Q2, having gone into Q3 in Europe.
No. It was actually more from Q1 to Q2, but please, the end. So winter came late in Europe as, by judging by your accent, I assume, you know. So yeah.
Summer came soon. So, that's why I'm asking at the back end of the, growing season. Is there any volume impact which you would have seen in your numbers?
No. Because I mean, a lot of it is, quite normalized, volume, but we did have, a turnaround in OCI Nitrogen in Q2. So obviously with a turnaround, you dispatch less, you keep some for your future commitment. So I wouldn't call it because of the weather, but the the turnaround and the turnaround will be very honest we opportunistically, didn't shed a lot of tears on a prolonged turnaround on ammonia in Europe. At higher gas prices, given that we have, excess export merchant ammonia at competitive pricing within our system.
We actually bought some, cargoes and we're not the only one We're not the only one who's, doing that. Other producers are also curtailing some ammonia production and, importing ammonia. So, yes, while it has had some effect, on the the OCIN stand alone, but you can also look at what happened from end of June till today, you can see almost as, 20 some percent price improvement in Amoria and we think that ammonia prices have significant need to go even higher to justify continued production and to justify the arbitrage between Ammonia and Murri.
Thank you. The next question comes from the line of Tom Regalsworth. Your line is now open. Please ask your question.
Good afternoon, gentlemen. Thank you very much. First question, just around you know, the movements that we've seen in in the urea market, up to $300 a tonne seaborne. Obviously, you're indicating that there's a potential for scarcity pricing in this market. Do you think the the prices today reflect just trader speculation around that scarcity?
Or is it sinking into the farming community as well now that they that there could be a a shortfall you know, probably for next for next application season. And I guess and and and as a corollary to that, you know, does that mean that actually we'll see urea prices disconnect from crop crop prices, which haven't actually done very much year to date?
Obviously, crop prices are something that everybody watches. But that's more on the US side. A lot of emerging markets, surprisingly, became larger consumers of fertilizers posted with current civilizations because in terms of total cost of the agricultural production, like for example, in Russia, we saw post the big devaluation of the ruble a higher increase in domestic consumption of fertilizers. We're seeing more demand in some LatAm countries post evaluation. So, because the other non imported components of fertilizer, labor, land and all that, are thinking and the proceeds from exporting, their products are becoming much more attractive and domestic currency terms.
So, that is one issue that is different in emerging markets, an interesting statistic is that for the first time, in the last 100 years that Russia exports more ag products in 2017 than ministry sales. So that's a key milestone to look at. We're seeing that also in the emergence of very aggressive new markets and interest in increased agricultural activity in East Africa. And now, Ethiopia is growing, it's, fertilizer imports. They have a population to feed So, they have 2 options.
Import the French agriculture product or import fertilizers and do it at home and create jobs in the economy. So East Africa is, is going to be a significant new or new market. Now that's on whether the prices reflect speculation or reflect dynamics. We don't know the answer. What we know for sure is that historically, the levels of fertilizers within the system in storage are extremely low.
You have significantly lower fertilizers in India, which is a big market. You have significantly lower imports this year in Latin America. Than last year, and the same applies to Europe, and, that is a key indicator country like Pakistan, for example, I had 80,000 tons in inventory a few weeks ago, and they're considering how to deal with such a situation. So the, what's clear really is that the system in storage as not reflecting any kind of speculation. Typically, when you have speculation, you would increase inventory, in the co ops and in the farmers, all this of anticipation, we are entering this part of the summer with significantly lower inventory than we had last year.
Very good. A second question, if I may, on, on on methanol, and, how just well, two parts, how how you see the the market outlook into, into into year end and into 2019? And and secondly, noting that Natgasoline is a is a is a world scale facility. Are you are you gonna will you take a price over volume strategy as you wrap that, or is the market there in your opinion to to actually, to ramp aggress not aggressively, not the right word, but ramp quickly without too much price impact.
1st of all, I mean, Methanol is a product that has been growing between 6 7% terms of demand, in the last 10 years on average. So, the emergence of a big demand pocket in and NTO plants in China, created even a new dynamic, and increased dependence on methanol pricing correlation with oil prices. So you have to take a view if current oil prices are sustainable or have room to grow to determine the methanol. We don't want to speculate on, oil prices. And hence, we're not going to speculate on methanol prices, but as we can talk about is that the introduction of Natgasoline and putting that product into the market had minimum impact despite it happening in the summer and despite a lot of MTO shutdowns in China.
So, in the foreseeable future, we see the methanol pricing as continuing to be very strong. The market absorb the volume there is no drama there in the launch. So we neither need to, we will sell 100% of our production, by virtue of being the lowest cost producer with $2.60 or $2.70 gas in America, and the most efficient, newest plant. So we don't need to make that debate. And in general, methanol is is quite tight at the moment.
Thank you. And the next question comes from the line of Frank Wirman. Your line is now open. Please ask your question.
Hi. Good afternoon, gentlemen. Thank you for taking my questions. I still have quite some questions left actually, and I hope we can go through them one by one. Firstly, beyond the extent already discussed on your debt position, I mean, now that the expansion phase has been nearly completed, delevering is obviously a quite an important strategic pillar for you.
And given the, given the dynamics in the first half of the year, can we still more or less expect you guys to sort of de lever, from 4 to 4.5 times net debt to EDA towards, let's say, approximately two times that debt EBITDA in 2020 and then obtaining the investment grade. Has anything changed in that respect in terms of your expectations? And maybe you could also us a little bit of a feeling how the trajectory into the end of 18, the 19, how do it all look like? Thank you.
So I'm, I'll start with some of, general items and various specifics and pass them on to Hassan. But, our views that we could, given the trajectory of the second half, we could see a situation where by the end of the year, we are net debt to EBITDA is below 4 times already by the end of 'eighteen. And that would be a very positive a a milestone. And, looking forward, you can, see our free cash flow generation at reduced prices in q 2. You can make the assumptions at current prices without doing too much.
We could see generation of significant free cash flow in 2019. So there are also some issues that we've talked about when we issued the bonds, Natgasoline is over capitalized and a lot of pockets, on the improvements that will happen. So I would say if anything, that trajectory is has improved and might be shortened. In terms of return to investment grade, the
And I think it's demonstrated by, the free cash flow conversion we saw in the 2nd quarter, which is a seasonally low courses as prices improve, that conversion only be bolstered further. Contributing to the deleveraging part. We're still remain committed to, to achieving that deleveraging trajectory. As we've highlighted in every quarter so far.
And what helps the investment grade is not just reducing the debt, but actually increasing more the free cash flow generation. So we're hitting it by reducing the gross number, but we're also, you're going to see in 2019 or later in this data this year, our run rate that reflects an improvement in the credit metrics.
Okay. Well, we're very good to hear that's all running sort of, out of expectations, at least ahead of my expectations. Maybe zooming in on one part of your cash generation, which is working capital. I mean, we've seen a partial reversal in Q2 versus Q1. How, like, how big is that sort of source of cash for you still in the upcoming years.
Do you see a lot of room for improvement in your working capital? Maybe you could give some more color on your working capital movements in the, let's say, as you, as you now have fully ramped up in the remainder of the year or into 2019, depending on what you can say, what you can't say, but just to give some more color on the long term opportunity in your working capital position. Thank you.
We have changed our marketing policy. We started in Europe last year. Basically, we are not rushing to sell in July August. We looked at pricing movements in the last 20 years and with the exception of 2008. There has been a huge gap, between the pricing in 2, 3 months and the the remainder of the year, the 2, 3 summer months, And we looked at where the product was going.
The product was not going to the farmer. It was going to an intermediate, whether it's a co op or whether it's in a
a trade a trade house.
And, we we said we don't need to be, selling 3 months forward and 2 months forward and booking in a lot of orders in June for July August. We're going to be prudent about what we what we send in those low price environment months. And the stockers and the traders that buy your product on the cheap and the summons become your competitors, later in the year. So that product hasn't actually sold. You've just obtained a refinancing at almost 20, 30% cost, by selling it early.
So that obviously does play on the, working capital management, but 2 months later, you discovered that that was an increasingly very attractive business proposition because what we didn't sell I'll give you an example. CN in June was at EUR 170,000, EUR165, Today, it's closer to, to €10 to €20. And these are only 2, 3 months. And what part of the rationale is that We are not gonna be giving the product to anyone who wants to buy it 3 months forward and 4 months forward and store it. We were going to manage to sell month by month.
We started that last year to good results. We've done that in the U. S. Where us and the quota verification did not participate in the same program, we sold only, almost 1 month ahead, but regular sales So with that, you kind of assume a slightly higher working capital during late spring and early summer. That goes away, starting September, October.
And so that management is not going to be strictly on autopilot. It's going to have to do also with our new very strict policy that, we're not going to be, we don't call it defense season, we call it the full
So, basically, what we as analysts can conclude is that, that you guys have been, let's say, compared to the previous year's more strict on working capital movements and that we can expect at least like some positive, positive numbers there or at least, let's say, some more efficient Capital, working capital management. Is that correct?
Actually, I will prioritize free cash flow over multiple quarters rather than quarter per quarter. So we're not going to fixate it about working capital at the end of June. And then, and dump a lot of product that the market doesn't need in July August. We're going to manage it to what is best for, the full year and not month by month, you unfortunately working capital going up when you are producing more and, when, the cost of production in Europe goes up, So it's not only that one, strategic shift. It has also to do with, the cost of the product you can.
Oh, that's perfect. That's perfect. Then on interest costs, it was already discussed, during the during comments being made earlier. But the SEK 182,000,000, when I sort of exclude the FX movements, what looks a bit high, and I understood there are some one offs in there, such as, you know, debt settlement expenses. But now that all the, let's say debt facilities are in place.
Could you could you could you share with us what your expectation is of, let's say, this this line item and and once again, like, we can exclude sort of the impact because you have continuous movements there. But what is the underlying, let's say, interest expenses for the full year or at least maybe you can share with us what has been the interest expense on an underlying basis in the first half of the year. Yeah.
No. That's a it's a
good point. I think, maybe just focusing on the first is the results that are out there in the market. You are correct that the interest line, was a little bit artificially raised the first half by number of one offs, primarily, related to debt restructuring costs, across the system or the convertible and other facilities that we addressed, in our last call, as part of the successful refinancing that we estimate that's up to our $30,000,000 of that line item was associated with these debt restructuring costs. Couldn't the convertible facilities in Egypt, South, the MB facilities, and, and some cost of other beach facilities that we have to put in place as we transition into our new capital structure. So that's, that's, that's the correct insight.
Overall, Our average interest rate on our gross debt for 2018 should be around 6% for this year, but obviously we're very focused on, as Nossa mentioned earlier, on opportunities to further optimize our balance sheet and look for, further further reduction
as we generate a lot
of cash flow the that the absolute numbers should also come down, next year.
Yeah. No. That is very clear. Thank you. Very helpful.
Another question I had, which may be a bit of a longer shot, but with the prices across your end markets, moving up bits by bits. And many of your peers have actually discussed also during their calls. Let's say the earnings potential they have in a in a more or less mid cycle scenario or at least the sense sensitivities, they they see all their earnings when it comes to different prices. And I think many of your shareholders are also looking looking at this when they invest in in OCI. So maybe maybe you could comment on what you guys see as a appropriate mid cycle level or what you what what you guys regard as a mid cycle level and what could be in, let's say, the steady state OCI platform, what could be the EBITDA potential in in such a scenario.
Quite significant. I don't want to give a number yet because we are still working on the new tweaking, which are quite significant at higher prices. So if we produce 200,000 tons more of methanol as a result of, optimization or 200,000 more in, in Iowa. You get the effects of that and at that higher prices become meaningful numbers. But I think we are well ahead of prices in 2019, continue the trajectory that we are expecting them to do.
We're expecting significant improvements in EBITDA next year, with our share of Natgasoline with the that would be a sizeable more than 50 percent jump in EBITDA and a significant increase in free cash well.
I mean, I mean, I didn't pronounce this comment. One of the things that we've highlighted consistently in our previous interaction with our investors is that having a a relatively young asset base, which means that you're low your maintenance costs are, quite low going forward in the in the neighborhood of 1.50 to $200,000,000 and with our effective tax, it also being competitive. This allows us, even in the seasonally low quarter, like the 2nd quarter, we're able to demonstrate 62% conversion or EBITDA to free cash flow. So above that, anything outside in prices, that's that's additional conversion into our free cash flow and obviously feeding into our, trajectory of deleveraging.
One of our key metrics that we monitored is conversion already. That's a free cash flow. And that's something we take very seriously. And, I think we have one of the best maintenance organizations, particularly in North Africa where we do everything in house. So, at a very reduced cost and plus the fact that the plants are young.
So, I turn around that cost for some North Africa. $10,000,000 would cost $30,000,000 in Europe and, equal, an equal number in the U. S. So that's also part of the free cash flow conversion is that you don't have even better operating costs, what you're maintaining costs, which is highly labor intensive is, benefiting from some of the, applications we have.
But the energy efficiency of a of a younger fleet of plants as well.
Yeah. Yeah. Okay. Thank you. I mean, I mean, if you look at these sensitivities of some of your order, let's say, like, likewise companies and and sort of apply these numbers on OCI.
And and and sort of assuming that the operational gearing on higher prices works in the same way. I mean, I can imagine it must be quite exciting for you guys now that the prices are creeping up already since the beginning of Q3. And that is supposed, I think you you said it well, but see long optionality you have on on cash generation on EBITDA. So, yeah, I mean, that's that's good. That's good.
Maybe last question on debt. I mean, you mentioned that you are aiming to increase your market share in the business sales. The demand is growing about 20% you mentioned and you plan to outgrow the market in that sense. Just from my understanding, that does not involve huge CapEx investments. Right?
It is those are more synergistic.
And all the railcars are leased. And the the the lease is very efficient because again, DEF is our highest margin project, product, especially in in Iowa. I would, give you an example we replaced to one major truck stop, a source that was, importing EF from Poland shipping, 50% water across the ocean. So that's not efficient because DEF is sold with a lot of water. So a logistic in DF are key.
And the fact that we are, the largest CF producer in the Midwest it gives us access to the Chicago hub and, all the media traffic and all that. That's very positive. So we're very excited about that product because every time you shift the product from, UAN or urea to DEF, our margins expand. So it's a very, some of these decisions that we need have a payback of 6 months. So it's not a CapEx issue.
It's more of a logistics management to be able to reach, more customers of DEF.
Okay. Perfect. Thank you very much for that. Very helpful.
Thank you. And the next question comes from the line of Frank Claassen. Your line is now open. Please ask your question.
Yes, just one question left on DES as well. How far are you with the plans in Europe to launch DES? And you talked about a run rate volumes in your press release. What is your targeted volume for DEF and and how and when do you expect to achieve this? Thank you.
I mean, in in Iowa, we are, increasing, DEF to be to where it could be in 19 our largest product sold, in terms of, margin contribution. So, we are going, an Iowa to the maximum Holland given the we're going to combine that with a turnaround in 'nineteen to avail a DS out of the Helene plant. That's not a big CapEx. And we've already made some experimental, shipments, 4 or 5 so far, or we have produced in Egypt 2000 europe. So, we're taking DF as a core product that we likely DF is growing at 20 percent, per annum, that's the fastest growing product and, that demand has to be filled ideally with plants that are new and young, it's very difficult, to produce DF from all the plants.
Okay. Thank you. And maybe one small question. You already received 1,000,000 on the insurance payment for Shoreford. What is the way forward?
Can we expect more in the second half?
That's correct. That the the $20,000,000 was a, an upfront payment, on the claim, which is a part of normal procedure. We're aiming for, finalization of the claim of the insurance claim in its entirety or the balance sometime between Q4 and possibly early Q1.
Thank you. The next question comes from the line of Isiah Molotova. Your line is now open. Please ask your question.
Hi. It's Kimmy Motel from the system. Thanks a lot for taking my questions. Question. Just one.
On need less value. And you see now when there is more production in, in the west, actually, what do you think is going to happen to premium, which was quite considerable in the past.
There is no new production coming in the new dress I, at least there's no hole there's no hole in the ground in the Midwest for someone constructing a fertilizer plant in the Midwest. And I would be surprised if we see someone digging a hole in general for a fertilizer plant in the US given the high cost of CapEx required. Yes, you have an attractive gas price, but the entry ticket is painful in terms of CapEx, in terms of, project finance availability and in terms of access to labor. So I think the premium in the Midwest is actually, on the right trajectory and expanding. It's not just because of the supply demand, you have other issues, the river is clean, closures, people cannot have access to products from imports in your means.
The fact that also these long dated trader contracts from the Arab Gulf they don't make sense anymore for the Arab Gulf producers. They were done in the past when the US was exporting 2 to 3 times what it's exporting, more than double what it's what's going to be importing. Moving forward. So, right now, the Arab Gulf has more demand in Asia, more demand in East Africa, they can achieve much higher net backs than sending it on a blind formula to New Orleans and have a trader also sell 2 barges and lose money and manipulate the price and the Arab Gulf producer can lose a significant amount of optionality, as opposed to better fixed price and go east. So we expect that moving forward, there will be a less product coming, from the Arab Gulf.
None is arriving from China very little arising, from Venezuela and the traditional exporters into the U. S. So with that, That will also affect the Midwest premium.
Thank you.
Question at this time, sir. Please continue.
Thank you, ladies and gentlemen. And looking forward to our next call in 3 months.
Think that does conclude the conference for today. Thank you all for participating. You may all disconnect. Have a good day, everyone.