Ladies and gentlemen, thank you for standing by, and welcome to the OCI N. V. First Half twenty seventeen Results Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session.
I must advise you that this conference is being recorded today, Wednesday, September 2017. And I would now like to hand the conference over to your speaker for today, Nassif Zawiris, Chief Executive Officer of OCINV. Thank you, sir. Please go ahead.
Hello, everyone, and thank you for joining us for the first half twenty seventeen results conference call. As we announced this morning, Salman is stepping down from his role as Group CFO. I would like to thank Salman for his invaluable contributions and leadership during his twelve years tenure, which spanned on an important period of transformational change and growth for OCI. Salman will stay on as an advisory role for a while to ensure a smooth transition. Would like to welcome Hassan Badrawi as OCI's new Group CFO.
Hassan joined the company in 2001 and has led and actively been involved in many aspects of the company's management, including M and A strategy, business development, JV management, financing and investor relations. Before we start, I would like to say a quick word about Hurricane Harvey that hit Texas last week. The storm passed over both OCI Beaumont and the Natgasoline site. Our number one priority is was and is the safety of our staff and our community, and I would like to thank all of our employees for their commitment during this difficult period. We are fortunate that the storm caused only minor disruptions.
OCI Beaumont continued to run throughout the storm except for a few days downtime in methanol and a shutdown of the ammonia plant due inter due to interruptions in shipping. Construction at the Natgasoline site was halted, but the site was drained of large amounts of rainwater and staff has been able to return to this to this site and resume construction. Our thoughts are with all those affected, and we have made a donation to the Southeast Texas Emergency Relief Fund to help in the relief and recovery efforts for local families. We will continue to monitor the situation and provide our support in any way that we can, including several initiatives currently underway to provide relief for our local staff. Turning out to our turning to our results, first, and then we give highlights of key operational events and give an update on our financial position.
I will then give an update on the current market environment, our growth initiatives and outlook.
Thank you, Nasif, and thank you all for joining us. I would first like to thank Nasif for his kind words and my team at OCI. As Nasif said, I will stay on for a while to support the transition process, and I wish Hassan all the success in his new role. Now turning to the results, let me first give some operational highlights. Consolidated first half twenty seventeen revenues increased 5% to just over $1,000,000,000 as a result of higher product volumes sold as well as higher methanol and melamine prices.
Our own product volumes sold increased 10% to a record 3,300,000 metric tons during the February. Urea volumes increased by 21% as our urea facility, Egyptian fertilizer company in Egypt was operating at full utilization during the first half. Urea volumes increased despite lower volumes at sulfur in Algeria. Ammonia volumes were down 2% during the February year on year. This was caused by an unplanned shutdown of one of the two ammonia lines at Sofet in Algeria during the second quarter.
The shutdown will impact ammonia volumes from Algeria during the third quarter as well, but we expect a return to normal utilization levels in Q4. We expect the loss of revenue due to the shutdown to be covered by insurance less any deductibles. The insurance proceeds are expected later during 2017. Our ammonia facility in Egypt, IBIK was still running at levels below 50% for the first half this year. However, the plant regained access to its export jetty and commenced the first shipments in July.
The plant is now running at near full capacity in excess of 90. Our Dutch operations achieved record production volumes during the first half of twenty seventeen. This was driven in particular by our nitrates business In the first half this year, CAN volumes increased 61%. CAN volumes were low in the first quarter last year due to a shutdown, but second quarter volumes increased a solid 12% year on year. UAN volumes now include small sales volumes from our new plant in Iowa and were at normal levels for our European operations.
Our industrial chemicals business performed well during despite an unplanned shutdown. Methanol volumes were up two percent in the February. There was an unplanned shutdown at OCI Beaumont at the April, which was the reason for a drop of 3% in volumes during the second quarter. During this downtime, we took the opportunity to carry out several other repairs, which were previously scheduled for a later date. Since the restart, the plant has been running consistently at rates above nameplate capacity.
During the storm in Texas, the plant kept operating at high levels except for a few days downtime due to a trip. Bio MCN in Netherlands continues to run at record production levels and was at record production levels during the February. The melamine business continued its strong performance from 2016 into 2017. Melamine volumes increased 22% in the first half compared to last year. Fertilizer selling prices have been volatile during the first half of twenty seventeen.
Our benchmark urea prices were marginally up on average during the first half of twenty seventeen year on year. Ammonia prices were down and nitrates flat compared to the first half of twenty sixteen. Methanol prices, on the other hand, increased significantly and melamine prices continued their upward path from the past two years supported by a balanced to tight supply demand balance. Higher natural gas prices offset some of the benefits of higher volumes and prices for some of the products, but remained at favorable levels for all our operations. As a result, the adjusted EBITDA increased 8% from $292,000,000 in the first half of twenty sixteen to $316,000,000 in the first half of twenty seventeen.
Our reported net loss attributable to shareholders was $35,000,000 compared to net income of $218,000,000 in the first half of twenty sixteen. There are a number of extraordinary items in the first half of twenty seventeen results, including costs related to Iowa pre startup, lost revenue as a result of the shutdown at Solfa, which we expect to recover later in the year through insurance proceeds, FX losses on intercompany loans and the recognition of previously unused tax losses at Bio MCN due to a more positive outlook for the Bio MCN methanol business. In the first half in the February, we had largely positive one off items, including a $150,000,000 breakup fee break fee from break fee and a $108,000,000 result on the sale of 50% of Natgasoline. Excluding those items, adjusted net income increased 4% to $47,000,000 Let me move on to the balance sheet and cash flow. Total gross debt outstanding was up slightly from $4,600,000,000 as December 3136 to $4,700,000,000 as at June 30.
Short term debt was $1,100,000,000 However, out of this, $677,000,000 revolver was reclassified from long term to short term as of June 30. In August, it goes back to long long term as a waiver was obtained for thirtieth June two thousand seventeen and thirty first December two thousand seventeen due to EBITDA shortfalls for due to software closure, and the amount will now be represented as a noncurrent liability in our 02/1931 accounts. So we will have no major debt maturities till September 2018. Our net debt was $4,400,000,000 as of June 30, about $160,000,000 higher than at the end of twenty sixteen. The increase was mainly due to translation effect of euro denominated loans into U.
S. Dollars as a result of the appreciation of euro from thirty one December twenty sixteen to thirty June twenty seventeen. In the first half of twenty seventeen, total cash capital expenditures were $87,000,000 compared to $482,000,000 in the first half of twenty sixteen, a decrease of 82%. This is in line with the expected range of 150,000,000 to $200,000,000 for annual maintenance CapEx for 2017 and onwards. Except for the relatively small cash outflows for the restart of second methanol production line at Bio MCN, OCI has no further commitments for growth capital expenditure.
I'll now hand over to Narseth. Thank you, Sunil. Nitrogen fertilizer prices reached unsustainably multi year low levels in June. Much of that volatility was caused by challenging weather conditions and new capacities that came into the market at the end of twenty sixteen and the beginning of twenty seventeen. We have timed maintenance of our North African assets to coincide with what we believe are tough conditions to ensure that our production flows match demand from our customers.
Prices have partially recovered since then despite the usual low seasonal demand in the summer. Urea prices are up from a level of around $190 in June to approximately $250 reached in the past few days. CN prices have also been increasing since June and both are higher in the third quarter this year so far than the same time last year. More recently, ammonia prices also started to recover and the ammonia Tampa price for September was up $25 Some industry observers suggest that global operating rates are low, but these increases in prices in the summer, while only a few plants did not produce, suggest that real global capacity is well below the stated design capacity. We believe global inventories are low and demand is improving.
In the first half of this year, slow demand in India played a big factor. We are now seeing healthy demand from India in the coming months and the current inventory in India is 1,000,000 tons lower than it was same time last year. Helped by a good monsoon season and low inventory levels in the country, India issued a tender for additional purchases this week. All in all, India still needs more urea in the remainder of the year to close out the current application season and prepare for the next. Imports into Latin America are also increasing.
Brazil's urea demand is healthy and is expected that the country will import around 5,000,000 tons in 2017, a 25% increase over 2016. This would mean another 1,500,000,000 tons imported from September to December. Urea exports from China dropped 45% in the first half of twenty seventeen and even 54% in July year on year. Going forward, we expect exports from China to be structurally lower than previous levels and the current average monthly run rate suggests exports less than 5,000,000 tons in 2017. Any rebounds in exports are capped by environmental curtailments and increased focus on profitability of the industry.
We expect these factors to offset the new capacity that has come into the market. Global urea capacity additions have already peaked and our analysis shows that the new global capacity additions will be below trend demand growth over the at least the next four years. On the industrial chemical side, our methanol business is benefiting from significantly higher prices than last year. Methanol spot prices have been at good levels this year and global spot prices have been on the rise in the last few weeks. These prices level these price levels of methanol also ensure good economics for the Chinese methanol to olefins industry, one of the biggest drivers of demand growth.
MTO operating rates have been moving up in recent months, further boosted by an increase in olefin and olefin derivatives prices. As a result, Chinese methanol spot prices have gone up alongside higher MTO affordability. The outlook for the methanol market remains good with strong demand growth coupled with relatively limited new capacity additions, ensuring a healthy balance. Natural gas curtailments in Trinidad, the largest exporter of methanol globally, are also having an impact on global trade flows for methanol. Melamine prices have continued on an upward trend in 2017, increasing for the second year in a row.
European contract selling prices have gone up every quarter this year and are up 11% since the end of twenty sixteen. The business has become an important cornerstone for our Dutch operations, generating healthy returns. The outlook remains positive and metal mine markets are expected to benefit from a continued balanced supply and demand situation. Against this industry backdrop, we achieved record production volumes during the first half of this year despite the unplanned shutdowns in Algeria and The U. S.
In the second quarter. Looking ahead, we expect our volume driven growth to continue. Firstly, we expect better utilization of our assets going forward, in particular in Egypt at Ebix, which is now running at with full utilization and the return of sulfur to normalized run rates, which is expected in the coming weeks. Secondly, our greenfield facilities are starting to contribute. We officially inaugurated our nitrogen fertilizer greenfield in Iowa last April and started production and sales of ammonia, urea, UAN and DAF.
During the first few months after the start, we have been in ramp up and production stabilization phase. It is typical during this phase to have swings in production, and I'm pleased that the ammonia plant has repeatedly achieved normal production rates and the downstream units have exceeded the nameplate capacity. All downstream units have been commissioned and have produced on spec product. The plant will produce up to 2,000,000 metric tons of nitrogen fertilizer and DEF per year and has increased OCI's fertilizer production capacity by 30%. IFCo also diversified our nitrogen fertilizer portfolio with the addition of a new geography in The US Midwest Corn Belt and the addition of UAN and DEF as added products and diverse and help us with the diversification into in our fertilizer space.
We can produce up to 350 pounds of DEF at the plant, which is not correlated with fertilizer market and has a premium to urea. The flexibility of the plant is such that we can switch between products at short notice. Our methanol greenfield net gasoline joint venture in Texas will give a further boost in 2018. Construction is making good progress and the project was 89% complete at the July 2017. We expect commissioning in December.
We are progressing with the methanol capacity expansion at Bio MCN in The Netherlands by taking the second line out of the mothballs. We are expecting to finalize the project by the end of twenty eighteen. Premium estimates for the project costs are about EUR 100,000,000, a fraction of replacement cost in case of a greenfield. This will double the Bio MCN capacity to about 900,000 tons. Bio MCN has achieved a significant improvement in operational results this year through higher capacity utilization, favorable gas prices and a healthy pricing environment in a market that imports about 7,000,000 tons of methanol each year.
We expect good rates of return on the investment of the second line. In conclusion, we believe we are best positioned to benefit from upside in the fertilizer selling prices, but irrespective of the performance of our customer end markets, our portfolio is becoming increasingly diversified and capable of weathering tough conditions. OCI is one of the lowest cost producers globally, has superior cash conversion compared to our peers, and we have become more efficient as our cost savings program begins to have impact. Furthermore, OCI has low maintenance CapEx and no further material commitment for growth CapEx other than for Bio MCA. We remain focused on deleveraging, supported by significant step up in capacity, low CapEx and operational cash flows.
With that, I would like to open the line for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer And the first question comes from the line of Frank Klassen.
In Bio MCN, the €100,000,000 what is the phasing? So I mean, how much will we see still in 2017 of the investments and how much in 2018? And to be clear, is this included in the €350,000,000 CapEx guidance? Or is it on top of? So just to be clear.
And then secondly, how are you now looking at your investment grade target? So what is your view on achieving investment grade? Thank you.
On the CapEx, 20,000,000 this year €20,000,000 of spend this year, which is included in the current year's CapEx budget and 80,000,000 next year, those are on top of our maintenance CapEx. So this is the only growth initiative for 2018, and that is the EUR 80,000,000. On the return to the investment grade, that continues to be a target. A combination of slightly higher prices than we currently have and the new capacity that comes onstream between what happened in Iowa and what happened with Natgasoline will help accelerate that. But we can't give an exact timing because a lot of it is a function of the commodity prices.
To give you an example, you had a $100 on our base commodity price that adds €1,000,000,000 of EBITDA in the fertilizer group. And obviously, at that level, you are closer to the investment grade target than you are without that $100 So given that we have seen a $50 movement in the commodity and urea prices, only in the last, four to six weeks, we believe that, a combination of our up to us or in house initiatives, plus, slightly better, environment on the nitrogen side will will help us, achieve that, target sooner rather than later.
Okay. That's clear. Thank you very much.
Thank you. And your next question comes from the line of Mark Lawrence. Thank you. Your line is open.
Hi there. Two questions, if I may. Can I just push you a bit further on the Chinese export cuts that you were talking about earlier? And can you sort of assess your degree of confidence that these sort of environmental cuts are going to be followed through like we've seen in potentially in aluminum and some other spaces? And I guess I'm slightly confused because when I look at the Chinese domestic urea price, it's actually rolling over.
Then secondly
Rolling over, yes.
And secondly, can I ask some questions on Iowa? I mean what's your selling strategy with Iowa? I mean is this all going to spot to to US farmers, or is it is there contracts?
Can you just
sort of
help me understand that as well, please?
Okay. I will start with the Chinese cuts. So one of the reasons the nitrogen industry is not as lucky as every other commodity, in the space is that, a lot of the assets, are still owned or partially controlled by sovereign, governments. So unlike rational shareholder driven, value driven industries, we do have an overhang. Even here in Europe, you have, the world leader with a big stake of the Norwegian government.
You have, other players that have, in Europe that are controlled by the Austrian government. Arab Gulf producers are all acting as sovereigns. And a lot of times, these sovereign controlled entities would be driven by engineers who would ramp up production to to show that they achieve their production targets. So, in a lot of cases, engineer driven production targets drive production capacity. Surprisingly, China, which has the largest state owned enterprises, has taken a step back from this strategy as a leader and hopefully a model to be followed by other governments, they started looking at return on the of the capital return on the capital employed of a lot of these fertilizer plants.
The so they started in stopping exports that didn't make any sense in terms of contributing, not just a bit above cash cost, but they look at the needs for maintenance, the needs for, repaying the banks, and a lot of these producers were leveraged. So I would say a year ago, there was a planned strategy by the Chinese government to combine two concerns. One, the inability of a lot of the state owned enterprises, the SOEs, well, in basic materials primarily, whether it's fertilizer, chemicals, cement, steel, aluminum, to manage capacity in order to achieve reasonable returns that enabled these SOEs to remain healthy. In addition to that driver, they also have serious environmental constraints because in China, unlike all the other countries that we compete with, urea is being produced from coal, whereas Middle East, Europe, North America, all of these producers, Trinidad are using natural gas. So it is not an optimum process.
It is a highly polluting process. And if you combine that with coal imports into China, it just doesn't make sense for China to import coal, keep the pollution at home, and then export fertilizers with no margin. So, I would say that it's a no brainer that, the the Chinese government and they look at the holistic view, of, as an owner and as a regulator of the environment and looking also at trade deficits that are becoming a sore point in relationships. And the recent g five addressed overcapacity in basic materials including cement and chemicals. So it just doesn't make sense for China to import coal, process it, leave the pollution in country, export it with no margin.
So this is on the China front. So my true belief is that this is an irreversible decline in Chinese exports. And the five year Chinese plan, which started I think two or three years ago has
put
a moratorium on new capacity. So there's no new capacity being built in China in fertile in in in nitrogen fertilize. So this was the first question. The on the domestic side, the Chinese farmers prefer prilled unlike a lot of other countries where prill where granular urea trades at a premium. When you look at prilled prices in China, they trade actually a lot of times at a premium to urea because of a healthy domestic market.
So, so it's a different product niche in China for the domestic market, which is prill. That's why you don't see any export of prilled urea. Most of the exports are of granular urea. And in a lot of cases, we're exported at prices below the domestic market but that practice has stopped in recent months. On the strategy of sales in Iowa, we are very focused on the geography.
We always meant said that the Iowa fertilizer plant is a hybrid between a manufacturing facility and an unequal distribution center. So within 200 miles of the the location of the plant, we can satisfy the entire capacity of the plant without having to make long holes and from our plant. The the plan is operate the the plan, the sales plan is going on very well, and the customers appreciate that we are above the Mississippi close to their needs. And with what is happening with the weather interruptions and all that, the Mississippi has become less of a reliable transport mode for imported urea. And prices in New Orleans do not offer any attraction for client, for producers to continue to send the same amount of product to The US on a regular basis.
The only ones again that are continuously sending products to New Orleans are sovereign owned Arab Gulf producers who have traders who have no skin in the game to import and tell their seller that this is what I could sell it for, and they make a margin either way. That practice, we believe, is on the decline. And one day, even those producers will start looking at their p and l.
Excellent. Thank you very much.
Thank you. And the next question comes from the line of Christian Seth. Thank you. Your line is open.
Hi. I guess that's me, Christian Faitz from Kepler Cheuvreux. Thanks. Sorry, I might have missed a few questions because I had to dial in again to actually register for the questions. A couple of questions from my side.
Assuming no further hurricane impacts in the Greater Houston area from here on, what kind of financial impact would you expect from Harvey? And how much of that would be covered by insurance? And then coming to Ifco, in the latest update on the Bonds website, you mentioned that the ammonia plant tripped in the August. When do we expect the plant producing at normal levels? Because I believe also one of the parts which caused the tripping is actually repaired and used and could obviously delay repair works.
And then third, can you please elucidate a bit on the reason for the shutdown at Sofert in Q2? Thank you very much.
Okay. So first, we start by Harvey. We would say that the the the the interruption and the financial impact is so small that we we we on the Beaumont side, we there is we will not even make any insurance claim. And on Natgasoline, we that we we lost a couple of weeks of construction. So I would say minimal.
I'm not sure even there will be that we will file for an insurance claim on either situations. So I would say that only lost time. And even in Beaumont, I must say that we were quite impressed that with a small workforce, the plant stayed, operational, and we only lost one or two days, for an unrelated matter, mostly on logistics of the dispatching of the barge barges and all that, not on the plant. So on that is on the Harvey side. You mentioned our spare part that was sent from Iowa to a shop in Houston.
Not out of the ordinary that any startup plant will have small teething problems. This part was sent to Houston and was repaired in Houston, but the roads were blocked and, it was sent sent back to Iowa immediately after the hurricane and has been installed, the plant is currently operating. You had the third question. That's it. Surfer, there there was a machine breakdown on one machine that is typically doesn't happen, and that's why there is a business inter the business interruption insurance will cover that breakdown.
And the parts have arrived, and the the plan should be up and running September. But an insurance claim is was filed or is being filed, processed, and the entire business interruption lost during the last few months will be covered by that claim.
Okay. Excellent. Great. Just one quick follow-up on the Houston Harvey disaster. So basically, you're saying all the logistics are also back in place now after the storm?
Not all the logistics, but the plant is producing. Sometimes our logistics will be working, but some of the clients' logistics are not working. But my rough guess is that by the end of the this week, things are looking much better. So drinking water is back in Beaumont. That is obviously important for everybody to come back to his house and even for the repairs and of the logistics and other plant start up.
We see we are in the midst of a big industrial park. We see all our neighbors in start up mode. So things are improving rapidly there.
Thank you very much.
Thank you. And the next question comes from the line of Jacobo DiNardo. Just
three questions for me. So the first one, when you mentioned that actually capacity utilization worldwide is a lot higher in urea than what consultants say. So if you have some interesting number to share with us, I assume you're referring to some of Eastern European plants in Ukraine and yes, if you have some interesting number to share. And then on overall demand actually because some of your competitors, CF on one side and Yara on the other, tend to be either a bit more bullish or a bit more bearish depending on China demand for nitrates going forward? I mean, what is your view?
Is that 3% that we saw in the past ten years still possible to carry it forward for the next three to five years? Or should we talk about, I don't know, 2% or 1% growth? And then on supply, the final one. In the next four years, you mentioned that supply growth is going to be much smaller. I was just wondering if you have any updated view on some of the more uncertain capacity from Dangote in Nigeria and the Iranian capacity?
Thanks very much.
So I'll start by by commenting on the 70% utilization of the industry. We find it hard to believe that the industry has 30% spare capacity when we see that during the summer, which is the lowest period of the month, there was tightness and traders were scrambling to find product, which led to a price increase of almost $50.60 dollars from end of from June till last week. So any industry that has so much reserve capacity would not be operating and seeing pricing recovery at that speed. So a lot of these hypothetical plants assume blue sky scenarios for every single plant, which is not the case. You have a lot of capacity that is forty and fifty years old.
The assumption that they will operate at a 100% of nameplate is naive. You have a lot of Chinese plants that are in the other side of China. So they could be on Mars. They're not gonna export. So that capacity does not impact global trade flows.
And you have what you rightfully mentioned, Eastern European plants that are not operating in that cannot operate at the hypothetical capacity. The, the comment on the additional capacity, I will not go into plant by plant, but, overall, to give you an example, on greenfield plants in The United States, There were something like 16 greenfield plants announced about three years ago and and four expansions. The the current situation is that only three new plants got built, two by CF and one by OCI. And most of the other initiatives were conversions from ammonia to urea, which is net net, doesn't change the nitrogen dynamic. It moves from one product to the other.
And I do not believe that any plant is gonna be built, any greenfield plant in fertilizer is gonna be built in America given our better lessons learned from the cost of constructing, in the Midwest. The cost in of construction in Texas and Louisiana is lower, but building over there means that you are in an export destination because there is no demand in that part of The United States. So a lot of these so we feel good about new capacity coming on scene that it will definitely be lower than growth in demand. This year, I mean, we have seen some areas of demand improvement, Latin America, India, but we also are, witnessing for the fifth or sixth years the lowest corn price in quite a while. So any improvement in coal prices should result in a significant uptick in nitrogen demand.
Thanks very much.
Thank you. And your next question comes from the line of Daniel Cheng. Thank you. Your line is open.
Hi, Nasiv. Just a quick question about consolidation. I was
just wondering if you could talk about any potential M and A opportunities and your thoughts on who would be the most likely candidates for consolidation in the nitrogen industry currently?
I won't comment on that. So if you have another question, I will answer it.
No, that's it. Thanks.
Thank you. And we don't have any further questions at this time. Please continue. Sorry, we have follow-up question from the line of Christian Sats. Thank you.
Your line is open.
Hi, Mugen. Christian Sats, Kepler Cheuvreux. Just one closing question. Your CapEx guidance, believe, continues to be in the 100,000,000 to €150,000,000 range. On top of that, obviously, comes by your MCN.
Can you elucidate there that 100,000,000 to €150,000,000 is going to be spent as maintenance CapEx? Or would that be basically across your assets around the world? Thank you.
It's across the assets, but we have the youngest fleet of plants in the industry. You look at our plants in Egypt, Nigeria, Iowa, and a lot of the other plants have undertaken serious refurbishment efforts, whether in Helene, OCI Nitrogen, or in Beaumont. So our CapEx needs are much lower than our peers. But for a detailed breakdown, I think you can get it from Hans, if you don't mind. Okay.
Thank you.
Thank you. And the next question comes from the line of Wrigglesworth.
It's Tom Wrigglesworth from Citi. A couple of questions, if I may. Could you just give us obviously, you've stated that the Upstream is running at 90% utilization rate at IFCo and 110% for the Downstream. But what is the realistic expectation for output and what you can sell in the second half of twenty seventeen? Should we take it second question on Bio MCM.
I mean, this an indication that you're confident in the cash flow generation of the business now that you're willing to consider growth projects? And or is BioMCM able to self finance this expansion from its own cash flows? And a third and final question, touching on group structure and strategy whilst we have the senior management present. Has there been obviously, you're coming into the cash flow generation phase. What do you see as the next steps given that that's likely to trigger through in the next six to nine months?
If all parts were moving, what would be the perfect structure you see as of the group? Would you consider separation of methanol and fertilizers at some point? Thank you.
I think the answer to the first question is BioEmcent definitely internally financed. So and on the second question, the methanol and nitrogen provide a single group a great platform for ant being anti cyclical because we've seen that melamine has done very well and methanol has done very well at times when urea was down and a lot of nat gas produced fertilizers were down. So CN held better than urea and trades at a premium. So dive in a in a single unit diversification and having methanol alongside melamine, so our industrial chemicals group and our fertilizers group provide the shareholder of current OCI a great stable floor in tough times and good diversity. And we we we like all the space and all our products currently where we are.
Having said that, if there is any value, creative idea that triggers the need to do something on the methanol and the chemical side where we are never opposed to we have separated construction in the past from the legacy OCI. And currently, we don't see a need, we don't have imminent plans for doing that. But, again, any value creating idea, we are always exploring, and that idea has also been explored. But at this stage, with weak nitrogen fertilizer prices, we like the balanced combination, and we think it our shareholders will appreciate that even more so.
Okay. Thank you. And just on the first question about the operating rates for Ithco. Obviously, you may you say you've got 2,000,000 tonnes of capacity there. But as we're ramping up through the second half, what would be a realistic level of operating rate?
Or more or maybe an easier question
to ask is when do you think you can hit full utilization rates? Is that is that first quarter eighteen targets?
No. I think before I I I'm hopeful before then because a lot of the bugs have been worked on during the summer. And as I said, not only do we look at turnarounds during the summer when prices were unattractive, even though our we have the lowest cash cost in the world, But, we we believe as a responsible producer, you don't produce a product that your client doesn't want and sell it to a trader to put in a warehouse so that he becomes your competitor when your when your client actually wants it. So, we took advantage of that and, during the summer and spent good time on, taking care of a lot of the bugs that were in the system. To give you today to date, I was operating at 97% rate and hoping to ramp that that up, and we believe that it will exceed nameplate capacity in the coming months.
But there is no guarantee that you don't have, in the first year, unexpected interruptions. The team is gaining experience, getting close, familiar with the equipment, with the maintenance process, and all that. And, that is work in progress, and, we believe that in, I wouldn't wanna give a date, but I think we're, on the right track to, full utilization in the coming couple of months.
Okay. Very clear. Thank you very much.
Thank you. And we don't have any further questions at this time. Please continue.
Thank you, and looking forward to our next call. Thank you, and goodbye.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect.