Ladies and gentlemen, thank you for standing by, and welcome to the OCI N.V. first half 2017 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, at which time, if you wish to ask a question, you will need to press star 1 on your telephone keypad. I must advise you that this conference is being recorded today, Wednesday, the 6th of September, 2017. I would now like to hand the conference over to your speaker for today, Nassef Sawiris, Chief Executive Officer of OCI N.V. Thank you, sir. Please go ahead.
Hello, everyone, and thank you for joining us for the first half 2017 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 12 years tenure, which spanned on an important period of transformational change and growth for OCI. Salman will stay on in an advisory role for a while to ensure a smooth transition. I 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&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 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 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 the 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 to our results. First, Salman will give highlights of key operational events and give an update on our financial position. I will give an update on the current market environment, our growth initiatives, and outlook.
Thank you, Nassef, and thank you all for joining us. I would first like to thank Nassef for his kind words and my team at OCI. As Nassef said, I will stay on for a while to support the transition process, and I wish Hassan all the success in his new role. Turning to the results. Let me first give some operational highlights. Consolidated first half 2017 revenues increased 5% to just over $1 billion 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 3.3 million metric tons during the first half of 2017. 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 Sorfert in Algeria.
Ammonia volumes were down 2% during the first half of 2017 year-on-year. This was caused by an unplanned shutdown of one of the two ammonia lines at Sorfert 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, EBIC, was still running at levels below 50% for the first half of this year. However, the plant regained access to its export jetty and commenced the first shipment 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 2017.
This was driven in particular by our nitrates business. In the first half of this year, CN volumes increased 61%. CN 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 despite an unplanned shutdown. Methanol volumes were up 2% in the first half of 2017. There was an unplanned shutdown at OCI Beaumont at the end of 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. BioMCN in Netherlands continues to run at record production levels, and was at record production levels during the first half of 2017. 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 2017. Our benchmark urea prices were marginally up on average during the first half of 2017, year-on-year. Ammonia prices were down and nitrates flat compared to the first half of 2016.
Methanol prices, on the other hand, increased significantly. Melamine prices continued their upward path from the past 2 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 remain at favorable levels for all our operations. As a result, the adjusted EBITDA increased 8% from $292 million in the first half of 2016 to $316 million in the first half of 2017. Our reported net loss attributable to shareholders was $35 million, compared to net income of $218 million in the first half of 2016.
There are a number of extraordinary items in the first half of 2017 results, including costs related to Iowa pre-startup, lost revenue as a result of the shutdown at Sorfert, 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 BioMCN due to a more positive outlook for the BioMCN methanol business. In the first half of 2016, we had largely positive one-off items, including a $150 million break fee, and $108 million result on the sale of 50% of Natgasoline. Excluding those items, adjusted net income increased 4% to $47 million. Let me move on to the balance sheet and cash flow. Total gross debt outstanding was up slightly from $4.6 billion as at December 31, 2016, to $4.7 billion as at June 30th. Short-term debt was $1.1 billion.
Out of this, $677 million revolver was reclassified from long-term to short-term as of June 30th. In August, it goes back to long-term as a waiver was obtained for 30th June 2017 and 31st December 2017 due to EBITDA shortfalls due to Sorfert closure. The amount will now be represented as a non-current liability in our 2017 December 31 accounts. We will have no major debt maturities till September 2018. Our net debt was $4.4 billion as of June 30th, about $160 million higher than at the end of 2016. The increase was mainly due to translation effect of euro-denominated loans into US dollars as a result of the appreciation of euro from 31 December 2016 to 30th June 2017. In the first half of 2017, total cash capital expenditures were $87 million compared to $482 million in the first half of 2016, a decrease of 82%.
This is in line with the expected range of $150 million-$200 million for annual maintenance CapEx for 2017 and onwards. Except for the relatively small cash outflows for the restart of second methanol production line at BioMCN, OCI has no further commitments for growth capital expenditure. I will now hand over to Nassef.
Thank you, Salman. 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 2016 and the beginning of 2017. 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. [TN] 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. 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. The current inventory in India is a million 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 it is expected that the country will import around five million tons in 2017, a 25% increase over 2016. This would mean another one and a half billion tons imported from September to December. Urea exports from China dropped 45% in the first half of 2017, 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 five million 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. Our analysis shows that the new global capacity additions will be below trend demand growth over at least the next four years. On the industrial chemicals 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 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 markets 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 2016. The business has become an important cornerstone for our Dutch operations, generating healthy returns. The outlook remains positive, and melamine 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 EBIC, which is now running with full utilization and the return of Sorfert 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 DEF. 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 million 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 U.S. Midwest Corn Belt and the addition of UAN and DEF as added products and help us with the diversification in our fertilizer space. We can produce up to 350 tons of DEF at the plant, which is not correlated with fertilizer markets 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 Natgasoline joint venture in Texas will give a further boost in 2018. Construction is making good progress and the project was 89% complete at the end of July 2017. We expect commissioning in December this year.
We are progressing with the methanol capacity expansion at BioMCN in the Netherlands by taking the second line out of the mothballs. We are expecting to finalize the project by the end of 2018. Preliminary estimates for the project costs are about €100 million, a fraction of replacement cost in case of a greenfield. This will double the BioMCN capacity to about 900,000 tons. BioMCN 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 million 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.
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 BioMCN. 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 session. If you wish to ask a question, you may press star one on your telephone keypad and wait for your name to be taken by an operator. If you wish to cancel your request, you may press the hash key. Once again, ladies and gentlemen, it's star one if you wish to ask a question. We have some question piling up. Please wait while we compile the Q&A for you. Once again, ladies and gentlemen, star one if you wish to ask a question.
The first question comes from the line of Frank Klaassen. Thank you. Your line is open.
In BioMCN, the EUR 100 million, what is the phasing? I mean, how much will we see still in 2017 of the investments and how much in 2018? To be clear, is this included in the $150 million-$200 million CapEx guidance or is it on top of? Just to be clear. Then secondly, how are you now looking at your investment grade target? What is your view on achieving investment grade? Thank you.
On the CapEx, EUR 20 million of this year, EUR 20 million of spend this year, which is included in the current year's CapEx budget, and EUR 80 million next year. Those are on top of our maintenance CapEx. This is the only growth initiative for 2018, and that is the EUR 80 million. 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 on stream, between what happened in Iowa and what happened with Natgasoline, will help accelerate that. 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 add $100 on our base commodity price, that adds EUR 1 billion of EBITDA in the fertilizer group.
Obviously at that level, you are closer to the investment grade target than you are without that $100. Given that we have seen a $50 movement in the commodity, in 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 help us achieve that target sooner rather than later.
Okay. That's clear. Thank you very much.
Thank you. Your next question comes from the line of Mark Lauren. 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? Can you sort of assess your degree of confidence that these sort of environmental cuts are gonna be followed through like we've seen in potentially in aluminum and some other spaces? I guess, I'm slightly confused because when I look at the Chinese domestic urea price, it's actually rolling over. Secondly-
Rolling over, you mean?
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 U.S. farmers, or are they contracts? Can you just sort of help me understand that as well, please?
Okay. I will start with the Chinese cuts. One of the reasons the nitrogen industry is not as lucky as every other commodity in this space is that a lot of the assets are still owned or partially controlled by sovereign governments. 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 in Europe that are controlled by the Austrian government. Arab Gulf producers are all acting as sovereigns. A lot of times these sovereign-controlled entities will be driven by engineers who would ramp up production so that they achieve their production targets. 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 capital employed of a lot of these fertilizer plants. They started stopping exports that didn't make any sense in terms of contributing, not just a bit above cash costs, but they look at the needs for maintenance, the needs for repaying the banks, and a lot of these producers were leveraged. 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, in basic materials primarily, whether it's fertilizer, chemicals, cement, steel, aluminum, to manage capacity in order to achieve reasonable returns that enable 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. It is not an optimum process. It is a highly polluting process. 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. I would say that it's a no-brainer that the Chinese government, and they look at the holistic view as an owner and as a regulator of the environment, and looking also at trade deficits that are becoming a sore point in relationships. The recent G20 addressed overcapacity in basic materials, including cement and chemicals.
It just doesn't make sense for China to import coal, process it, leave the pollution in country, export it with no margin. This is on the China front. My true belief is that this is an irreversible decline in Chinese exports. The five-year Chinese plan, which started, I think, two or three years ago, has put a moratorium on new capacity. There's no new capacity being built in China in nitrogen fertilizers. This was the first question. On the domestic side, the Chinese farmers prefer prill. Unlike a lot of other countries where granular urea trades at a premium, when you look at prill prices in China, they trade actually a lot of times at a premium to urea because of a healthy domestic market. 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 were 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 said that the Iowa fertilizer plant is a hybrid between a manufacturing facility and an unequal distribution center. Within 200 miles of the location of the plant, we can satisfy the entire capacity of the plant without having to make long hauls from our plant. The sales plan is going on very well, and the customers appreciate that we are above the Mississippi, close to their needs. With what is happening with the weather interruptions and all that, the Mississippi has become less of a reliable transport mode for imported urea.
Prices in New Orleans do not offer any attraction for producers to continue to send the same amount of product to the U.S. 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&L.
Excellent. Thank you very much.
Thank you. The next question comes from the line of Christian Faitz. 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. Couple of questions from my side. Assuming no further Hurricane Harvey 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? Coming to IFCO, in the latest update on the bonds website, you mentioned that the ammonia plant tripped in the middle of August. When do we expect the plant producing at normal levels? I believe also one of the parts which caused the tripping is actually repair in Houston and could obviously delay the repair works. Third, can you please elucidate a bit on the reason for the shutdown at Sorfert in Q2?
Thank you very much.
First, we start by Hurricane Harvey. We would say that the interruption and the financial impact is so small that on the Beaumont side, we will not even make any insurance claim. On Natgasoline, we lost a couple of weeks of construction. I would say minimal, and not sure even that we will file for an insurance claim on either situations. I would say that only lost time. 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 barges and all that, not on the plant. That is on the Hurricane Harvey side. You mentioned our spare part that was sent from Iowa to a shop in Houston.
It's 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. The roads were blocked, and it was sent back to Iowa immediately after Hurricane Harvey and has been installed, and the plant is currently operating. You had a third question or that's it?
Sorfert.
Sorfert. There was a machine breakdown on one machine that typically doesn't happen, and that's why the business interruption insurance will cover that breakdown. The parts have arrived, and the plant should be up and running end of September. An insurance claim 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. 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. My rough guess is that by the end of this week, things are looking much better. 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 startup. We are in the midst of a big industrial park. We see all our neighbors in startup mode. Things are improving rapidly there.
Okay. Thank you very much.
Thank you. The next question comes from the line of Jacobo Benardo. Thank you. Your line is open.
Hello, everyone. Just three questions for me. The first one, when you mentioned that actually capacity utilization worldwide is a lot higher in urea than what consultants say. If you have some interesting number to share with us, I assume you're referring to some of Eastern European plants in Ukraine, and if you have some interesting number to share. 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. What is your view? Is the 3% that we saw in the past 10 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?
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.
I'll start 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 demand, there was tightness and traders were scrambling to find product, which led to a price increase of almost EUR 50, EUR 60 from June till last week. Any industry that has so much reserve capacity would not be operating and seeing pricing recovery at that speed. A lot of these hypothetical plans assume blue sky scenarios for every single plant, which is not the case. You have a lot of capacity that is 40 and 50 years old. The assumption that they will operate at 100% of nameplate is naive. You have a lot of Chinese plants that are in the other side of China.
They could be on Mars, they're not going to export. That capacity does not impact global trade flows. You have what you rightfully mentioned, Eastern European plants, that cannot operate at the hypothetical capacity. 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 U.S., there were something like 16 greenfield plants announced about three years ago, and four expansions. The current situation is that only three new plants got built, two by CF and one by OCI. 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.
I do not believe that any greenfield plant in fertilizer is going to be built in America, given our bitter lessons learned from the cost of constructing in the Midwest. The cost 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. We feel good about new capacity coming on stream, that it will definitely be lower than growth in demand. This year, we have seen some areas of demand improvement, Latin America, India, we also are witnessing for the fifth or sixth years, the lowest corn price in quite a while. Any improvement in corn prices should result in a significant uptick in nitrogen demand.
Thanks very much.
Thank you. Your next question comes from the line of Daniel Cheng. Thank you. Your line is open.
Hi, Nassef.
Hi.
Just a quick question about consolidation. I was just wondering if you could talk about any potential M&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. If you have another question, I would answer it.
No, that's it. Thanks.
Thank you. We don't have any further questions at this time. Please continue. Sorry, we have a follow-up question from the line of Christian Faitz. Thank you. Your line is open.
Hi again, Christian Faitz, Kepler Cheuvreux. Just one closing question. Your CapEx guidance, I believe continues to be in the $100 million-$150 million range. On top of that, obviously comes BioMCN. Can you elucidate where that $100 million-$150 million 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. 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 Geleen, OCI Nitrogen, or in Beaumont. Our CapEx needs are much lower than our peers. For a detailed breakdown, I think you can get it from Hassan, if you don't mind.
Okay. Thank you.
Thank you, ladies and gentlemen. Once again, if you wish to ask a question, you may press star one on your telephone keypad and wait for your name to be taken by an operator. If you wish to cancel your request, you may press hash key. The next question comes from the line of Wrigglesworth. Thank you. Your line is open.
Thanks very much for your presentation. 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. What is the realistic expectation for output and what you can sell in the second half of 2017? Should we take it, second question on BioMCN, is this an indication that you're confident in the cash flow generation of the business now that you're willing to consider growth projects? Or is BioMCN able to self-finance this expansion from its own cash flows? A third and final question, touching on group structure and strategy whilst we have the senior management present. 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 6-9 months? If all parts were moving, what would be the perfect structure you see 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 BioMCN is definitely internally financed. On the second question, methanol and nitrogen provide a single group, a great platform for 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. CAN held better than urea and trades at a premium. 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 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, we are never opposed to. We have separated construction in the past from the legacy OCI, and currently, we don't see a need, and we don't have imminent plans for doing that. Again, any value-creating idea, we are always exploring, and that idea has also been explored. At this stage, with weak nitrogen fertilizer prices, we like the balanced combination, and we think our shareholders will appreciate that even more so.
Okay, thank you. Just on the first question about the operating rates for IFCO, obviously you say you've got 2 million tons of capacity there. As we're ramping up through the second half, what would be a realistic level of operating rate? Maybe an easier question to ask is when do you think you can hit full utilization rates? Is that a first quarter 2018 target?
No, I'm hopeful before then because a lot of the bugs have been worked on during the summer. As I said, not only did we look at turnarounds during the summer when prices were unattractive, even though we have the lowest cash costs in the world. 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 client actually wants it. We took advantage of that 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, I was operating at 97% rate and hoping to ramp that up, and we believe that it will exceed nameplate capacity in the coming months.
There is no guarantee that you don't have, in the first year, unexpected interruptions. The team is gaining experience, getting 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 want to give a date, but I think we're on the right track to full utilization in the coming couple of months.
Okay, great, clear. Thank you very much.
Thank you. 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.