Good morning or good afternoon all, and welcome to the OCI Global Second Quarter 2023 Results Call. My name is Adam, and I'll be your operator for today. If you'd like to ask a question over the phone during the Q&A portion of today's call, please press Star followed by one on your telephone keypad. I will now hand the floor over to Investor Relations Director, Hans Zayed, to begin. Hans, please go ahead when you are ready.
Yes, thank you, and good afternoon and good morning to our audience in the U.S. Thank you for joining the OCI Global Second Quarter 2023 conference call. With me today are Ahmed El-Hoshy, our Chief Executive Officer, and Hassan Badrawi, our Chief Financial Officer. On this call, we will review OCI's key operational events and financial highlights for the quarter, followed by a discussion of OCI's outlook. As usual, at the end of the call, we will wrap up with Q&A. The results press release and presentation are available on our website at oci-global.com in the Investors section. We will be referring to slides in the results presentation during this call. Just like to remind you that any forward-looking statements made on this call involve risks, and the actual results could differ materially from those statements. Let me now hand over to Ahmed.
Thank you, Hans. Thank you all for joining us today. We start every call with our top priority, safety. Our 12-month rolling recordable incident rate was 0.29 incidents per 200,000 man-hours at the end of June. I'm pleased to report an improvement from the previous quarter and that we continue to be well below industry averages. We also continue to work tirelessly on operational and process safety improvements and strive for zero injuries throughout the organization, which we believe is also a key indication of overall manufacturing excellence.
Nitrogen markets were facing headwinds at the end of 2022 that continued into the first several months of 2023, with selling prices dropping by up to 70% for some of the products we had year-over-year during the course of Q2, due to a lower marginal cost environment, significant demand deferral, and the concentration of new capacity that ramped up in late 2022 and early 2023, that was being absorbed by the market all at the same time. Effectively, while prices were dropping and trying to find a floor, buyers in the agricultural and industrial sectors were sitting on the sidelines for as long as possible to avoid printing a loss they came into early. With sound fundamentals intact, as a reaction to some of that behavior, we've seen prices reach a bottom in June and rebound materially from trough levels.
In the case of Egypt urea prices, we've seen an increase of 60%, $470 per ton FOB, with a continued positive trajectory. I'll get into a little bit later why we've been seeing this pricing recovery and demand versus supply tightness. Methanol markets remain challenged by macroeconomic drivers, with lower pricing during the quarter. The silver lining for the methanol business, however, is captured in our recent announcements of green methanol supply for use as a low-carbon marine fuel as we continue to build on our leading position in this new market segment. During the call, we'll also share progress with our hydrogen fuels transition initiatives, where OCI aims to be a leader in both ammonia and methanol as we leverage our development experience and globally advantaged existing facilities and distribution networks.
I'm particularly pleased to report on the market improvement in our operational performance during the quarter. After facing operational challenges during the second half of last year, Q4 of 2022 and Q1 of 2023, our plants ran smoothly and demonstrated healthy on-stream performance during the second quarter, with average reliability reaching almost 95% across the board, which is reflected in our production and sales volumes. I'd like to thank our team for their tireless efforts. All this is a milestone and, and is a key key, key sign of moving in the right direction that we need to continue to build upon.
Needless to say that our focus is to improve our plants on a sustainable basis going forward, rather than periodically or in any one given quarter, as our manufacturing improvement plan continues to take shape and drive future improvement in results independent of pricing. Starting with the highlights of our financial performance during the quarter, I'll now hand it over to Hassan, our CFO, to walk you through some of the key highlights. Hassan?
Thank you, Ahmed. Starting with slide 7 for a summary of our financial results. We reported consolidated revenue of $1.4 billion, an adjusted EBITDA of $326 million, and an adjusted net loss of $7 million for the second quarter. For the first half, we reported revenue of $2.7 billion, adjusted EBITDA of $662 million, and a net loss of $22 million. Our Q2 results were lower compared to the record results achieved in the same quarter last year, which can almost be entirely attributed to lower selling prices. Specifically, nitrogen prices in Q2 dropped not only up to 70% compared to the same quarter last year, but even up to 50% on average compared to the first quarter.
Methanol prices also dropped, especially spot prices, due to a delay in the macroeconomic recovery, lower energy prices, and a decline in Methanol-to-Olefins affordability in China. The total impact of lower pricing amounted to a negative swing in adjusted EBITDA of almost $1.2 billion during the quarter. Own produced volumes sold were back at healthy levels and are par with levels achieved last year. Volumes sold were 35% higher compared to the first quarter as demand returned, we operated our plants well. We had a positive effect of lower natural gas prices year-over-year to the tune of $312 million, or a net positive swing of $264 million, if we take realized hedging losses of $48 million into account, that was not enough to offset the price declines.
To note, hedging losses were around half of the losses realized in Q1. The current forward curve implies lower losses in the remaining quarters than Q2. We continue to view our long-term natural gas hedges as a risk management approach, providing the company with a suitable long-term cost structure. Additionally, our Q2 results last year included positive EUA sales of $90 million, whereas this second quarter includes only a marginal $2 million negative adjustments. Turning to slide 8. We recorded operating free cash flow, which we define as cash flow from operations less maintenance CapEx, before minorities distributions of $211 million. This compares to $151 million in the first quarter of the year. We also reported a consolidated free cash outflow of $222 million during the quarter, which captures the distribution to minorities.
In April, OCI distributed approximately $800 million, which translates to EUR 3.5 per share to shareholders. Accordingly, as of 30th of June, our consolidated net leverage was one turn of EBITDA. On a segment basis, our European nitrogen business recovered to almost a breakeven result in the second quarter, reporting a negative $10 million of EBITDA, noting that deliveries of own-produced volumes in Europe were up 3% year-on-year and up 112% compared to the first quarter, as demand returned in Europe and we ended the quarter with much lower inventories. Natural gas prices were still elevated, which supported the import of ammonia through our terminal in Rotterdam to support downstream production.
The U.S. nitrogen business continued its strong performance, recording an adjusted EBITDA of $99 million in the second quarter versus $216 million a year ago, with an adjusted EBITDA margin of 52%, excluding third-party trading. Fertiglobe's own produced sales volumes this quarter were 8% lower compared to the second quarter of last year and flat year-on-year for the first half. However, the decline was partly due to the effect of lower starting inventory in the second quarter of 2023 versus the same quarter last year, and we ended the quarter with higher ammonia inventories in this second quarter. It's important to highlight, however, that the lower sales volumes are not a reflection of reduced operating rates, as our production was actually up 4% compared to the second quarter of last year, despite a major turnaround in Algeria.
Fertiglobe's second quarter 2023 adjusted EBITDA was $218 million, with a healthy free cash flow conversion. Operating free cash flow amounted to $143 million before dividends to minorities. With regards to dividends, Fertiglobe is proposing at least $250 million of cash return, cash dividend to shareholders with respect to the first half 2023, subject to board approval in September and payable October 2023, half of which, of course, is received by OCI. Looking at the methanol segment, following the outages in the beginning of the year, the U.S. methanol business returned to consistent and healthy operational performance. Own-produced methanol volumes increased 9% in the second quarter compared to the same quarter last year, and 81% higher than the first quarter of this year.
The business was affected by lower selling prices, and noting also that our integrated ammonia volumes in Texas within the methanol segment also increased by 20% compared to the same quarter last year, and up 103% from the first quarter of this year, where we had the unfortunate outages. In regards to our cost optimization plan, we have identified a further $50 million of overall non-gas cost reductions, which, combined with Fertiglobe's announced target back in May, takes the total to a $100 million target, which we aim to achieve by the end of 2024. This will cover key focus areas of our operating model, logistical capabilities, as well as operational costs and overhead efficiencies. In regard to some of our guidance for the year.
For leakage due to minority distributions, given Fertiglobe's guidance for the October dividend of at least $250 million and the known accrued dividends to minorities, as highlighted in the financial statements, which includes $824 million of this in Algeria, distributions to Sonatrach, we therefore expect around $1 billion of minority distributions in the second half of 2023. The Algerian distribution to Sonatrach is exceptionally high as it relates to distributions of super-bénéfice payments related to profits achieved in 2022. Based on year-to-date results, this would be expected to normalize going forward.
Our guidance for maintenance CapEx is higher than the usual run rate of $300 million and expected to be, to exceed $350 million, reflecting timing of invoicing payments related to 2022 turnarounds and some voluntary scope changes in 2023 related to our manufacturing improvement plan, which already started to show a positive effect on our performance, as seen in the Q2 achieved operating rates. Our growth CapEx guidance remains unchanged to up to $450 million as the Texas blue ammonia facility begins to take shape, as seen in the presentation. Finally, we have confirmed our plan to issue a cash dividend from OCI of EUR 4.85, equivalent to $200 million for the next October, with the exact date to be shortly confirmed.
We will continue to manage our capital allocation priorities, balancing our IG credit profile, our growth initiatives in the energy transition, focus projects and returns to shareholders. With that, I'll hand back to Ahmed for further commentary on the market backdrop, our ongoing initiatives, and a few remarks on the strategic review. Ahmed?
Thanks, Hassan. I'll start with the nitrogen market, where we have seen a critical turning point during the past couple of months, following a turbulent period with rapidly declining prices. The global nitrogen sector started the second quarter with high inventories after this prolonged period of hand-to-mouth and purchase deferrals until the last possible moment. Much has changed since then. Nitrogen markets are tightening rapidly, despite entering the usual summer lull for fertilizers that we typically see in Q3. In the short term, there are several factors driving the recovery, as you can see on page six of our presentation. First, we have seen a rapid demand recovery during the season. Farmer affordability remains a major motivation for buying our products for the third year in a row now, and shows no sign of abating.
Also, forward grain prices have continued to move up on a general basis, giving a further boost to farm incomes and incentivizing nitrogen demand and application to be above historical trend levels, including the catching up of substantial pent-up demand from key importing regions. This is, of course, a significant change from the decline in demand we saw in 2022 and early 2023. Secondly, the 2022, 2023 fertilizer application season concluded with record-low inventories post-U.S. European application seasons. This was particularly the case in North America, where carryout was down year-on-year for all nitrogen products. For example, UAN inventories were down 33% year-over-year, but also in Europe, where demand, and where demand cleared inventories. Brazil is buying more nitrogen and is doing so earlier than usual, and India needs substantial volumes.
We expect more than 4 million tons of imported urea from India in the balance of H2 2023, which is up from 2.5 million tons imported in the first half of the year. There's also potentially an additional 1 million tons for the balance of this year, taking us to 5 million tons of import, depending on how things progress with regards to the rains and flooding in large parts of Northwest India, which prompts buy... farmers to buy more urea. All the new Indian plants are now running well and is largely absorbed in the market. These factors have prompted an earlier-than-expected India tender happening next week in an already tightening market. Thirdly, supply started to tighten rapidly.
In 2022, 6 million tons of run-rate urea capacity commissioned, with most plants actually reaching ramped up or full capacity in the beginning parts of this year. All this new capacity just have now largely been absorbed, with limited major greenfield additions expected over the next few years. The extreme heat this summer has resulted in production curtailments in various locations, as gas usage is prioritized for energy or power consumption. To date, we have not been affected, whether with an OCI or Fertiglobe, in any material way by such curtailments. As of mid-June, there was also a normalization of trade flows after the EU removed import duty suspensions on ammonia and urea. What I mean by that is that typically, EU charges a duty on 6...
of 6.5% on imported urea and 5.5% on imported ammonia, except from duty-free or duty-exempted countries. They had put in a suspension of that duty to allow the free import of urea and ammonia without duties. The fact that that duty suspension was revoked, i.e. duties are now back in place out of the mid-June, means that we've seen a benefit to both Fertiglobe's productions and sales, because product from Egypt and Algeria is duty-exempt, and also our European nitrates operations, because they have now another barrier against competition coming in. Chinese urea exports remain capped and were 1 million tons during the first half of 2023, or almost 30% below the 2018-2020 averages, and we expect around 2 million tons to be exported from China during the balance of this year.
Ammonia imports of China have increased substantially year to date, demonstrating a strong growth, approximately 170% or more than doubling and close to tripling of imports in the first half of this year due to fertilizer industrial demand recovery. I'd like to leave a word on industrial markets. Ammonia markets have been particularly weak, but appear to have stabilized and seen recent increases with cost support and increased outages of ammonia, particularly in the East of Suez. A recovery in the demand on the fertilizer side, both nitrogen and phosphates, is boosting ammonia use and imports into China, as I just mentioned, as well as into India, Turkey, and Morocco, have increased. Global ammonia trade has been at trough levels of 17 million tons in 2022 and 2023, and this is.
That increasing back to this 19 million ton per year level. Cost curve economics should start to put more pressure on producers once again. European gas futures over next winter and 2024 are implying cost support levels for ammonia, excluding CO2, of $590 a ton. If you include CO2, $750 a ton. Materially have higher than the levels we're seeing in the mid-$300s today, which could impact and result in temporary or potentially further permanent closures of European marginal ammonia production capacity, as we've seen in the past. Only last week, one of our peers announced the closure of a UK ammonia site, making it the third permanent closure in the region in the last several quarters.
Meanwhile, OCI, OCI's U.S. operations and Fertiglobe in the Middle East accounted for 93% of our consolidated gas consumption in Q2 and continued to enjoy first quartile position on the cost curve on production and distribution economics. If I turn now to methanol, the macroeconomic recovery also did not materialize as industrial activity in major economies stagnated, and the recovery in China was much slower than we expected, and I think the, the broader markets expected, during the second quarter. This, combined with lower coal cost support in China, in turn, also had an effect on methanol prices. which were lower comparatively, comparatively year-over-year, from Q2 2022 to 2023, as well as from Q1 to Q2 of this year.
The recovery may not happen in the short term, as we can also see from a further decline in pricing in Q3 so far. It'll depend on the economic recovery and when it will materialize, how it materializes, particularly in China. We have seen some improvement in MTO operating rates, though, which were sitting at around 70% recently, when they were just in the 60s a few months ago. There's still some way to go in terms of more capacity utilization and taking up the demand. However, despite that, we remain constructive on the short term as we've seen a recovery in oil prices, and that is a driver of over 50% of methanol demand today, as well as, as well on a medium and long-term basis on the methanol side, because there's very limited new supply coming to the market.
Methanol as a fuel continues to grow for fuel use on the road. Actually, oil prices affect that as well. Most importantly, significant new and sustainable demand for methanol as a marine fuel is coming and has already started. The order book for methanol fuel ships keeps growing by the day. We turn to page 11 in the slide deck. Since we last spoke in May, the amount of methanol vessels on order has grown from 130 to over 200 vessels to be rolled out between now and 2028. In terms of dual-fueled propulsion order book, we've seen methanol take and take market share and ultimately outperform LNG, as was evident in the previous quarter as well for new, new ship orders.
For example, Maersk ordered another 6 vessels in June to a total of 25 container vessels that are dual fuel with methanol. Evergreen ordered 24 vessels, and there are also now retrofits on order by major container ship lines and owners. We estimate that since May, when we did our Q1 results, the incremental demand for methanol for methanol has grown from 4 million tons per year to 6 million tons per year, solely for marine fuel basis, based on our updated tally and analysis. Recent registration is also giving a further boost, as you can see on page 12, with a revised strategy by the IMO, which we're looking forward to see more advancements on the decarbonization side and by FuelEU Maritime.
That drives significant further upside for the use of methanol, and ammonia for that matter, as a marine fuel, which will enable ship owners to reach their FuelEU goals at the fleet level. That leads me nicely to our next topic, which is energy transition-focused growth initiatives. As the largest green methanol producer in the world, we have a strong competitive advantage to benefit from this growth in marine fuels. We've made some big steps forward with a number of exciting announcements in the last couple of months to demonstrate OCI Global's leadership in supplying and trading renewable and low carbon fuels to decarbonize this energy-intensive industry that accounts for 3% of global greenhouse gases today. At the same time, we're providing proof of concept for green methanol as a safe, efficient, commercially ready fuel for global shipping.
Firstly, we recently announced a new partnership with Maersk, where we are fueling the first-ever green methanol-powered container vessel with our OCI HyFuels ISCC-certified green methanol. This will be along its entire maiden voyage, which started in Korea, where the ship was delivered a few weeks ago, and will end in Copenhagen in September, stopping along the way in Egypt and the Port of Rotterdam. The bunkering in Korea went very smoothly, and we actually refueled the ship at its first bunkering stop in the Port of Singapore just last week. Separately, we also signed an offtake contract to supply X-Press Feeders, the world's largest container feeder operator, headquartered in Singapore, with green methanol for the new methanol dual-fueled container feeder ships, starting to be delivered in 2024. This completes another piece in the puzzle in the chain to decarbonize shipping.
All this paves the way for ammonia, with ammonia engines expected by 2025 and 2026. As the only producer with both ammonia and methanol on a low-carbon basis in production, we're learning a lot from methanol as a fuel that we can apply to our business, as well as what it takes to support future customers of the fuel in setting up supply in various parts and ports of the world. Looking at our other initiatives, our 1.1 million ton blue ammonia project in Texas, which has once again advanced significantly over the past few months, remains on track to start production early 2025.
This will be the first new-build ammonia plant to capture the incremental regulatory value arising from the Inflation Reduction Act or IRA, and the Carbon Border Adjustment Mechanism, or CBAM, in Europe, several years ahead of other ammonia projects announced as highlighted in slide 30. We're having great discussions with potential buyers of that product when it comes online. On slide 13, we shared some new photos of the site. Piling is now complete, foundations and civil works are well underway, and we've started the steel structures, as you can see. We're pleased to report that the Texas Blue Project, alongside logistics initiatives in Iowa, sorry for that feedback, has been selected as a potential candidate for funding under the USDA's $900 million Fertilizer Production Expansion program, which aims to increase US-produced fertilizer.
We applied for the $100 million award available under the program and were informed in June that we've been selected as a potential candidate for funding in the second round of the program, pending an environmental review process. We also continue to progress our other sustainability-focused projects at Fertiglobe, including the TA'ZIZ 1 million ton per annum low-carbon ammonia projects in Abu Dhabi, where we expect FID in the next few months. As you know, this is a project where Fertiglobe is a minority investor, but also one of the key developers in the project. Our green hydrogen projects in the UAE and Egypt are also progressing as we start the FEED process for this during the second half of this year.
In the context of all these initiatives, we are pleased to be included in the FTSE4Good Index Series as a recognition of our performance and commitment to sustainability goals and actions. Finally, as I'm sure this is a topic of focus for our shareholders, we've provided a brief update in our press release on the strategic review that we initiated a few months ago. We have onboarded advisors to support the process and continue to progress. At this point, it's still too early to share information, but we expect to report key decisions during the course of this year, and we'll keep you updated. Let me conclude by thanking the OCI and Fertiglobe teams globally for what they've achieved so far, with that, we will open the line for questions.
As a reminder, if you'd like to ask a question today, please press Star followed by one on your telephone keypad to enter the queue. When preparing to ask your question, please ensure your headset is fully plugged in and unmuted locally. Our first question today comes from Christian Seitz from Kepler. Christian, your line is open. Please go ahead.
Yes, thank you very much. Good afternoon, Ahmed, Hassan, and Hans. 2 questions, if I may, for now, then I'll step back. First of all, given the rapid price increases as of late in urea, for example, can you remind us of your current EBITDA sensitivity to nitrogen and maybe also overall product basket, so including methanol? Second, I mean, Ahmed, you just mentioned the strategic review and further communication down the road this year, but any update on your thoughts concerning a potential lifting of OCI shares outside of the EU, which you mentioned during the Q1 release? Thank you very much.
Thank you, Christian. I'll start with the second question, then we'll get to the first question. Yeah, as, as I mentioned in the prepared remarks, you know, when, when there's something to announce, we'll, we'll come to the market and talk about it. Like I said, we have advisors with us, also thinking through that question with regards to the listing in another jurisdiction, evaluating, you know, the cost, the pros and cons, the benefits, et cetera. You know, we aim to come back to the market as we work together with our board to come to a decision on it.
Okay, fair enough. Thank you.
With regards to sensitivity-
Yeah.
Yeah. With regards to sensitivity, obviously, there's gonna be kind of the consolidated EBITDA sensitivity and then kind of a proportionate EBITDA sensitivity based on each of the products. Maybe I'll start with methanol and then hand it over on the nitrogen side to Hassan. On the methanol side, you know, obviously, we had a difficult quarter in Q2, given the hedging losses, some of the and some of the very low pricing we saw during the quarter. We produce, proportionate to our production to roughly 2 million tons of capacity a year.
I think that's relatively simple math in terms of the increases and decreases in the realized price of methanol, which is either the spot price or we tend to contract over 50% of our volume, a discount to the contracted price, right? Just, you know, that number multiplied by $2 million up and down. With regards to nitrogen, Hassan, do you want to take a stab at that one, giving you the more complex one?
Yeah. I mean, we've, we've shared the similar sensitivity before, where across the board, if we apply $25 per ton price increase, it's, around north of $300 million of EBITDA increases. I mean, there's a, there's a couple of factors that obviously weigh on that, that's the sensitivity that we shared, previously in the market.
Okay. Thank you very much.
As we trend, and Christian, just as I'll add that as we continue in the energy transition, we'll start seeing that probably change a bit, right? You know, you might see that we're off of different benchmarks. For example, you know, on the marine fuel side, these are, you know, product prices that are different because it's a green methanol product that comes at a significant premium, obviously at a higher cost as well. For now, it's taking...
If you think we have 2 million run rate of methanol production, then, you know, 100,000-200,000 tons may be completely outside of that market because we're selling it into a fuels market where, you know, product pricing is typically in the $1,000-plus dollar ton range and, and not one that, you know, we probably can come out with at this, at this stage.
Well, very helpful and well understood. Thanks.
The next question comes from Rikin Patel from BNP Paribas. Rikin, your line is open. Please go ahead.
Hi, good afternoon. Thanks for taking the questions. I had a question on the supply environment right now. I think you mentioned in the release that we're still seeing disruptions to ammonia production worldwide. Just curious what you see on operating rates in Europe, and also whether some of the marginal supply on the nitrate side has re-ramped through the summer. Secondly, just on the cost savings and the additional $15 million, could you maybe remind us which regions or plants we should be allocating those savings to? Or is it fair to assume that they're evenly spread across the business? Thank you.
You know, to take the first part of that question with regards to the supply. Broadly, we've seen a redirection in some cases of gas into the power sector in certain markets. That's happened, for example, in Egypt, in India. I believe it's happened in Trinidad and in Nigeria. Those are kind of affecting ammonia production rates and potentially urea production rates in India as well. First, starting with Egypt, because that's one where we have operations. I'm happy to say that at Fertiglobe, you know, we've lost about less than 3,000 tons worth of ammonia production despite that, just because of the lower gas pressures, but we've continued to operate at the rates unabated by the gas.
Gas has not been a constraint. With regards to India, interestingly, if you were to look year-over-year, India in the first half of the year imported 4.5 million tons in 2020, in 2022, and that number was 2.5, 2 million-2.5 million in 2023 for the first half of this year. That's because of that new supply of urea that I mentioned came onto the market. When you look at June and July, actually, we see India is actually, from the numbers we're starting to see, producing or on a, on a net basis, producing less than it was in the summer of last year.
We're not sure kind of the drivers behind that, but it's something we're monitoring very closely, and obviously, we're intrigued by the fact that the India tender came a few weeks early. Elsewhere, we've seen outages in Australia, we've seen outages in Saudi. That's helped to tighten the East of the Suez, East of Suez market. We've seen some outages in the U.S. Gulf Coast for operational issues. Moving on to Europe. Now, I'm talking about kind of with other producers. Moving on to Europe, we've seen since late last year, early this year, because of the drop in TTF gas price in Europe, an increase in capacity utilization. You know, even some of the oldest, most inefficient plants started to run in Q1 and Q2 in Europe.
We think nitrates is getting, coming up towards 90% capacity utilization, and despite that, we continue to see several weeks of nitrate pricing increases. We think ureas also ramped back up to the extent it possibly can, but we'll probably see that more in the kind of the 65%-75% range. Like I mentioned during the prepared remarks, we have seen kind of, some ammonia plants, you know, are on the side of importing ammonia and shutting down permanently, as is the case in the UK and Germany. We suspect that there could be a little bit more of that just given the difficulties Europe has faced. I think for the most part, you know, that's our global view of supply right now. Why we see a tight market is that demand is growing.
It needs to go back above trend to replenish stocks. Inventories are at these decade-low levels, in, in certain, certain regions. A lot of agricultural markets went on allocation, and you're even seeing some industrial demand for DeNOx, DeNOx from Urea starting to tick back up as well.
Maybe, yeah, maybe I'll take the question on the cost optimization, Ahmed, if that's okay with you?
Yep.
On the cost optimization, we've. What we, we've classified so far in our in the information we share with the market, the cost optimization into two parts. The part that was announced by Fertiglobe back in May, which amounted to $50 million to be achieved by the end of 2024. We believe we can, one-third of that can be achieved in during the current year. We further identify $50 million in sort of ex-Fertiglobe business that OCI has. We haven't delved into the exact composition of these cost reductions in terms of disclosure. We obviously know internally, we've been working on this for quite some time. I would add that there is no significant restructuring cost associated with those.
These are various efficiencies identified that both the sites and corporate spend efficiencies that we're looking at, and also without compromising our manufacturing improvement sort of roadmap. There is a priority, which I would say is the revenue side of the optimization that's not included here, and that will manifest as a better operating rates and better energy efficiency over time, as Ahmed mentioned during the earlier his earlier comments, as we aspire to achieve a higher sustainable operating rates, not just in any particular quarter, but through a longer period of time. Great. Thanks, Dave.
The next question comes from Faisal Al-Azmeh, from Goldman Sachs. Fazal, your line is open. Please go ahead.
Hello, good afternoon, and thank you for the presentation. This is Awad from Goldman Sachs, asking a few questions on behalf of Faisal Al-Azmeh. So I just wanted to get your thoughts on El Niño and how that could impact application seasons over the next six months, in your opinion. Second, on supply-demand dynamics, prices have been recently supported by the supply outages we've seen over the last few months. Going forward, do you feel that prices would go back to what they were post, like, as more of these capacities go back to full utilization rates? Thank you.
Thank you, Awad. Yeah, the El Niño effects are one, can, can have multiple effects on our markets, both directly and indirectly. Obviously, the weather being unseasonably warm that we've been seeing in certain markets has caused a higher power demand and could affect the demand ultimately for natural gas and tighten the global gas/LNG market and have the indirect knock on effect to JKM or Asian gas and ultimately, TTF gas in Europe. We're actually seeing a JKM to TTF spread widen, where pricing is getting higher in East Asia versus Europe.
I think that puts Europe in a more difficult position because then you start having gas being attracted to the Eastern Hemisphere and the Southern Hemisphere, and if it is a cold winter, it may be hard to pull that back again into, into Europe. More directly in terms of El Niño, we think that it could affect crop yields. You know, if you have difficult conditions for growing, you know, crop yields could go down and exacerbate the already low grain stocks to use ratio, which ultimately will continue to drive the incentive for farmers to use more nitrogen and kind of apply to get the, the, the large income that they reported, given the, the large spread between their costs and what they're selling at.
Obviously, at times, if it gets, if the, if the weather is very difficult to plant, it could cause some demand destruction in certain areas, but net-net, we think it should have a positive effect on nitrogen demand. One other counterbalance that we have to weigh is that, you know, sometimes when you have El Niño, you'll have, you know, very good weather in the northern hemisphere, which could improve crop yields. Unfortunately, in the last couple of months, we've been seeing, you know, the crop conditions, corn conditions, for example, in the U.S., despite the El Niño phenomenon, the crop conditions in the U.S. look like they're lagging a few percentage behind average conditions.
That's something we continue to monitor, but generally, we feel that it probably is, you know, neutral to better, in terms of nitrogen demand, in terms of support. With regards to your second question, Wadeed, in terms of the outages, I mean, typically, you do see Q3 being an outage-driven quarter. Like I said, Q3 is usually the one where you have lower pricing. It's post-season in Europe and the U.S. We would typically expect to have turnaround scheduled for Q3 because the, you know, producers ultimately wanna do so during periods where they're seeing lower prices. You know, we think that it's, it's relatively normal, maybe a little bit on the higher side because of this, this gas curtailments to the power sector.
From what we see on the demand side and just the producer availability from those that are running, you know, we think a lot of production well sold out into August, and several big sales happening through September. When we tally it all up between the Brazilian import demand that's upcoming, the Indian import demand that's upcoming, Bangladesh looking to potentially do a tender, and the U.S. uncharacteristically looking to attract funds now to just to get inventories back to normal levels and the extended seasons in Europe and the United States, you know, partly due to weather and partly due to product availability.
You know, we, we think, you know, directionally, it's moving in the right direction in terms of tightening, and it's finally reacted to that situation where you had to catch a falling knife issue with regards to the drop in TTF marginal cost pricing and the big new supply that came online, the 6 million tons. Lastly, as I mentioned in the prepared remarks and in the press release, you can see, we just don't see that much new capacity coming online for the next 3, 4 years, outside of really Russia and small plants in Turkey, here and there.
Very clear. Thank you.
Thank you.
The next question comes from Charlie Bentley, from Jefferies. Charlie, your line is open. Please go ahead.
Hey, guys. Thanks for the opportunity to ask a question. I just wanted to ask a question related to the OCI and just the ammonia capacity. I know, obviously, you're expanding the import terminal capacity for Rotterdam. Obviously, the capacity is very similar. I just wanted to understand what the kind of book value of the ammonia capacity was, as well as kind of how integrated the production of downstream products is, and therefore, kind of the level of sourcing flexibility. The second question was just a clarification on the comments on the super-bénéfice in the second half and just the total for the year. That would be, that'd be helpful. Thanks.
Sure. Thanks, thanks, Charlie. With regards to OCI, let me take a look. I don't know off the top of my head, the book value of the ammonia plant split out. I don't think that we've shared that before, but we'll share. I'll give them some thought. The capacity is about 1 million tons, right? In Geleen, in the southern Netherlands. It's on the river, and it is able to import, not just from Rotterdam, but from elsewhere on the river, ammonia, and can use rail cars as well as barges in terms of moving ammonia in and out. Since September of 2021, so we're, you know, closing in on 2 years here, we've been running at approximately 40% capacity utilization.
You know, sometimes it's been 50%, generally, maybe for a few brief moments, a little bit higher than that, but we've been running at kind of 400,000-500,000 out of the million tons. Why that is, is that we found that we can make more money by buying in ammonia cheaper than buying natural gas and producing ammonia at that site. That's been what we've done. That's why we've also looked to expand Rotterdam. Now, just in terms of Rotterdam, going from originally 2, 3 years ago, we had a 150,000 ton input. We tripled it to 400,000 tons, and now we are looking by early next year to get to 1.2 million tons of throughput.
That's to have more flexibility, not necessarily for OCI specifically, but also for other ammonia distribution out of Rotterdam. We enjoy the only ammonia import terminal in Rotterdam today. It allows us to do the expansion more easily with adding just loading arms, and it's a cheaper endeavor where we're not adding a tank. You know, that's one where we service not only, you know, OCI Nitrogen, but other ammonia plants, other ammonia consumers looking for ammonia in Western Europe. So from our perspective, the downstream can continue to run while we're running one of the two ammonia lines. There's two ammonia lines, I should have mentioned. Two by about 500,000 tons each. We're running one of them.
We can, we can keep the other one down and import ammonia cheaper than natural gas, and we, and we've tended to do that over the last 10 years from time to time during the winter when that happens. We've seen that be more of a phenomenon when ammonia drops. In terms of downstream integration, we can run nitrates, so CAN, with imported ammonia. When we wanna produce melamine DEF, which we'll be adding, you know, or UAN, then we need to have a, at least a portion of our ammonia plant running to produce CO2, because the urea that comes out, the urea that's produced needs to come from ammonia plus CO2. Is that clear, Charlie, or did you have something more specific?
No, no, it's very clear. I guess just thinking about the comments around shutdowns of competitive capacities and curtailments and so on and so forth. I guess thinking about the future of those lines, particularly as you add import capacity...
Yeah.
Whether or not there's kind of a question around looking... I mean, that's, that, that kind of is the nature of the question around the, the, the balance, the, what's on the balance sheet for the ammonia facilities.
I don't think we're gonna be able to give you a breakout of the balance sheet value for that ammonia plant.
Sure.
You know, we have the, we have the flexibility, right? Not just in the downstream operations to go between UA and CA, and we're gonna add DEF, CAN-plus, and we have multiple products, but also these ammonia plants have been invested in quite heavily. We bought these plants from DSM in 2009. We've continued to invest hundreds of millions of dollars in those plants. Interestingly, we have a conversion of 31 gigajoules a ton, roughly, which is one of the best in Europe and among the best in the world. You know, when we see other capacities, you know, other plants shutting down, we think that they may have, you know, more challenged environments in terms of their cost, their cost conversion.
They could be smaller sites, so kind of leveraging and capturing the fixed costs. It's that flexibility. That doesn't mean we have to shut down one of those two lines, but it, it is also a potential. It's something that we can do, if we wanna keep one of the two lines running.
Great, thanks. Then the other one was just the clarification on the super-bénéfice, the comments you made earlier?
Yeah, I'm happy to take that. No, I was just clarifying on the super-bénéfice that the, the dividends, the dividend related to distributions to our partner, Sonatrach, from Sorfert Algérie, that takes place in the second half of 2023. These are pertaining to record profits achieved in 2022, but the actual distribution takes place in the second half of 2023, and it's a very sizable number of $824 million.
Is now exiting.
Which is already re-appears on our balance sheets, and our financial statements as dividends payable. Combined with all minorities distributions, we expect the figure for minorities distribution in the second half of the year to be around $1 billion. Obviously, this is because of the nature of the results we achieved in 2022. You'd have to look, look through that on a normalized basis, going forward, because obviously, based on year-to-date results, the, this, the super-bénéfice figure, disappears, and the number becomes significantly smaller going forward.
Great. Thanks, guys. Cheers.
The next question comes from Arun Ceccarelli from Berenberg. Arun, your line is open. Please go ahead.
Hello. Hi, good afternoon. Thanks for taking my question. I have one on Brazil. May you provide some comments about the demand recovery you've seen there? Any color would be, would be appreciated. The second one is on CapEx. Is it, is your capital intensity increasing, and now you're moving towards more biomethanol and blue ammonia? Or is it, you know, in terms of maintenance CapEx remaining the same going forward? Thank you.
Yeah. I just wanna understand the second question again, please.
Yeah, the second question is on CapEx. I'm asking if the capital intensity of your business is actually increasing at the moment you're moving towards Biomethanol and Blue ammonia applications.
I mean, it's a hard question to give you one single answer on. We continue to look for ways to decarbonize while creating value. The way we think about any sustainability type growth or project, we line up, you know, at each of our plants. We have nine plants globally. We line up and look at the opportunities and what's the price of CO2 today. When you say something like blue ammonia or low carbon ammonia, right? That is, that does come with CapEx because you need to capture the CO2 and put the CO2 in the ground.
In the U.S.'s case, the U.S. government gives you $85 a ton of CO2, which is approximately $145 a ton of ammonia, as a tax credit versus a direct pay for 5 or 6 years and the balance tax credit for 12 years to do so. That's where we can put in, you know, additional CapEx and see a very quick payback. That's driven, you know, our investments in carbon sequestration to do blue ammonia in Iowa and in Texas, for example. With regards to, you know, green ammonia and some of the other things we've done in the Middle East, other things we're evaluating and, and low carbon methanol, in some cases, we could be just procuring a more expensive green feedstock.
Instead of you know, natural gas or methane, that's gray, we consume a low carbon methane, like a biogas, which is more expensive but doesn't have us change our plant in terms of any additional CapEx, or we could be consuming a green or a blue hydrogen over the fence, where it doesn't require CapEx except other than just potentially tie-in. That's why it's tough to give you a general answer, but if I were to kind of generalize where we stand right now, we do see that from a maintenance perspective, other than regular inflation, we shouldn't see a big step up in maintenance CapEx. The maintenance CapEx, if anything, probably on a run rate basis, if you, if you kind of solve for inflation, probably goes down a bit.
I think we've been spending in the last year or two, a bit more than typical, to, to help bolster our operational excellence program, changing out heat exchangers, compressors, and the like, to help improve our utilization rate. On the growth CapEx, it's gonna be a bit more case-by-case basis in terms of how we invest, and often we don't really have to invest on our balance sheet. It's helpful to be investment grade because as an off-taker of these, of these low-carbon feedstocks, we end up helping to potentially allow somebody else to invest on our behalf and potentially with a much lower cost of capital, trading on a much higher multiple. Is that clear?
Yeah, on Brazil?
Hello? On Brazil, we've seen stocks lower, as we've seen earlier imports than normal. Typically, you know, with the, with the season there, you'll see that September is kind of a peak month, but, you know, there was buying in June and July, and if you look at kind of the publications over the last few weeks, you'll see that Brazil is really just trying to scream for product. It's really been competing initially with the US before India came in, trying to battle with the US to find product to make its way there, because NOLA or the New Orleans US market for urea was, was really running quite strong into July, and now into August, given the shortage of inventory. Very robust imports. We still think significantly more needs to come in.
I think we're seeing 7 to 7.5 million tons for 2023. We've seen incrementally in 2023, 3 million hectares of growth in both corn and soy production. Despite that, you know, we've seen margins, despite, you know, the additional crops being produced, margins continue to be strong, and we expect growth next year as well.
Thank you very much. As a reminder, that star followed by one to ask a question via the phone lines today. We have no further questions on the phone line, so I'll hand back to Hans for webcast questions.
Yes, thank you. For some of my questions that we have received here. The first question is from Chetan Udeshi from J.P. Morgan, and the question is ongoing, on the ongoing strategic review, the comments in the press release seems to imply that status quo on the structure of the business, i.e., nothing around the change in listing location, is a less likely option. Is this the right interpretation?
I think all options are on the table, Chetan, but definitely, you know, we're spending a lot of time on some of these strategic initiatives, particularly, looking at things like, the change in listing location. We're not, you know... You're right to think, you know, we wouldn't be doing that in vain, so we are thinking through this seriously, yes.
Thanks, Ahmed. The next question is, what is the 2023 CapEx and minority dividend guidance?
Yeah, I can take that. I mean, we've, we've clarified in earlier remarks on the, the Q&A, the expected minority distributions that are happening in the second half of the year, which I think takes us to around $4.4 billion for 2023. In terms of the CapEx guidance, again, we reaffirmed our growth CapEx guidance. That was in between $350-$450. Our maintenance CapEx, as Ahmed mentioned, and also my earlier remarks, a little bit elevated compared to the normalized rate that we've seen, that we typically have of $300. We're seeing exceeding $350, reflecting timing of invoicing, payments related to turnarounds in late 2022, and some voluntary scope changes that are pertaining to the manufacturing improvement program, which we're very focused on.
We expect these normalized rates to drop even with inflation, in future years as the as our program is completed. Hans?
Okay, thank you. The next question is on the methanol. It is, are you able to give an estimate on the market share that OCI can achieve on the methanol fuel container vessel in the near future?
I'd say it's hard to give you a specific number. I can tell you we're targeting and having a lot of the right discussions with the right players. We announced with X-Press Feeders, we announced with Maersk. We've been speaking to, you know, almost every other player that's ordered new vessels, the fact is that we've been able to provide supply here. You know, we're very excited to be sitting in pole position. We're the largest producer of green methanol today, and I think we're very well positioned to continue to capture market share for methanol fuel container vessels and other vessels in the future that come out in terms of dry bulk or other types of vessels.
I think we sit in a very good position, and we're in a dominant run right now with just these 2 announcements we've made over the last couple of months. You know, I will also want to point out that these are also for vessels delivered this year, next year. Some of the earlier ships, there's an onslaught coming in 2025 as well, in 2026 and 2027 and 2028, and we are, as a team, very much focused on sitting and trying to provide those supplies. As I mentioned as well, you know, what's really exciting for us as a methanol and ammonia player, you know, these are the same partners that we'd be speaking to potentially for ammonia-driven vessels.
You know, MAN has come out in the last few weeks and said that they had a successful test of their ammonia engine. They anticipate the engine to be ready for 2025, so potentially on the water in 2026. So, you know, we just kind of learned from what we've been doing here, the trial and error over the last few years, and some of these methanol consumers we've been speaking to for 2 years on the vessel side, and try to apply that onto the ammonia space. Leverage our global footprint and presence in the trading and distribution and storage of these products.
Thanks. Thank you, Ahmed. To stay with the, the methanol, what is the current status of BioMCN in the Netherlands?
BioMCN continues to be shut down. We've been shut down since, I believe, June 2021, so a little over 2 years. You know, to help offset some of the costs, we've been able to sell CO2 units or credits. I think that's some of the decision-making. To the question earlier, from one of the people on the line in terms of shutdowns. One of the decisions that people make when they're deciding whether or not to shut down isn't, I want to just reduce the CapEx bleed, but also potentially I can sell the EUAs or the credits that are now EUR 85+ a ton to help offset some costs. We've done that.
We've been, continue to have the plant shut down, and, you know, we'll report to the market if there are any further developments.
Thanks, thanks, Ahmed. The next question is, given the elevated H2 dividends and payment to minorities, where do you expect full year 2023 leverage to get to? It feels like you may exceed the 2x targets.
I can... Excuse me one second. We don't, we don't typically give leverage forecasts because as it implies what we expect on the underlying components. We did adjust our dividends to $200 million, so it's not an elevated dividends, it's a base level, which is what's gonna be paid in October. On leverage, we do expect some increase as we cycle through the, some of the lumpy minority payments related to last year, as I mentioned earlier. However, with current leverage at 1 turn, we have, we have meaningful headroom. We continue, we continue to, you know, manage our balance sheet positively going forward.
Thanks, Bassam. I think, we have time for one, maybe two more. There's, one of them is, as you mentioned in the press release, the results of the strategic evaluation come in the course of this year. In which quarter or month in the second half of 2023 can we expect a final decision? Will it only be shared as quarterly results or also intermediate?
I won't be able to give you a date on whether it's on third quarter or full year, but, you know, to add to the last part of that question, is it on quarterly results or immediate? Obviously, if something, if something warrants that it needs to go to the public investors and it's material, we will go immediate and not wait for quarterly results. The, the answer is that it would go when it's appropriate and ready to go out to the market, if we were to have something on the strategic review.
Thanks. Thanks, Ahmed. Last question will be, how likely are the points that Jeffrey Ubben mentioned in this letter to the Board will be followed?
I mean, I think as we mentioned when the letter came out, that we would undertake the strategic review. Obviously, as the second largest shareholder outside of the Sawiris family, we take, we take seriously a letter from a sizable shareholder, and we've had dialogue with Jeffrey Ubben over the last several months, as did Jimmy. Definitely, you know, things are taken into consideration, but we look to create value first and foremost. From, from our perspective, you know, our focus is gonna be on all shareholders across the company and stakeholders. As I said, we will report back to the extent there's something that we need to report to the market on, on an immediate basis and not during quarterly results.
Thanks, thank you, Ahmed. I think there's time for one more question, the last one will be, roughly, what is the cost of the green methanol being supplied to, for shipping?
Also a good question. The answer is that it depends on the, the carbon footprint of the green methanol and other certain attributes. It is definitely more expensive than a gray methanol, materially more expensive than gray methanol, but the sales price is materially higher, obviously, than gray methanol. The way we think about it within OCI HyFuels and OCI Fuels is that we look at the margin that we typically get on, on methanol for gray methanol production, methane into methanol or natural gas into methanol, that we want to continue to generate, and then have a premium above that generated by the more expensive green feedstock and the more expensive green sales price. The that team is incentivized to make a margin over and above typical gray margin on this lower carbon feedstock.
That's how we run it, but wouldn't be able to share with you the exact details behind the cost. As you can see in our OCI Fuels results, we continue to generate EBITDA, you know, good EBITDA in the last several quarters and last year, going into the diesel fuel space, into the chemical space, and now we're excited to get into the green fuel space with our low carbon.
Thanks, thanks, Ahmed. I think that's it with the questions, and I'll hand back to you for the final remarks, Ahmed.
Well, thanks all for joining today. Good questions, look forward to our next discussion. Stay safe and stay cool in the hot environment.
Thank you.
Thank you.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.