OCI NV
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OCI NV
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Ladies and gentlemen, thank you all for standing by, and welcome to today's OCI N.V. First Quarter 2018 Results Conference Call. [Operator Instructions] And I must advise you all that this conference is being recorded today, Friday, the 11th of May, 2018.I would now like to hand the conference over to your first speaker for today, Mr. Hans Zayed. Please go ahead, sir.
Thank you. Good afternoon and good morning to our audience in the United States. Thank you for joining us on the OCI N.V. First Quarter 2018 Results Conference Call. You can find all the details of our results in our press release and financial statements, which we posted on our website this morning. With me today are Nassef Sawiris, our Chief Executive Officer; and Hassan Badrawi, our group Chief Financial Officer.On this call, we will review OCI's key operational events and financial highlights for the first quarter of 2018, followed by a discussion of OCI's outlook. As usual, at the end of the call, we will host a question-and-answer session. As a reminder, statements made on today's call contain forward-looking information. These statements are based on certain assumptions and involve certain risks and uncertainties, and therefore, I'd like to refer you to our disclaimers about forward-looking statements. Now let me introduce our group Chief Financial Officer, Hassan Badrawi.
Thank you, Hans. Thank you all for joining us today. As Hans mentioned, we posted our first quarter 2018 results on our website this morning. This is the first time that OCI issued condensed financial statements for the first quarter. Typically in the past, we've issued clearing statements. Going forward, we will be providing this level of disclosure for the first and third quarters as well.I'm pleased to report that we had solid performance in the first quarter of this year. We've achieved healthy utilization rates across our asset base and witnessed a meaningful step-up in EBITDA and free -- and more importantly, free cash flow. Our sales produced, sales volumes increased by 33% compared to the same quarter last year, which was about $2.2 million during the first quarter.On average, we realized selling prices at higher levels than those achieved in the first quarter of last year as the market just continues to strengthen. As a result of the higher volumes and higher selling prices, first quarter revenue increased by 57% to $744 million -- $745 million, and we reported an increase in our EBITDA of 95% to $252 million. We also reported increase in our adjusted EBITDA of 44% to $235 million. The delta between the reported adjusted EBITDA this quarter is mainly the insurance proceeds or the down payment of our insurance proceeds from the Sorfert shutdown, which continues to positively progress.At the bottom line, we had a swing back into profits from a net loss attributable to shareholders of $47 million in the first quarter last year to a net profit of $25 million this quarter. We've also achieved, as I mentioned earlier, healthy free cash flow of $120 million in the quarter despite an increase of $49 million in working capital, reflecting some market conditions, which not at all addressed. The free cash flow represents a conversion rate of about 48% of our reported EBITDA, and we believe our company is among the best-in-class going forward in free cash flow conversion.Turning to our balance sheet. Our net debt stood at $4.435 billion as of 31st of March, 2018, that's dollars, reflecting some minor movements from the $4.447 billion as at December 31, 2017. This is mainly due to some adverse currency translation differences of $38 million, which are partially reversed in the Q2. The tail ends of our gross capital expenditure, which was $23 million during the quarter, were mainly BioMCN second line, the doubling of our capacity of BioMCN, which is the last piece of growth capital we have in our system. There was also a one-off accounting adjustment of $90 million for the implementation of the new IFRS 9 rule, which impacts the value of the opening balance of debt with no P&L impact. And finally, the net effect of $29 million of several items mainly reflecting the expensing of the cost of debt repayment related to OCI's [ peer ] refinancing and the convertibles. During our last conference call in March, we shared an update on our capital restructuring plans. I am pleased to report that we have now finalized all refinancings with a number of transactions successfully completed in recent weeks. These include, in April, we completed the offering of a well-oversubscribed debut bond consisting of $650 million tranche and a EUR 400 million tranche of senior secured fixed rate notes due in 2023. The dollar notes have an interest rate of 6.625% and the euros are at 5%. I'm also pleased to say that for the first time in conjunction with this bond issue, OCI N.V. obtained corporate credit ratings from Moody's Investors Service, Standard & Poor's Global Ratings and Fitch Ratings of Ba2, BB- and BB, respectively, all with a stable outlook. Also in April, we entered into a new revolver in term loan facility as part of our overall capital restructuring. The new RCF has a total commitment of $700 million with up to 5-year maturity. The new term loan facility has a total commitment of $400 million equivalent denominated in euros. It was a 4-year maturity. Both facilities bear an initial interest rate margin of 4% over LIBOR, which declines as the company's deleveraging profile continues onward.We also successfully concluded the buyback of our outstanding EUR 339 million convertible, which closed a few days ago. And finally, yesterday, we closed the refinancing of our existing debt facilities at the Egyptian Fertilizers Company for a total equivalent of $445 million. The transaction has received extremely healthy demand from commercial banks, both local and regional, and also included a commitment of $100 million from the International Finance Corporation and $60 million from the European Bank for Reconstruction and Development, as it was the last piece of refinancing activity on our ecosystem that is now complete.With our capital restructuring program now finalized, we do not have any major maturities in the near future and have meaningfully extended our average maturity profile going forward. We have lowered our average cost of debt this year already by up to 35 bps, but expect more meaningful gains through expected step-down provisions as our deleveraging continues. We have reduced our sensitivity to rising interest rates due to increasing the proportion of fixed rate debt from previously 26% to around 50% of our total debt and just over 75% of U.S.-denominated debt following the refinancing. We believe we are now extremely well positioned to achieve a healthy trajectory for deleveraging as we continue to target an investment-grade profile. And at this point, I'd like to hand over the call to Nassef, our Chief Executive Officer, for further commentary and outlook.
Thank you, Hassan. As I already mentioned on our last conference call in March, we started 2018 with all our plans operating well. I'm very pleased that we can now confirm that the results, we enjoy strong improvement in our operation and our financial performance during the first quarter. All our operations were contributing to this growth through our robust increase in volumes and our performance was supported by a well-diversified portfolio of fertilizers and industrial chemicals. I'm particularly pleased that we generated a healthy level of free cash flow of $120 million in the first quarter despite a $49 million increase in working capital. Inventories ended at a relatively high level at the end of March as the spring application season in the U.S. and Europe was delayed for the first -- into the second quarter due to the adverse weather conditions.Now let me give you some insight on our 2 underlying markets. First, the nitrogen fertilizer market. Our realized selling prices increased on average during the first quarter compared to a year ago. We believe our commercial strategy is paying off. As we continue our strategy to limit both the quantity of forward contracted sales and the company's participation in the annual sales season selling program in North America. We believe that this could help to create a more stable environment for nitrogen fertilizer prices and stabilize price expectations for our customers.We continue to see a number of positive trends emerging for the nitrogen fertilizer market. Firstly, for the first time in a number of years, we see grain fundamentals improving. Global consumption is outpacing production, grain inventories are expected to decline and farmers in U.S. may shift back to corn acres from soybeans. Overall, higher global grain price levels should boost the use of nitrogen fertilizer in the U.S. and other major markets. Secondly, we're seeing strong demand in high-growth regions this year, in particular in East Africa, a trend that we expect to continue going forward. East Africa has some of the fastest-growing urea markets in the world, including Ethiopia, Tanzania and Mozambique. Ethiopia alone is a urea market of 500,000-plus tons, which is expected to grow at double-digit rates in the coming years. All the required urea is being imported. Our plant in Egypt, EFC, is particularly well positioned to serve the East African markets as we have logistical advantages compared to our competitors.Thirdly, as we discussed before, we continue to have the view that nitrogen supply additions have already peaked in 2017 and that new additions will be below incremental demand over at least the next 4 years.Finally, exports from China continue to fall in the first quarter. Net exports amounted to less than 250,000 tons or a drop of almost 80% compared to the first quarter last year. We expect urea exports from China to remain at low levels going forward, if at all. Our -- then we move to the industrial chemicals market. Our industrial chemicals portfolio continued to perform well with healthy volumes and further increases in selling prices for methanol and melamine. And the first contribution's coming through from diesel exhaust fluid. We believe that each of our industrial chemicals market has a favorable outlook. Methanol markets have been growing at rates of 8% to 10% on average historically, and we believe the outlook remains positive. We have strong visibility into the next 4 to 5 years and expect limited new major capacity additions to come to market relative to expected continued solid demand growth in the high-single digits. We are all -- we are very well placed to benefit. Our methanol portfolio will get another boost this quarter with the start-up of Natgasoline within weeks from now. Natgasoline reached the major milestone of mechanical completion in April and natural gas has already been introduced to the reformer.Our other gross project, BioMCN's second methanol line, is on track to start production in the fourth quarter of this year. Our melamine business continued a healthy trajectory and remains a good source of diversification. Melamine prices continued to increase in 2018 after consecutive quarterly price increases throughout 2017 and demand for the product remains healthy.Finally, diesel exhaust fluid has been an exciting recent addition to OCI's industrial chemicals portfolio, following the start-up of IFCo in 2017. Diesel exhaust fluids is a fast-growing and high-margin product, which has been growing at rates above 20% and is expected to maintain high-growth rates in U.S., Europe and in China. We have been ramping up our DEF operations this year. We have been rolling out the product in the United States where we have increased production capacity at IFCo and have boosted the logistical capabilities with an enlarged railcar fleet and more storage capacity.Outside the U.S., we have an increasing DEF capacity as well. We executed the first shipments from Egypt in March, and we are planning to start production of diesel exhaust fluid in The Netherlands next year.To conclude, our first quarter results support our expectation that we are on track to achieve a significant step-up in free cash flow generation. Our free cash flow of $120 million in the first quarter was a good achievement and combined with a strong increase in EBITDA, the first signs that we are on the right track, our deleveraging, driven by our -- building up to our run rate volumes.This year, we will see a step-up in the volumes coming through from Iowa and our plants in North Africa as well as the start-up of our methanol facilities. We will have some turnarounds in the summer and have a large list of small production improvements, but these will help us achieve even higher run rates going forward in 2019.We expect to have, in 2019, all our facilities up and running for a full year. With that, we will open the line for questions.
[Operator Instructions] Your first question comes from the line of Tom Wrigglesworth.
I'll start with 3 questions if I may. I've got a few kind of more strategic ones to start off with. Obviously, your commentary around nitrogen pricing infers that we are kind of maybe past the trough of the cycle. In terms of the level of core productivity it would seem in consolidation, which I think you guys have said in the past that you think consolidation would take place. Has it surprised you that there haven't been bigger deals whilst things have been more suppressed as -- and how would you see that kind of continuing as maybe the cycle picks up? Second question, again is more focused on OCI. Obviously, as we exit kind of 2018, it looks like your organic growth and investments have delivered. What should we expect next from OCI? You're not famous for a company to not be doing something. And the last question kind of more on the first quarter performance. You note that the run rates was 110% for March for the IFCo facility. I think we all understand that the challenges of cold weather through the fourth quarter probably provided a bit of a low run rate entering the first quarter. If IFCo had been -- if IFCo hadn't had an uninterrupted first quarter, how much more EBITDA do you think that would have delivered? Could you give us some sense as to -- because I appreciate it's still in ramp-up. Those are my questions.
First I'll start by -- your question on consolidation. I am -- I tend to differ because you saw already last year the Agrium-PotashCorp transaction, which is a positive -- first step of a positive conversation, not just in potash, but also in nitrogen. Other players who have high government participation in their shareholding are typically not able to take advantage of changing market conditions and, hence, we're not active in that part of the consolidation. So we believe that moving forward, from our standpoint, is that we have to finish our major ramp-up of the capacity expansion and that will be done by end of this year and then our next priority would be to achieve investment grade and deleverage. So from our side, we will not be doing any major acquisitions in the short term. On the issue of IFCo, yes, January and February had some interruptions due to the extreme weather. That probably did not change the fact that the market was weak as a result of the adverse weather conditions. So we finished still, despite that inventory buildup, with a high -- sorry, despite the shutdowns with a higher inventory level than we would have expected. So it's quite difficult to assume, but on a run-rate basis, I can tell you that March EBITDA contribution was multiple times more than January and February combined.
So your next question comes from the line of Christian Faitz.
Two questions, if I may. First of all, can you give us an indication of a rough tax rate for the full year in 2018, please? And then second of all, given the shortened application season in the northern hemisphere due to adverse weather conditions, prolonged winter weathers, do you believe you can, in terms of volumes, catch up in the remainder of the season despite the compressed application window?
So on the tax rate, Hassan will give you the...
On the tax rate, as you know, this is one of the areas that strengthened OCI. We have -- we're able to achieve quite a low effective tax rate. Our guidance in the -- for this year has been in the range of 15% to 18% effective tax rate. Although I will note here that our actual cash tax would be lower than that. And that, of course, is a reflection of a combination of some of the jurisdictions in which we operate, Egypt where we have no taxes in our EBIC asset, Algeria, which is tax exempt and some efficient tax structuring that we've done throughout the system that -- where we are reaping the benefits of that. On the catch-up of the...
The catch-up is actually -- might be in the U.S., slightly different than in Europe. In the U.S., the ammonia application was really hit by the shortened season, but we are seeing healthy UAN pickup. So it's a bit of a shift in the product mix in the Midwest where the ammonia demand was -- period was shortened, but accelerated UAN and pickup. So we believe that we should have a reasonable new buildup of inventory by the end of the quarter.
Your next question comes from the line of Frank Claassen.
Frank Claassen, Degroof Petercam. Two questions, please. First of all, on DEF, could you elaborate a bit more on your plans? How big could it be for you? And how easily is it to switch existing plants from -- in the urea to DEF? And secondly, now that your refinancing is done, what will be the average cost of debt going forward?
I'll start by answering your question on DEF. A urea plant that is a modern plant built in 10, 15 years can't produce urea liquid, which then you mix with high-quality water, demineralized water, and then you have a product, which is called DEF. The challenge is more for the older plants. And in our case, having the youngest fleet of plants in the industry. In the case of Egypt, these are 10 to 15 years old, older plants. The process of producing DEF took us less than 3 weeks of calibration. The Iowa plant was planned from the beginning to have an element of DEF. What we have done is that we increased the capacity with less than $1 million of investments in France and other pieces of equipment. But in essence, this was just a capacity increase, so we produced more liquid urea then granular urea, for example, or other downstream products like UAN. So this is for new plants and this is why we could benefit from the expansion in DEF capacity. In the case of our Dutch facility, it requires a little bit more time, and that's why you are seeing us go into 2019, but not at a significant cost. It requires some changes that are a bit more time-consuming, but not that costly. So our plan is that we will have a significant part of the Iowa plant service, the busy Midwest trucking demand. And now we are seeing also agricultural tractors using DEF in their tractors and harvesters. So the demand is growing in Europe and in North America by 20%. DEF, for the first time, made its mark in China. And the first year, it only consumed like the equivalent of 100,000 tons urea. But as new trucks gets rolled out and due to the scale in China, we expect China to be a big contributor to the growth in DEF. Our size of DEF in Iowa could reach 1/3 of our total output in DEF. DEF trades at a premium to Midwest urea, which again trades at a premium to the rest of the world and particularly NOLA urea. And the challenge in logistics in U.S. is increasing. There's a bigger shortage on barges, on trucks and all that, and we're very confident that the Midwest premium will continue to go -- to expand and go back to its historical differences.
And regarding your question on cost of debt. It's true, we are realizing some gains of 35, 40 bps, as we mentioned earlier, in 2018, taking our weighted average cost of debt to be in the range of 5.5% to 6%, but our new debt facility that we've introduced as part of the restructure allows us to capture further meaningful reductions in our cost of debt as our leverage begins to decline. so the [ ability of interaction ] has allowed us to get further benefits 2019 onwards.
Your next question comes from the line of [ Karim Salman ].
My question is, given the U.S. renewed sanctions on Iran, I know that there was additional capacity of some end products of yours like methanol that were expected to come online from Iran. Do you think that will impact pricing of methanol or any of your other end products?
I mean it's -- on that -- this is early times. The biggest impact really is on plants under construction. There is, under the U.S. sanctions, still something like 180 days, so shipments in place. So definitely, Iran is a big player in the methanol export market as well as a big exporter of nitrogen. What we can say is that in the past, sanctions have resulted in a couple of things: number one, a complete slowdown of any new capacity additions due to the effect of not receiving critical parts, et cetera; the second is that the operating rates of the existing plants dropped significantly. So those are kind of a double whammy for -- in the past. So definitely, it will have an impact. Short term will be smaller. There will be more clarity probably in the next 180 days.
Your next question comes from the line of [ Jack Herr ].
I have a very basic question. I'm just trying to understand the gap in -- from volume growth of 25% to revenue growth of 57%. Taking my look at the benchmark pricing you have, obviously, prices aren't up by almost 33% on our bridge across the mix. So I'm just trying to understand what else is in the revenue line that's giving you that growth beyond volume.
So you have higher realized prices this year in many product segments, higher methanol prices, higher month-to-month comparables of urea prices, even higher CAN prices. So a combination of volume growth as well as pricing growth and product mix. So as you get to sell products like DEF, which are higher priced than normal urea, so the -- that correlation becomes a bit skewed towards the expansion of cash flow -- revenue and margins.
And to complement Nassef's response, the positioning of our plants as part of our investment thesis and the margin we're able to capture in our business through the commercial streamlining we mentioned, a couple of [ quotas are low ]. That's starting to come through our results as we now, in a quarter like this, have beaten the delta in the benchmark prices.
Your next question comes from line of [ Joe Maris ].
Just in terms of questions about the overall market. Can you just talk a little bit about, I mean, obviously, the Chinese exports continue to basically drop almost quarter-on-quarter and month-by-month. Where do you think that levels out? Or what's your view of sort of is the current level sustainable or do you think you can continue to decrease it there? And then finally, if you can just give a little bit of color, obviously, on the corn versus soy consumption and question that you see among the farmers and what's the sort of ratio that we should sort of -- or what are you thinking in terms of expectations in terms of that shift and how does that impact your business?
Well, I think the -- on the first question, I think China will go to 0. I have no doubt about it. It just doesn't make sense to import expensive coal, lead the pollution in China and then export the product that only achieves the following. You leave the pollution in China, and you leave pissed-off trade partners who are complaining about the trade deficit, and you make no margin. So I don't see Chinese exports continuing. And while DEF was only 100,000 tons, everything happens in China big and fast. The fact that they are very much focused on environmental constraints and due to the fact that DEF affects cities more than CO2 emissions because the NOx emissions are -- stay in each particular city. And we think that DEF in China will grow extremely fast, and this is our own findings from China. And that can take any slack in any excess capacity in urea. So we think urea exports are a thing of the past in the medium term. On your question about corn and soybean, there are 2 issues related to that. One is the fear of Chinese sanctions, the products that have been put on the list could include -- play a big role in that change. But in general, higher grain prices will -- could result in an increased acreage to be planted with corn in the Midwest to the magnitude of creating an additional 1 million or 2 million tons of urea demand, and that's just in the U.S. So that is definitely a positive.
Your next question comes from the line of [ Regan Patel ].
I just had 2. Firstly, I sort of see the CAN volumes were down slightly in Q1. I assume that's obviously because of the colder weather, but I just want to get your view on the outlook for that market in Europe for the rest of the year and maybe what you think about the nitrate premium with respect to CAN. And secondly, just follow-up on the question on Iran earlier. Do you think that if the sanctions do come to fruition, that it could be a potential positive impact for your North African business if the likes of, say, Turkey and some countries in Europe starts to look away from Iran and move towards North Africa? I know it's hard to say, but just your view will be good.
So on the European -- they're kind of linked to the global nitrogen market. I think the market is following very similar patterns to urea. This year weather played a big role. The other negative that we saw on the European market was higher gas prices to -- and that puts a cap on where CAN prices can go down. What -- particularly what was very important was the lessons learned from our CAN strategy last summer, when we only sold product 1 month forward, and we were witnessing late in the year and early next year some of our competitors delivering all commitments and in some cases, up to EUR 30 and EUR 40 cheaper than where we were selling our products. So basically it's a flawed strategy to sell to a trader or a stockist that nearly missed the product in warehouses for 4 months, and you sell him that early product at a steep discount 4 months later as the demand starts picking up. You have a competitor in the trader that you just sold the product cheaper early on in July and August. So part of the bigger problem of CAN is that rush to sell a lot of products that are off season to stockists. We consider stockists and traders as nonend customers and potentially competitors. So that is the big overhang on CAN. Your other question on Iran and Turkey, as I said before, it's early days, but definitely Iran supplies a lot of our products competing with North African products in Turkey. Should that situation change, that will boost demand for North African products going into Turkey.
The next question comes from the line of Christian Faitz.
Could you talk about, talking about the different region now, the entire [ Trinidad ] situation and how that is affecting potentially your assets in Beaumont.
So I think the methanol market is quite tight. So the outages and all that are playing an important role, but it's really a demand story that is helping the methanol market. You have to think that methanol is very sensitive to oil prices, and we are seeing a lot of the methanol grow in China, ending up in cars, for example. So the higher the oil price, the more demand for methanol as a fuel. The higher the oil price, the more competitive empty oil plants are -- that are using methanol versus using naphtha crackers. So methanol is primarily a 2-story -- has 2 sides to the story right now. One is the higher oil price and the other one, the tightness in the demand, I mean, a very strong demand.
Our next question comes from the line of Tom Wrigglesworth.
Some follow-up questions, if I may. Corn belt pricing has been at a premium to the NOLA price certainly through the first quarter. Is that something that you've been able to lock in for the second quarter? And I mean, obviously, we're looking at 30s kind of trader prices. I'm just interested to know if that situation is going to be alleviated or if you think that, that premium will continue throughout the course of this year and actually it will never catch up. So that's the first question. Second question, if I may, following on from the questions around interest expense. I understand that you have kind of step-down mechanisms in some of the new debt instruments that you've issued. Could you just elaborate kind of what that means and -- because in terms of -- as we see the cash generation pick up and the net debt fall, what will that actually do to -- will there be just a mechanical drop in your interest costs rather than you needing to reissue new instruments to capture your stronger balance sheet?
Okay. So I'll start with the first problem -- question on the Midwest premium, and I'll leave Hassan to walk you through the step-down process and the flexibility and the financing. On the Midwest premium, the Midwest premium has a floor, which is the logistical cost of moving product from NOLA into barges and all that. But there is an added premium because of the difficulty in logistics at peak season, the availability of barges, the availability of trucks and double handling, which is becoming a big issue more and more. I mean, a lot of other industries are starting to feel the pinch of increased logistics. So what we always said that we think of the Iowa Fertilizer Company as a hybrid between a manufacturing plant and a logistics center because we are located in a very attractive location, in the middle of the biggest nitrogen demand as well as the biggest trucking demand in the Midwest. So as -- we see actually the Midwest premium growing rather than coming down and that will continue even in nominal terms. As far as the premium is concerned, we see a possibility that, that is -- we'll see more of it in the second quarter than we saw in the first quarter. We're seeing that right now. And in regard...
Yes. And in regard to your question on the debt, all -- our new bank facilities at the holding company level, which have been issued in conjunction with the bond, have basically leverage-based margin growth. And that's sort of the growth that I mentioned earlier, which allows us to benefit from the decrease that is naturally going to be happening to our leverage metrics as the ramp-up of our EBITDA and our -- happens and as we continue to hit our run rates with our free cash flow conversion profile, which is quite unique. That means a deleveraging is -- can occur very rapidly. And we can approach being an investment-grade profile within 2 years plus. That could be -- depending on pricing, of course. And this is fairly standard for these type of debt facilities. And as you actually mentioned, this allows us to save on having to reissue future debt to capture that deleveraging benefit.
So it has actually 2 benefits. One is a step-down in interest expense on the revolver as well as the OCI Term Loan B, but you also get a reduction in absolute debt because the revolver is very flexible and sizable so as we deleverage, we pay -- we don't need to issue a new debt. It's just an on-demand facility.
So in terms of quantifying that, if I may, so in 2 years, if you were investment grade, what would your interest expense be? Do you think that could be, what, 20% lower than it is today? Or is it going to be more like 40%?
A lot of misfits, including interest rates and all that, I think, will give you the basis of our loans, and you do the math based on your expectations of where interest rates are going to be in 2 years.
The next question comes from the line of [ Rob Fong ].
One quick admin question first off. The -- in your disclosure, when in the segmental reporting, you give revenues and you give a net profit line, but what would be really helpful to investors, especially from a debt side, would be an EBITDA by division just because that's the way that the deal was presented. You kind of have the breakdown and that would be really helpful in your reporting going forward. Is that something that you think you can do in future reports?
We'll look into it. I appreciate the comment and we'll look into what we can do in terms of our disclosure. There's quite a bit of data already available on the various [ articles ] based on existing debt, but we can look at that.
Got it. That's really helpful. And then, obviously, the timing of that deal you were talking about Q1 and saying you had strong expectations. What -- is there any short-term guidance you're willing to give on Q2 in terms of volume increases year-on-year or anything along those lines?
No, I think we made that statement that we expect overall in the year that our guidance didn't change. What we can say is that the -- we look at year-on-year performance in terms of plant reliability and in terms of the trends in prices. I would say that on those, both metrics are in support of our statement that we're not changing our guidance.
The next question comes from the line of [ Senan Kiran ].
You mentioned that investment grade is a possibility in the next 2 years or so. Is it a target on its own right or you would be just happy to have an investment-grade profile?
Can you repeat the question? The line wasn't very clear.
You mentioned that you would get back in 2 years' time, you potentially getting investment-grade profile, so you're metrics would be good enough. But is it a target on its own right? Like if the right acquisition came along or you want to dividend out certain amounts of the cash generation? Is it a strong target for you to become investment-grade?
Yes, it is.
Okay. And then you mentioned that the average selling prices were higher in Q1 for most of your products. Are you able to quantify what was the average selling price increase year-over-year in Q1 '18?
No, but we can tell you that the key products have had increases in pricing in a magnitude of $30, $40 on urea. You're talking about a significantly higher number on methanol. Melamine is up 5%, but it's a whole list of products. I would say that across all products, we're seeing improvements year-on-year.
Okay. And then you also mentioned that Natgasoline is about to start its commercial production. When do you think you would ramp up fully this site?
I mean, we have introduced gas to the reformers. It's mechanically complete to introduce gas into the reformer. So the process started towards production. As with any new plant, very difficult to predict. But so far, the pre-commissioning, the commissioning and the start-up is going very smooth. So I wouldn't put an exact time on it. But sometime in the summer, we think we'll be in good shape to have steady operations.
Okay. And if the methanol prices were where they are today, what sort of EBITDA potential this operation has? I think during the roadshow, we were given maybe $300 million to $400 million kind of a range. Obviously, it's a bit of a range, but given the methanol prices stay where they are, what's the EBITDA should be?
I'd say that range would be a good description.
Okay. And just the turnarounds in -- that you expect to have in Sorfert at the end of the year. Is that a major turnaround? Do you expect it will have a big impact in terms of contribution to EBITDA?
No, the sulfur turnaround is not necessarily going to happen this year, might be pushed further down to next year. And it's not huge, it's not a multi-month stoppage. It's 2 to 3 weeks. So it's not like a major disruption.
Okay. And I'm guessing the EBIC turnaround that happened already, that was also a small one?
Yes.
Okay. And just to comment on what Rob just said on the breakdown of EBITDA by operations, that will be helpful for all of us investors.
All right, we'll look obviously. But we'll look into it.
The next question comes from the line of [ Harry Dirmalay ].
I have 2, please. You mentioned that Natgasoline's production could commence anytime in the summer. I'm assuming you're allowed about 5 to 6 months of [ green ] run rate of production this year. Do you expect recapitalization of the Natgasoline valuation should happen this year? Or do you think that's something that you would consider for 2019? That's the first question. And then the second question, you said that the insurance for the Sorfert claim has been settled at $20 million. Is that the final amount that we can expect? Or is there anything incremental that we can expect during the course of this year?
First, I'll answer your first question. You probably misunderstood. We will plan to hopefully start producing methanol in the coming 2 to 3 weeks. We said that normalized production should happen this summer. Depending on that, we will see where we are and where the credit markets are and make a decision around the summer about the financial structure of Natgasoline. On the other...
On the insurance, yes, just the number that's reflected in Q1, that's a down payment or a prepayment on the insurance amount, and we have not yet disclosed the full outcome of that insurance claim. That continues to progress, but this is a partial payment.
And there is no further question at this time. Please continue, sir.
Okay. Thank you, everybody, for joining us for this call. I'm looking forward to our next call. Thank you.
Thank you, and this concludes your conference for today. Thank you all for participating. You may all disconnect. Have a good day, everyone.