OCI NV
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OCI NV
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Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining the OCI N.V. Second Quarter 2021 Results Conference Call. [Operator Instructions]I would now like to turn the conference over to Hans Zayed, Investor Relations Director. Please go ahead.
Thank you, and good afternoon and good morning to our listeners in the U.S. Thank you for joining the OCI N.V. Second Quarter 2021 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 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 would like to refer you to our disclaimers about forward-looking statements.Let me hand over to Ahmed.
Thank you, Hans, and thank you all for joining us today. I'd like to start, as always, by covering our top priorities for safety as we want all our employees and contractors to go home safe every day. Our 12-month rolling recordable incident rate at the end of June was 0.31 incidents or 200,000 manhours. But unfortunately, during the quarter, a contractor tragically lost his life at one of our facilities in the Middle East. Our thoughts and prayers go out to his family and loved ones, and the accident is under thorough investigation as our goal remains to prioritize process safety and reduce occupational safety incidents to 0 at all our production facilities across the globe regardless of their employment affiliation.I would like to now move to our performance during the quarter. We're pleased that nitrogen and methanol markets have recovered from a multiyear downturn and that we reported another record quarter as we start to benefit from the ramp-up of our state-of-the-art production platform. Our free cash flow generation has accelerated, and we're now rapidly approaching our through-the-cycle target of 2x net leverage.Our own-produced sales volumes were effectively flat at 3.2 million metric tons during Q2 2021 compared to Q2 2020. Total own-produced nitrogen volumes were down 9% due to the phasing between quarters, in particular for CAN Europe, which we'll discuss in more detail, as well as turnarounds at EFC in Egypt, offsetting strong growth in ammonia, melamine and DEF volumes.On the methanol side, we had another quarter of strong performance, as we reported an increase of 69% in own-produced methanol sales volumes in Q2 2021 compared to last year. This was driven by good onstream performance resulting in steady utilization rates and a significant step-up in production in all 3 of our methanol sites.Combined with strong pricing support and access to key European and U.S. markets, the methanol business, together with Fertiglobe, stood out. Our methanol facility in the Netherlands continue to keep high utilization rates in both production lines in April and May, resulting in a significant increase in EU methanol sales volumes, but it was decided to temporarily shut down the facility from June 2021 onwards due to the high gas price environment we're experiencing today in Europe.Overall, total owned produced sales volumes were up 4% in the first half of 2021 compared to the first half of 2020 and we continue to strongly focus on accelerated operational excellence at all our sites as we speak to our commercial strategy in maintaining disciplined sales approach and look to capitalize on exciting sustainability [ opportunities ]. I'd like to thank all our employees for their continued dedication to OCI and its values.And with that, I'd like to turn it over to Hassan to discuss the financial results in more detail.
Thank you, Ahmed. As usual, I'll take you through the financial highlights of the quarter.[Technical Difficulty]
This is the operator, and apologies for the interruption. We will come back to you as soon as the speaker line is reconnected.This is the operator. We apologize for the pause in the presentation, and I hand back over to Hassan.
Yes. Our apologies for the technical problems because this is basically a first. But let me cover briefly the remarks on the financial performance of the business and then hand over to Ahmed for the remainder of the presentation.Our consolidated revenue increased by 67% to $1.5 billion, and our adjusted EBITDA rose by 144% to another record $535 million in the second quarter of 2021 compared to the second quarter of last year. Our adjusted EBITDA margin also improved considerably from 25% in Q2 2020 to 34% in Q2 2021. The biggest driver of this growth was the recovery in our end markets. Selling prices improved across the board in the second quarter compared to the same period last year, with increases across our product groups from 50% to 150%.Prices of our key cost input, natural gas were on average higher for the group in the second quarter of 2021 compared to the second quarter of 2020, especially in Europe, which resulted in a total negative impact of circa $123 million. We believe this performance shows the benefit of our competitive asset base are really starting to show. We have a diversified team of global revenue and a very competitive position on the global cost curve, benefiting from a young asset base that is strategically located across key markets with around half of our total gas requirements related to assets with fixed gas price regimes.Fertiglobe specifically has been a star performer in our portfolio. So I would like to put it a bit more in the spotlight. In the current pricing environment with attractive long-term fixed gas price arrangements in place, the recovery of nitrogen end markets has benefited Fertiglobe in particular, in light of this feedstock arrangements and compared to other regions like Europe and Asia in particular.Fertiglobe achieved revenue growth of 92%, and adjusted EBITDA was up 219% compared to the second quarter of 2020 and 31% compared to -- up from the first quarter of 2021. As a result, Fertiglobe's adjusted EBITDA margin expanded from 26% in the second quarter of 2020 to 42% in the second quarter of 2021, which is one of the best performing assets in Texas. This performance was partially driven by the increase in volumes that Ahmed mentioned earlier in the call as well as the strong increases in prices.But it also has some other competitive advantages as the commercial strategy and synergies continue to materialize. As the largest exporter -- nitrogen exporter in the world, with production facilities straddling in both east and west of the Suez Canal, Fertiglobe is a large-scale strategically located platform with the ability to direct volumes to the highest netback market. This flexibility forms an integral part of our commercial strategy.Fertiglobe also benefits from structurally higher realized prices to other exporting regions due to low freight costs, ability to access market on a duty-free basis, key importing markets in specific, and a direct-to-customer strategy that we've highlighted in many of our previous calls, and we have been growing and focused on this strategy. With excellent free cash flow conversion, we expect very healthy dividends from Fertiglobe in 2021 and on a continuing basis.Turning to the group's balance sheet and free cash flow performance, which is -- we consider a fundamental KPI for our business. As a result of our record EBITDA, we have another quarter of healthy operating free cash flow, and we're able to deleverage a further $390 million, resulting in a net debt position of around $3 billion as of the end of Q2 2021. This brings the total reduction in net debt to almost $700 million so far this year. Below the EBITDA line, total cash expenditures were $31 million in the second quarter of 2021, which is relatively low, but we continue to expect around $300 million in total CapEx for the full year, so our guidance remains in place.We continue to significantly benefit from our recent refinancing activities with a reduction in recurring interest expense of $29 million that we posted in the first half of 2021 compared to the same period last year as we reap the rewards of reductions in our weighted average cost of debt that is now close to 4% as well as some capital structure simplification and reductions of gross debt.[Technical Difficulty]
This is the operator. Apologies for another interruption in the presentation. You'll hear hold music until we've reconnected the line.This is the operator, sir. The speaker line is now reconnected. Please go ahead.
The capital structure optimization activities undertaken year-to-date provide further benefits in recurring interest expense and we -- and with the average cost of debt. And the strong deleveraging we achieved so far this year will deliver an immediate 200 bps reduction in our revolving credit facility, taking us down from a margin of 2.5% to 1.5%. We have consistently prioritized free cash flow for deleveraging and have reduced our net leverage gap as we adjust for the last 6 quarters from 5.4x to 2.1x as reported in June because of the underlying strong performance of the business and our free cash flow conversion capabilities.Our gross debt came down by around $400 million this year, and we expect further reduction of gross debt leverage and the weighted average cost of debt over the course of the year. And we've shared with you our net target to drop the new net leverage of 2x by year-end 2021. Importantly, within a framework of strong commitment to disciplined capital allocation and as we have strengthened our balance sheet considerably, we expect that we will be able to start returning capital to shareholders from 2022 onwards, either in the form of dividends or in combination thereof with share buybacks. We see this as a very exciting development because we have not been in a position to do so since we have listed the company in the Netherlands in early 2013.Just a brief few remarks on some of the corporate actions that we reported in the second quarter. And I'm sure there'll be some questions on this later, but we continue to work on preparations for the potential IPO of Fertiglobe with a close eye on market conditions, although market backdrop continues to be robust and the opportunity continues to look attractive. We also announced this morning that Fertiglobe's agreement with KBR-led consortium, which includes Mitsubishi, JGC and Itochu to buy the combined 15% stake in EBIC, our dedicated ammonia plant in Egypt, for a total consideration of $43 million. This brings Fertiglobe's stake in EBIC to 75%, further streamlining our group's ownership structure.As Ahmed will also discuss, Fertiglobe is very well positioned for the energy transition, specifically this facility because it's the only worldscale dedicated ammonia export plant. We will, therefore, continue to work with KBR, which is the leader in this field, and have started to develop potentially Egypt's first green ammonia pilot project for which KBR has been involved in engineering studies.Again, I apologize for the technical difficulty. And with this, I'd like to hand over to Ahmed to discuss the market outlook and the group strategy.
Thanks, Hassan. I'll discuss our outlook and some exciting recent developments as well as achievements in our ESG strategy. The outlook for OCI remains positive for the balance of 2021 and beyond, supported by strong underlying demand for nitrogen fertilizers, driven by healthy farm economics and a continued recovery in our industrial markets for ammonia, methanol, melamine and DEF. We have good visibility into Q3 with a healthy order book across our core markets and are benefiting from further increases in selling prices compared to Q2.If I start with the outlook for nitrogen markets. Nitrogen markets reached an inflection point this year following a 5-year downturn with significantly higher prices compared to 2020. Summer reset pricing, which was pronounced in the past 5 years, has been muted in 2021 with support from very low global inventories for our products across the value chain, robust fertilizer demand, limited new supply and a strong rebound in industrial demand. UAN summer fill, one of the indicators of the health of the nitrogen market at this time of year, came out at $285 per short ton in mid-July, more than double that of last year. And we've already seen market increases in selling value since fill was announced several weeks ago.Looking at the remainder of 2021 and 2022, nitrogen fundamentals and farm economics are expected to remain healthy with positive prospects in all major agricultural markets, and we expect to remain in a demand-driven pricing environment. A key driver of strong agricultural demand has been the rally in crop prices, which is expected to remain supported at least until the end of 2022 by continued high Chinese corn imports, a tightening global stock-to-use ratio, and lower corn exports from Brazil due to weather issues and high demand for feed and ethanol use. Forward corn futures are in the range of $5 to $6 per bushel and the soy-to-corn ratio favors corn planting, which is very important in major corn exporting regions. And as you all know, nitrogen demand is positively linked to corn and is more [indiscernible].In Europe, we maintained a healthy workbook and expect to see continued strength in pricing on the back of high feedstock prices and low inventory across all European producers compared to the prior year. The market balance remains extremely tight in Europe for the 2021, 2022 season with lower UAN imports due to less supply from Belarus, higher U.S. UAN prices and several turnarounds likely to lead to increased substitution for our main products in Europe, CAN.Robust import demand in Latin America, Australia and India is driving a healthy increase in Fertiglobe's urea volumes in 2021. Particularly in Argentina, the higher crop pricing is also supporting strong demand and imports in H1 2021 were circa 80% higher year-over-year, and a further 850,000 tons is expected to be imported over the balance of the year. More than 70% of these volumes in H1 were supplied from Egypt, which has a 6.5% duty advantage in this market, therefore, benefiting Fertiglobe and more specifically our [ ESC ] urea export plant.The resulting healthy farm economics coincided with the slowdown in new plants commissioning compared to the past 5 years and likely delays in commissioning of new projects. Urea exports from China are also declining, underpinned by robust agricultural market fundamentals and a strong rebound in industrial end uses, driving Chinese urea to 5-year high.Last week, there was news that state-owned fertilizer players in Europe will temporarily suspend exports to ensure sufficient and affordable supply remains available to the domestic market. On the industrial side, we are benefiting from a strong rebound in all major global economies and in many sectors. This gives us good visibility on our end markets and would boost demand for methanol, melamine and ammonia, which are used in many downstream products across various end markets, including construction, automotive and textile industries.Furthermore, the recovery in transportation applications increasingly bolster demand for our products, keeping market condition tight. Ammonia markets have been buoyed by a strong structural timing this year, and merchant ammonia availability is expected to decline with negligible net additions between 2021 and 2024, whereas merchant demand is expected to grow by more than 5 million metric tons over that same period, supporting sustained price increases over the medium term.OCI's DEF sales in the U.S. reported another strong quarter in Q2 2021 with truck sales up sharply and freight activity has broadly recovered to 2019 levels, which combined with the higher urea sales prices, supports and provides benefit on the improving trends for the balance of 2021 and 2022 for DEF, which has been a much, much tighter market than it was in prior years.Melamine markets have continued to tighten by a rebound in demand from home renovation and construction in Europe and the U.S. Melamine quarterly contract prices have increased 23% in Q2. And in this quarter, we're seeing another 18% increase to a decade high.OCI's DEF sales in the U.S. are benefiting from an improved trend for the balance of 2021, '22. And as I just stated, the melamine markets have continued to tighten in both our core markets. Methanol market fundamentals also remained positive as spot prices are supported by a recovery in fuel and oil markets from trough levels reached in 2020. This has supported contract prices in the U.S. with strong demand set to continue as operating rates for major derivatives, formaldehyde, MTBE and MMA are reported to be at near maximum rates and provides good visibility on our sales prices in Q3.Then from methanol-to-olefin, MTO plants in China also remained stable through Q2 -- Q3 stemming from higher energy and olefins pricing, and downstream demand is expected to continue to benefit from a recovery in industrial activity. Global inventories are also low as demand continues to recover robustly, planned and unplanned outage reduced supply and new supplies has been delayed and slow to ramp up.Lastly, higher marginal costs are also providing support to all our markets. TTF futures in Europe are currently pointing to about $14 MMBtu, raising the cost floor and lowering utilization rates for marginal producers and providing support for selling prices over the medium term.I'd like to close by giving an update on our ESG initiatives. Since our last update, new announcements and studies continue to materialize in the shipping sector. For example, last month, Belgian shipping company Euronav announced a joint development program for ammonia city tankers with the largest shipbuilder in the world, Hyundai Heavy Industries and classification society, Lloyd's Register and DNV also helps accelerate the development of dual fuel ammonia-fitted VLCC and Suezmax vessels. In July, Maersk also confirmed that it has signed shipbuilding contracts to the world's first container vessel fueled by carbon-neutral methanol with expected delivery time in 2 years.We see tremendous momentum building up from ESG that has resulted in many tangible opportunities across almost all our sites globally, which we are -- which the team is actively evaluating. In that context, we are pleased that we continue to make good progress in our expanding our offering of low-carbon products to our customers rapidly in order to fulfill these exciting developments.We're now capable, as we announced earlier, producing blue ammonia at OCI Beaumont in Texas up to its full ammonia production capacity of 365,000 tons a year. And given our strategic location here in one of the largest hubs for blue and green ammonia customers in the United States as well as being close to coast, we can sell into the domestic U.S. market or export internationally.During the second quarter, we also announced that Fertiglobe will join TA'ZIZ to partner in a 1 million ton per annum blue ammonia project in Abu Dhabi, the first world-scale blue ammonia facility in the MENA region. This is an investment platform for our partner, ADNOC as well as ADQ. The project benefits from its location in the purpose-built TA'ZIZ Industrial Chemicals Zone adjacent to their waste industrial cockpit, which will supply the project with attractive over-the-time low-carbon hydrogen and nitrogen feedstocks, which will keep the required CapEx limited compared to a normal [indiscernible] plant. Final investment decision is expected in 2022 and startup is targeted for 2025.As Hassan mentioned, the purchase of an additional 15% of EBIC is exciting given the bright future we see from being able to decarbonize ammonia production at such an ideal location for renewable energy supply, distribution of sales and the state-of-the-art ammonia line.In the Netherlands, FUREC, in partnership with RWE to purchase green and circular hydrogen from mixed waste gasification, has also concluded progress. After a first round and is invited amongst the best ranked participants to submit its application to the second stage of the EU Innovation Fund, which is another exciting development since this can make a big positive impact on our carbon footprint on OCI [ site. ]Decarbonizing the feedstock supply will be one of the main options for our customers to benefit from the decarbonization of their own footprints. We continue to evaluate blue and green projects across our platform and are pursuing several initiatives to scale up blue ammonia capabilities in the near term.To conclude, before we go into Q&A, the [ emerging ] industrial markets continue to be the strongest that we've experienced in years with a robust underlying fundamentals supporting our medium- to long-term outlook. Against this backdrop, we can leverage our asset base, which is uniquely positioned to harmonize our ESG agenda with our relentless focus on shareholder value. Finally, we believe that based on current visibility on volume and pricing, we see 2021 as the year of free cash flow growth and deleveraging. And as a result, based on our net leverage target and commitment to disciplined capital allocation, we expect that we will be able to start returning capital to shareholders from 2022 onwards while maintaining our growth strategy.With that, we will open the line for questions.
[Operator Instructions] The first question comes from the line of Christian Faitz with Kepler Cheuvreux.
I have three questions, if I may. First of all, tax rate for the remainder of the year, can you give us any idea of how your tax rate will evolve in the second half? Second, how have OCI's gas spreads moved in this quarter so far? So I'm talking about Q3, obviously. And what would it mean for your margins going forward? And then lastly, can you give us any update on your plans for the Fertiglobe IPO?
Sure. Thanks, Christian, for the question. Can you just repeat the second question? I'll start with that, which is what is the gas price movements, what we assume how it's affecting Q3?
Yes. And indeed, I mean, gas prices have been up. You have obviously quite different contracts from region to region. So how have your gas spreads moved in this quarter so far versus, let's say, Q2, for example?
Sure. So when we think about our overall gas exposure, and it's our #1 expense, obviously, approximately 50% of OCI's gas consumption is at Fertiglobe, which is via effectively fixed price contract. Looking outside of Fertiglobe, we have exposure to natural gas price fluctuations in Europe and the United States.Starting with Europe, we've seen obviously a market increase in TTF, which is the main hub we buy from -- for our 2 Dutch facilities. And as we said earlier in the remarks, we've stopped production at our methanol plant in the Northern Netherlands due to the high gas prices. And we anticipate restarting after gas prices tempered to a lower level or we continue to see this sizable increase that we've been seeing on the methanol spot market. But that's obviously one of our smallest contributors of the BioMCN plant to the overall cash flow production of OCI.With regards to the Southern Netherlands where we have our main plant, we are seeing gas price increases and as we said, this is overall supportive for the OCI business at Fertiglobe and on the U.S. side, and we're seeing significant price increases on our downstream products out of that facility. That's been very supportive actually because what we're doing is we're seeing more and more increases on the CAN markets, the melamine market, the UAN market, which are our major derivatives where we get good and solid upgrade margins above the price of gas, and we continue to run those facilities. It keeps the ammonia markets tight because of less efficient facilities operating in Eastern Europe as well as Western Europe having higher cost growth.In the U.S., we're exposed to Henry Hub, and we have different bases of exposure, including Oklahoma as well as Texas and Louisiana that effectively get us a bit under the Henry Hub cost for our gas price. The margins are quite strong still on the methanol and the nitrogen side for production. And as we stated earlier, we have positive collars that were in place in our Texas plant. So we have a large portion of our production hedged at half of $3.50 per Mmbtu. So those are working well now to offset some of the increases that we're seeing with over 50% of the gas hedged in the U.S. via these assets for the balance of the year.
And in regards to your 2 other parts to your question, 1 was regarding our effective tax for 2021 and the second was on the startup of the IPO, correct?
Yes, indeed.
Okay. In terms of the -- in terms of -- naturally, as the outlook has gotten -- has improved significantly from the initial guidance we gave in the year, there is also growth in the filing of the potential tax bill that we have. So I would say the initial guidance that we were given of [ sub-$60 million ] probably will be close -- will probably be close to [ double back ] on a consolidated basis.But we're starting -- but it's difficult to give you an exact number right now in terms of it because there's a lot of moving parts, and it depends on which part of the business is contributing. As you know, some of our assets, such as our assets in Abu Dhabi is subject to a tax rate of circa 25%. In Egypt, it's a little bit more opaque because we have various goodwill and transitioning in EBIC, [indiscernible] case. So those are exactly what the [ BSC ] here from a goodwill will cover for a period of time and Algeria will only pay that. So again, it depends on which assets are contributing the most. But I would say, circa double the initial guidance of [ $60 million ] is appropriate.
And maybe just before we go to the next question, I'd just add that we have approximately $1.2 billion worth of tax loss carrying forward in the United States, which is obviously helpful due to the accelerated depreciation and the amount of CapEx we've put into our plants over the last several years. And we do have some tax losses in Europe as well to offset the Dutch tax.
Correct. Because we also have a fiscal [indiscernible]. On the IPO, as I mentioned, on the -- and I believe there is information on that in our financial statements and annual report as well that you may find helpful in that regard. On the IPO, as I mentioned earlier, we continue to work on preparations for this potential IPO. And we've always said that it's subject to market conditions, but we wanted to share with you, at least from where we stand today, the market backdrop for our products, specifically the nitrogen export market is extremely robust, and I'm sure Ahmed has covered some of the some of the commercial highlights of that specific market niche during his early speech on the call. I'm sure we can answer more questions on that. But that certainly bodes well for this project and we continue to work on this opportunity, which we believe is an attractive one for all shareholders.
The next question comes from the line of Elia De Neve (sic) [ Lisa De Neve ] with Morgan Stanley.
The first one is, you stated this morning that you anticipate to return capital to shareholders in 2022, given current market dynamics, which are very favorable. Can you provide a bit of more color how you think about the different form of returns, like would you up for an ordinary dividend or something maybe, let's say, less committal, like a special dividend? And what will be the reasoning around that?And then the second one here is, in the presentation, you've outlined your green and blue ammonia projects, including your U.S. blue ammonia project and your biofuel agreements with ExxonMobil and Essar Oil. Can you share some details on how your conversations with current and potential customers are progressing? And basically, really, what I'm interested in is their willingness to pay premium price for blue ammonia ton or clean fuel. And if that's a bit difficult today, I mean, what do you think needs to happen in the market for them to be willing to pay for that?
Yes, sure. Maybe I'll start with the second question first. It's obviously a very relevant question, which is how does this get paid for. So we've been having very interesting customer discussions. And I think there are a couple of key points. One is the fact is we've been a bio-methanol producer for several years now, and we've been able to generate good margins over and above our additional carbon cost for the decarbonization of our feedstock in supplying bio-methanol to customers globally.When it comes to blue ammonia, which is obviously more nascent, we're having good incremental discussion. We hope to be sharing these with the market around additional value generation in the blue ammonia space and that's why we're focused on it. I mean our view is that we can decarbonize and ultimately in the final price of the product to the consumer as well as in form of -- and when people take into account carbon costs, we're able to generate additional margin.So it's still early stages, but we hope to provide a bit more color to the market on some of the exciting developments we've been seeing on the blue ammonia side from a sales price perspective. One key element is going to be on certification. The global market, the industry has been doing -- has been putting a lot of effort into certifications to make sure that people are truly getting decarbonized products downstream to the customer base, and OCI and the team has been actively working with others in the market to ensure that we have the right certification in place and looking from the playbook we did with ISCC certification we did on the bio-methanol side over the last several years.Another key component, which is the Fit for 55 program that came out a couple of weeks ago, the pushing forward of things like Carbon Border Adjustment Mechanism and that carbon taxes in Europe will help limit carbon leakage and allow for a more level playing field for our European production assets and even be helpful for our Fertiglobe asset, given the feedstock they use as well as the conversion capabilities of those assets. So developments like the Carbon Border Adjustment Mechanism is implemented correctly, can be another way to have more transparency on carbon pricing to allow for additional margin generation of our asset base.
On the dividend question, I think we've shared with you before that we've maintained a flexible dividend policy, which was effectively designed to balance availability of funds for potential dividends with some of the potential high-growth opportunities that we have, but the outlook priority has been to continue our [ deleveraging ] and getting into what we described as 2x net leverage in the cycle effectively, achieving an investment grade profile. That continues to be a priority.We do believe, and this is the reason why we've sort of integrated the statement to communicate and manage expectations of our stakeholders that we are now at an exciting inflection point where we feel we're able to do all of the above while we're [ failing ] our sort of leverage objectives. So this year, we've clearly enjoyed an acceleration of our free cash flow generation, and our conversion capabilities have really shown through that we -- our balance sheet accommodation activities that also gathered pace as we benefit from the overall improved leverage metrics.I think this help the outlook and the way we see it -- and the way we see our market conditions continuing to be relatively healthy, we think, we're in a very good position to consider returning capital to shareholders in [indiscernible] to onwards. I don't think we're in a position to quantify at this point what that would look like, but I would expect that we will not be too far from our peers. But as we tweak, as we progress in the year, I think we will be able to share more specific parameters on the subject.
The next question comes from the line of Henk Veerman with Kempen.
I have 3 actually. The first one is on the volumes for the remainder of the year. I think a normal seasonal pattern, I think, what we've seen in the last years at the second half in terms of volume is always a bit higher than the first half, given that you now have the BioMCN shutdown and also given your maintenance schedule, which I appreciate you can't share a lot of detail. But should we expect sort of a normal seasonal pattern still where volumes are a bit higher in the second half? Or will this year be an exception given also the strong first half? That's my first question.
Yes. We don't generally guide on volumes, but you're right to point out, obviously, or it doesn't make sense to produce in the case of BioMCN. We'll see less volumes at that time specifically. I think that's important to know just kind of as you think about the performance of the overall business. Obviously, pricing in Q3 is much better than even what we saw in Q2 with the results we're presenting today. And there are sometimes unplanned outages that could affect the volumes and how we distribute our products over the course of the next several months.
Okay. Second question on the EBIC transaction with a 15% incremental acquisition of fixed ownership. Can you remind us who is still -- who are the remaining minorities and maybe the reason why they have not participated in this transaction? Do you see the other sort of minorities as long-term partners? Or do you -- do you also intend to acquire the remaining of the shares outstanding?
Yes, the residual minority stake is helped by a combination of private investor and EGAS, which is the state-owned gas provider. I mean we've -- and as we mentioned earlier, we value the opportunities to streamline our ownership as at the sort of appropriate thresholds. In this particular case, it was a highly attractive opportunity on a free cash flow year basis, also reflecting the fact that this is not a controlling position of the company and the transaction was attractive to both parties.And I'll just add that this was a bilateral discussion with exiting shareholders. So we haven't had discussions with the residual shareholders [indiscernible].
Okay. Clear. And then on the, let's say, the cash out of the dividends to minority shareholders across the group, including Fertiglobe. Yes, what I see in the financial statements is that sort of a $260 million payable outstanding as per period end. Is that correct? Like should we subtract the $34 million being paid in Q2 and then the $225 million is being paid in the remainder of the year or do I see that incorrectly?
No, that is a correct observation. I mean the -- obviously, as the business performed better, Fertiglobe also has contribution and relative competitiveness on the cost curve with the fixed gas price regime positions it for better dividend performance and initially sold in the year, and that obviously results in better [ lever ]. So it's -- I would say it's a positive indication of the overall performance of the business. But you're right. I mean in addition to that, we have the usual quarterly dividends to add [ much ] as we upstream cash. So I would say that number is indicative of the direction of the minority interest for the year.
The next question comes from the line of Adrien Tamagno with Berenberg.
I have two. The first one is on the European methanol plant. What do you need to see for a restock? And should we think about your CapEx going forward if the plant remains shut down for a while? And the second one is with regards to your China export assumption. Do you expect more restrictions going forward though that assumes situation remains in place?
Yes. So with regards to the BioMCN plant, we are -- we don't see this as a long-term outage. The forward curve for natural gas starts to come down in the beginning of next year, kind of later in the winter period. So we're using opportunities to do some adjustments to the plant while they're down. So they can have a solid run like they were having before we saw this very high gas price environment we see at the low storage levels of natural gas a year.With regards to what level we would restart, I think it would be a combination of methanol pricing in Europe reflecting the higher prices. So we're seeing in the spot market. Methanol pricing in Europe is set on a quarterly basis and we've seen cost prices in Europe come up materially as well as in the U.S. and see significant outages still over the next several months and a good outlook on the methanol side. So that, in combination with the tempering of natural gas pricing, should allow for the funds to come online again, and also it gets additional support from its biogas feedstock and the bio-methanol we produce, which is a higher margin investment.So we see this as, as I said, the kind of temporary outage and we're going to continue the market to monitor the production out there and see about restarting. One other element I'll say is that energy specialty has been a big focus of ours as part of our operational sustainability program. And so we anticipate seeing some slightly improved conversion rates to allow to come back online as well at even slightly higher gas prices than we normally would.With regards to the second question, in China, we do -- obviously seeing lower Chinese exports versus last year. The [indiscernible] entities have not been restricted on exports, and we think that, that's going to likely hold in the near term. There's still robust demand for Chinese nitrogen more than we've seen in the last 5 years. And the [indiscernible] excellent, but we see that coming down in the next few months. I think the market is not capturing the fact that not only does India need to import a significant amount of tonnage for the next several months, but Ethiopia had to pull some of the tendering that it had in the market given the tightness in the market. So we think the yield is going to come down supporting [indiscernible] market.And also, we have a different view that I think what's in the market with regards to demand in Brazil. We think that Brazil still needs to buy a reasonable amount of fund. So we think that the supply-demand mix, as we stated earlier, looks strong into 2022 on the urea side.
The next question comes from the line of [ Kyle Kount ] with Citigroup.
Just one question left for me. Just on the nitrogen market outlook. I think your assumption is based on around, call it, $5 a bushel of corn, which is obviously down below the recent levels of around $630, $650. Does that imply that affordability is going to take a hit and that we're at nitrogen right now and going forward, will be a good, not necessarily a brilliant market?
So you -- your question whether we're peak nitrogen right now given the price of corn has come down versus a few months ago?
Yes. I think in what the -- in your presentation, the question is $5 in your outlook, which is lower affordability levels of farmers looking forward.
No, we see that there's still strong affordability levels, and we have to keep in mind that what items it makes up at the total of the farmers' cost. So it's corn being favored in the $5 to $6 range is what our outlook is on that front. We see that the non-nitrogen -- the non farming and non-agricultural demand for nitrogen in the form of ammonia as well as industrial-grade urea has been strengthening. That's part of why we're seeing domestic price is strong in China, where we see industrial demand for nitrogen to continuing to go up. We don't see that we're at peak nitrogen or above mid-cycle, but we tend to have a more bearish view on the additional supply coming into the urea market.So between that, the slow additional supply coming into the urea market and demand and affordability still being strong in not only China but countries like the United States as well as Brazil, it's very robust. We think that 2022 is going to have a significant amount of Chinese import in corn as well, similar to 2021, which is that's up in 2020 and stock-to-use ratio is still very low. So very strong fundamentals on the ag side. We don't think this is a short-lived recovery on the ag side that favors corn planting that we're seeing even though people were expecting very strong corn planting this last year.We didn't get as much planted as expected. And this next year, we think that we're in kind of that 94 million acres a range in the United States, up from just under 93 in 2021. So we see the agriculture outlook to be quite strong and also supported by the industrial [ connections ].
The next question comes from the line of Faisal Azmeh with Goldman Sachs.
Congratulations on the great set of numbers. Just 2 questions on my side. The first is just on the acquisition. Do you see any opportunity to increase your stake in any of the other subsidiaries? Or do you actually plan to take your ownership in the EBIC to 100% as the opportunity allows?And my second question relates to BioMCN. Again, got kind of thinking about the recent announcements that you've made in terms of supplies into the U.K. and clean energy. How does this impact you in any way? And how do we think about those contracts and how it impacts Q2 or Q3 or Q4 this year?
Sure. Thanks, Faisal, for the question. I think with regards to the KBR question, as Hassan was saying, this is a bilateral negotiation with the KBR [indiscernible] on EBIC. And obviously, everything will depend on things like price in terms of whether we were to increase our stake. We like the streamlining of the structure and having more consolidated ownership. But our partnerships with other minorities is still very stable and very good within the EBIC side.So I'd say this is more of the -- what makes sense for this specific deal at a specific time. And obviously, as we are in terms of our [ DNA ], we are going -- we look at opportunities as they arise and evaluate them on a case-by-case basis.On your second question, I think it's a relevant one and why it's very important for our commercial strategy is that we look to have redundant supply points with regard to which is the best supplier for a specific customer that can get the best netback. That is the essence of why we created [indiscernible] in the United States, and now we're distributing for 4 DEF plants, even though OCI only owns 1 of them, which is Iowa Fertilizer Company.So to the extent there's [ DEF ] having 1 plant, it can be supported by another class. And in the same case when it comes to Essar, Exxon and some of our other customers in Europe on the bio-methanol side, we have redundant supply points where we don't necessarily have to serve customers out of Europe, and we're often anyway serving them out of the U.S. due to just freight economics being favorable exporting from our export facilities in Texas and going straight into those markets. So that's not an issue for us. And we, on the OCI side, look very highly on particularly the assurance of supply to our industrial customer base.
[Operator Instructions] We have a follow-up question from the line of Elia De Neve with Morgan Stanley.
Lisa again. So a small question. What are you seeing in the CAN in the UAN market at the moment? So I've seen listed prices moving quite substantially higher by yourself and some of your peers. But what are you seeing in terms of demand?
Yes. So I'll start with CAN and then the UAN. On the CAN market, we actually just announced the price increase this morning. We have a very healthy order book on the CAN side from our facility in the Netherlands. And the reason is, I think customers understand as well. Feedstock prices are higher. So some of the plants to downstream integration are looking for additional pricing to maintain margins. So that feedstock whether it's exposed but also buy ammonia in, which is less advantage, versus those that use natural gas. So for us, it still makes sense to use natural gas versus buying ammonia and nitrogen plant. The farm economics is still healthy and inventories are extremely low in the European market. They're the lowest they've been in a number of years. So we feel very strongly about the CAN market.And we continue to see it, we think, tracking up towards the balance of the year, even following what we briefly announced today, activity at this exact moment is going to be a bit on the lower side in August due to holidays indications, but we've seen good customer activity looking to buy out further at higher prices on the CAN side.On the UAN side, starting with Europe as well. I mean our pricing is north of EUR 300 to EUR 315 a ton. That market is also extremely tight given the sanctions on Belarus and antidumping duties in Europe. So that market continues to be well supported and very low inventories as well. So we think the outlook continues to be strong, particularly those that are buying at more cost -- more costly natural gas pricing levels and those that would import ammonia.With regards to UAN in the U.S., as we stated, the fill program came in at $285 per short ton NOLA. Our plants in Iowa has gotten materially higher levels because it's located in the midwest, so it enjoys the midwest premium. But even since the initial fill levels, we've seen some sales $30 to $40 above that already in the last week. And so we see this as a strong trajectory as well going forward, tight supply demand at the moment. And basically, the fertilizer customers looking to lock in their pricing before the prices get away from them on the UAN side. So we think that -- yes. Okay.
I mean you could tell me more.
Yes. No, no. One last thing I was just saying, I lost my train of thought, was just a significant amount of turnaround in the last couple of months in the U.S. I mean the number of our -- players in our market are undergoing turnarounds right now. A lot of those were delayed from last year when there was COVID. So there's been a big backlog of turnaround. Other than just the winter freeze we had in February, we had significant downtime in May, June and July, August in our industry. So that just happened to really tight inventories, and there is a lot of concern around supplies in the next few months and where pricing comes up.
Okay. And can I just follow up on this one, because I know you can't say much in terms of maintenance fronts given your competitive landscape, but the number of maintenance you've seen in the first half has been quite limited. Would it be normal for us as sell-side modelers to assume that your maintenance runs will be more normalized than in previous years, and therefore, the second half may be a little bit more pronounced on the maintenance side?
Yes. Hassan, do you want to take that one?
No, Elia. I mean, I think one of the indications -- one of the obvious indication is the CapEx. We've given guidance for $300 million for the year, sub-$90 million in the first half. Yes. So I think our second half will be a little bit busier in terms of maintenance and turnarounds we have scheduled. We don't obviously give exact details on those, and we don't like to give for commercial reasons. But I think that's sort of one area I would point at.But you also have the market backdrop that Ahmed we described, where are seeing better performance on prices. And because of the tightness in the system and the low inventories that it's hard to tell what the degree of offset in our case in terms of prices will have an effect. So it's -- we can't give you further guidance beyond that.
There are no further telephone questions at this time. I hand to over to Hans Zayed to webcast questions.
Yes. Thank you. There are actually 2 webcast questions from [ Ruth Battenhash ]. the first one is, thanks for the presentation. When can we expect a further update about the IPO of Fertiglobe? And is it essential that ADNOC first complete their IPO of their drilling business before the Fertiglobe IPO? That will be done. That's the first one.
Yes, I can take the first one, Hans, before -- but I guess, as I mentioned earlier in the call, we will -- as soon as the material information to communicate on the IPO, we will share it. The one note that I will show the audience that, obviously, market -- this particular market and many markets in the region are similar. We can only manage a certain amount of transaction at a time. So there needs to be some degree of sequencing there, but that's all I will share. But as soon as we have something material in terms of timing and the appropriate window subject to market conditions, we will communicate that actively with the market.
And the second question is, is it expected that the third quarter will be even better than the second quarter? Second quarter was already much better than the first.
Yes. I mean the guidance we're coming out with analysis with regards to the year-end that we were completely deleveraging in terms of the market to target being 2x leverage. And we think that, like I said, pricing is significantly better in Q3 versus Q2 and Q1, and we expect with our order book that are in place today as well as the trajectory over the balance of the year to be in a good position on the second half of the year as well.
There's no further webcast questions. I think I'll hand back to Ahmed to close.
Okay. Thanks. Thanks, Hans. Thank you all for joining us today. Stay safe. I'm looking forward to our Q3 results discussion.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.