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Earnings Call Transcript

Earnings Call Transcript
2020-Q3

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to today's OCI N.V. Third Quarter 2020 Results Conference Call. [Operator Instructions]I now hand you over to your first speaker, Hans Zayed. Please go ahead.

H
Hans Zayed
Director of Investor Relations

Good afternoon, and good morning to our U.S. audience. Thank you very much for joining the OCI N.V third quarter 2020 conference call. With me today are Ahmed El-Hoshy, our Chief Executive Officer; and Hassan Badrawi, our Chief Financial Officer. As you have seen, we published our results this morning. And 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. And 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, and therefore, I would like to refer you to our disclaimers about forward-looking statements.Now let me hand over to Ahmed.

A
Ahmed K. El-Hoshy

Thank you, Hans. Let me start by covering our top priority, safety. We're pleased that our safety performance continues to be best-in-class, despite the prevalence and challenges of COVID-19. The pandemic as to date, not had a direct impact on our operations, largely thanks to the vigilance of our employees across our platform. We're also fortunate that both of our main industries have been more resilient than others, and that our products were all classified as essential during COVID-19 even if there was minimal disruption to our supply chain and sales order books.Our reportable 12-month rolling incident rate was 0.23 incidents per 200,000 man hours as of September, a significant improvement from 2019. This continues to be one of the lowest in our global industry. But of course, our goal remains -- our goal remains to prioritize process safety and to reduce occupational safety incidents ultimately to 0 for all our assets across the globe. This is even more important now that COVID-19 continues to dominate our lives with many countries going back into lockdowns.On to results. Despite these ongoing challenges, during the quarter and significantly lower selling prices of both nitrogen and methanol compared to the previous year; our production, commercial and supply chain teams did an excellent job under such circumstances and established healthy volume growth.Consequently, we delivered resilient results during the quarter. Our volumes increased 30% during the third quarter and increased 27% in the first 9 months of 2020 year-on-year. On a like-for-like basis, so excluding Fertil in Abu Dhabi, our Q3, 2020 volumes increased by 9% in comparison to the previous year and 8% on a year-to-date 9-month basis.On the nitrogen side, we benefited from the contribution from Fertil in Abu Dhabi, which has been consolidated since Q4 2019, but we also increased our volumes elsewhere. This growth was driven by an improvement in operational performance compared to 2019, such as our state of the art Iowa facility, pushing its maximum proven capacity to higher levels, as a result of stabilization and debottlenecking of production last year.DEF sales were particularly strong and recovered to record levels during the quarter as well. And we saw our nitrates volumes in Europe increase during the third quarter year-over-year, which follows a record second quarter and overall increase of 23% year-to-date.Our industrial end markets were weaker, which was partly the cause of a 15% year-over-year drop in ammonia volumes, but we have seen these end markets recover since then. In the first half of this year, our nitrogen business was the main driver of this growth, but I'm pleased to say that this quarter, we've also had strong performance in methanol, as we reported an increase of 39% in own produced methanol sales volume in Q3 2020 compared to the same period last year. We achieved record production volumes across all our facilities despite a preemptive shutdown at our Texas facilities in August for -- in Austin earlier -- late August and early September for Hurricane Laura.At OCI Beaumont, that represents just over 2 weeks and Natgasoline it was approximately 1 week. In The Netherlands, we are running both methanol production lines fully for the first time at BioMCN. And at rates a little above 90% for the quarter. As a result, we expect the methanol business to be a primary driver of volume growth next year.With that, I'd like to turn it over to Hassan, to discuss the financial results.

H
Hassan H. Badrawi
Group CFO, Executive VP & Executive Director

Thank you, Ahmed. I will dive through some highlights of our financial results, starting with our P&L. As Ahmed described, during the third quarter, we achieved resilient results. Our consolidated revenues increased by 19% to $752 million, and our adjusted EBITDA was up by 79%, reaching $192 million in the third quarter as compared to the third quarter of last year. Both the nitrogen and methanol segments contributed to this growth in adjusted EBITDA. This reflects the year-on-year growth in sales volumes, as Ahmed mentioned earlier, as well as some benefits from natural gas of just over $20 million but was partially offset by significantly lower selling prices. We estimate this negative impact on our EBITDA from lower selling prices to have been circa $100 million between Q3 2019 and Q3 2020. Methanol prices were significantly down year-over-year, and ammonia prices also remained at very low levels during the quarter. I would also like to point out that prices were lower not just compared to the third quarter last year, some were also lower as compared to the second quarter of the current year. For instance, contract methanol prices reached their lows in Q3 due to the lagging effect of contract versus spot movements, but have been recovering very well since then, which should bode well for Q4 pricing. Overall, we believe that pricing represents upside in the future.Turning to the balance sheet and cash flow. Free cash before growth CapEx during the quarter was around breakeven, which reflects our operational performance for the quarter offset by difficult seasonal net operating working capital outflows, as we build up inventories ahead of Q4 applications notably at Fertil.Total cash capital expenditures were around $47 million in the third quarter of 2020, most of which can be attributable to maintenance CapEx. During the first -- during the 9 months, CapEx amounted to $211 million. Our net debt, consolidated net debt stood at $3.9 billion as of 30th September 2020, a $77 million increase from 30th of June 2020. This reflects both a $54 million FX impact on euro-denominated bonds and the buildup of inventory, which I just mentioned.On a quarterly basis, we typically see such fluctuations but which should smooth out over the full year, with the completion of the Q4 application season. For the year-to-date, as it stands, we reduced net debt by $145 million, and we expect to see cash flow benefits from the reversal of this inventory buildup  that we witnessed in Q3. We continue to optimize our capital structure with a 2.5x oversubscribed dual tranche bond offering, at EUR 400 million, $400 million as part of the refinancing of $1.155 billion outstanding bonds. The delta for which was financed through the existing RCF, which allows us to create some more prepayable debt going forward.We have also successfully completed and closed the $385 million refinancing at Fertiglobe, and both transactions were completed in October. There are several benefits with refinancings. First, we lowered our weighted average cost of gross debt by a further 60 bps to below 4.5%, which in the -- which is a 25% improvement from just over 6% at the end of 2017, when we started our capital structure optimization program. This will result in additional cash interest savings of more than $32 million for the year annualized from next Q onwards.The bond offering also extends maturities of the refinanced debt by about 2 years with the next scheduled bond maturity for OCI N.V. not until 2024, further derisking our business and capital structure. It also gives us more flexibility to reduce gross debt and to capture incremental interest savings from free cash flow generation going forward, while maintaining a conservative approach to liquidity access, which remains in the neighborhood of $1 billion between cash on hand and undrawn committed facilities.We will, of course, continue to evaluate opportunities to achieve similar optimization initiatives and further simplify our capital structure.And with that, I'd like to hand over back to Ahmed for our outlook and some concluding remarks.

A
Ahmed K. El-Hoshy

Thanks, Hassan. I'll conclude with the outlook of our business, which, despite all the challenges around us, is looking much more positive than only a few months ago. I believe that OCI's asset base, commercial capabilities and financial standing are well positioned to manage any near-term volatilities that may happen. If I start with the outlook for nitrogen markets. Our global order book is currently robust based on recent tender awards to Fertiglobe to supply a combined total of almost 700,000 tons of urea to India and to the fast-growing Ethiopian market. We continue to see healthy demand from several major importers across the globe, including India and Brazil, in particular, but also other countries. Chinese urea exports were 10% lower than the first 9 months of the year, but the pace is rising modestly in the fourth quarter on higher Indian import demand.Anthracite coal prices in China has started to rapidly recover, which, combined with increased demand domestically for stocking ahead of their spring season has raised prices for -- from the marginal producer, providing support for the global urea market for the balance of the year.Going forward, Chinese export availability is expected to be relatively innovative in H1 2021 on the back of the increase -- the increase in marginal costs and expected recovery in domestic industrial urea consumption. The outlook for corn prices has strengthened recently with a 30% -- approximately, 30% increase in corn futures for December 2020 to $4.14 a bushel from around $3.20 in April, as global corn demand has increased, driven by purchases from China as well as the recovery in demand out.The global corn stock to use ratio has declined by 5% in the 2019-2020 fertilizer year with similar declines anticipated next year, which is also positive for nitrogen markets. Importantly as well, U.S. farm income is up more than $20 billion from last year, which also supports on-farm operations spending and generates additional income available to pay for crop inputs such as fertilizer. The U.S. fall ammonia season has started, and the weather is conducive for a good fall ammonia run in our core markets, particularly when compared to the unfavorable weather in the conditions we experienced back in 2018 and 2019 in the fall. We're already seeing strong volume movements this week at N-7 out of our Wever facility.However, U.S. nitrogen prices overall were trading at severely discounted prices relative to global benchmarks, contrary to where fundamentals should happen in trade. Despite being a deficit market, U.S. UAN imports continue to be priced below the point of origin in the Arab Gulf by a meaningful discount. Since July, UAN prices in U.S. also have made it more favorable actually for Russian and even Trinidadian exports of UAN to go to Europe and still pay the duties rather than going to the U.S. Gulf.As we get close to the season, we expect that fundamentals will start to address these disconnects to supply the spring season. The ratio of ammonia and UAN prices relative to corn pricing on a nitrogen pound basis today are at a decade low and attractive affordability levels support increased ammonia demand in the ongoing fall season and the UAN and ammonia demand in the spring season. Obviously, coupled with what I said earlier around farm incomes improvement versus the prior year.On the industrial side, demand was impacted by COVID-19. And while there still remains uncertainty, we have seen signs of recovery, primarily driven by China. Ammonia prices lagged urea, but have started to benefit as a result of the recovery in industrial markets, curtailment of high-cost capacity in Trinidad and higher feedstock prices as we're seeing globally right now.Melamine demand in our core European markets is also improving with a markedly tighter supply-demand balance as we go into the end of this year compared to earlier in the year.Moving to methanol markets. The outlook for our methanol end markets is also strengthened. There can be some volatility going forward depending on how this pandemic develops, but U.S. Gulf spot methanol prices have roughly doubled since reaching a bottom below $150 per ton on a spot basis in June to approximately $300 this month, slightly above that actually.Demand for methanol for olefin plants in China has been consistently high on the back of healthy MTO economics. Global downstream demand has also continued to recuperate steadily as fuel consumption is returning and a pickup in construction, other industrial activity is increasing -- is driving increased demand for derivatives such as [ phenylacetic ].Our step-up in production, as I mentioned earlier, in Q3 coincides with its recovery in global economic activity as well as methanol demand. Following this record methanol production for OCI in Q3 2020, normalization of production and improved on stream efficiency is expected to drive volume growth in the methanol segments going forward.Turning to natural gas. We are well positioned to benefit from the recent increase in feedstock prices, both in terms of the competitiveness of our cost base, given our U.S. and European assets' energy efficiency as well as vertical's significant cost advantage as a result of its fixed price gas supply agreement. And in terms of support for other -- for our product selling prices, particularly ammonia.In summary, we believe improving market fundamentals allied with our continued volume growth into 2021, will deliver improving free cash flow as well as positioning us well in a volatile economic environment.Before we go into Q&A, I'd like to finish with some exciting new projects we have announced today that fit well within our strategy to focus on and develop sustainable products and production.We continuously strive to be a leading environmental steward, especially as among our core products, ammonia and methanol are some of the best positioned energy carriers in the future hydrogen economy. We are, therefore, excited that we're working with RWE in The Netherlands on a green hydrogen project to produce renewable methanol as announced this morning, and we are in advanced talks to develop other projects at our nitrogen facilities in The Netherlands as well in the green hydrogen space.This morning, we also announced that we are supplying ExxonMobil to its subsidiary, Esso with bio-methanol. Which is blended in all of ExxonMobil's fuel sold in the United Kingdom. Through our cooperation with ExxonMobil, we aim to promote use of bio-methanol as a complementary biofuel alongside ethanol to reduce the carbon intensity of road transportation fuels.We also see many opportunities in new applications, where this versatile product can be used as an environmentally friendly building block for products such as cosmetics, building materials as well as paints and resins.Going forward, we will continue to identify, evaluate and develop more initiatives that reduce our environmental impact and grow our green portfolio. Our focus, of course, on deleveraging is still very much in place. So we'll look at 1 or a combination of things, including asset-light opportunities, subsidies, government programs, tax incentives as well as restructuring and using offtakes of green feedstocks to still meet our low CapEx, high free cash flow conversion targets.So of course, our evaluation of ESG initiatives takes both sustainability into account as well as economics. Finally, while I believe our environmental performance is already amongst the best-in-class due to our state-of-the-art assets base, being one of the youngest fleets in our industries, we aim to improve by setting long-term ESG targets. We aim to challenge ourselves to further improve by using 2019 as our baseline so that we can achieve a meaningful reduction over our existing environmental system.We intend to announce these targets next year with key decisions and timing based on the scale and focus of government environmental policies in the U.S. and Europe, as well as the EU carbon border tax mechanism and other government support for green initiatives.With that, we will open the line for questions.

Operator

Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Christian Faitz from Kepler Cheuvreux.

C
Christian Faitz
Equity Analyst

A couple of questions from my side, please. I'll ask them one by one, if that's okay. First, from your remarks, I take it there will be no major outages during Q4 or in early Q1? Would that be the right assumption for my modeling?

A
Ahmed K. El-Hoshy

Sure. Thanks, Christian. As you know, from a policy perspective, we don't announce outages so that people don't trade around it on the commercial side. So we'll be announcing, at the close of Q4, what outages planned or unplanned may have taken place.

C
Christian Faitz
Equity Analyst

Then second question, how do you see free cash flow evolving in 2021, assuming there are no major CapEx projects?

A
Ahmed K. El-Hoshy

Yes. So on the free cash flow question, obviously, the big determinant is going to be pricing in terms of the level of free cash flow that we generate. As we announced this quarter, over the last couple of months, we've looked at ways to improve our free cash flow profile. And one of them is obviously achieving the higher pricing, where we're seeing the industrial demand recover from a very low level in late Q2 and into Q3 and the outlook looks a lot better for products such as methanol, ammonia, melamine, which is supportive and brings the nitrogen and methanol markets into tighter supply and demand balance versus what we've experienced over the last 6 months. We're looking forward to that. We've seen new capacity also be delayed for a number of reasons but one of the main ones obviously being COVID-19 and more impaired economics, which is also supportive of our outlook, which I talked about in the prepared remarks.With regards to other items outside of pricing, volume is another big one. So Q3, you saw almost a 39% growth in methanol volumes. That continues to be a focus of ours. I think I've mentioned on prior calls, our focus on oversight and doing things that are in our control with regards to regional oversight on our operations in each of our 3 regions, Europe, the United States and the Middle East. As well as basically an overall focus on preventative maintenance to improve utilization rates and on stream trends overall at our assets. And that will have a significant effect in terms of our ability to generate additional EBITDA by generating that volume. And cover, obviously, more of our fixed costs.Hassan also mentioned the financing savings that we get the full year benefit of next year versus these savings, which actually only closed, I think, in early Q4, exactly October. So we haven't seen effect of those yet on our free cash flow or EBITDA, the free cash flow waterfall. So that's a $32 million annualized benefit.And overall, part -- to pin it down, and we haven't given guidance for next year on CapEx. But over the next few years, we anticipate seeing CapEx get to more stable and lower maintenance CapEx level as we review our entire portfolio, are now more centralized rather than decentralized basis, with more of a central team overseeing our product portfolio. Which should go well, obviously, for utilization rates, process safety, occupational safety, but also just how much capital we need to deploy and deploying the right capital in the right places that makes a lot of economic sense for our assets.

Operator

Your next question comes from the line of Tom Wrigglesworth from Citi.

T
Thomas P. Wrigglesworth
Director and Chemicals & Basic Materials Analyst

So just on the hydrogen projects. I hear you on the -- obviously, the constraints around the balance sheet spread. But could you just share with us over the medium term, where it's most attractive for you to play? Obviously, we've heard of; now, your peers, as well as competitors whose -- talk about being into the ammonia game, but methanol in my ignorance, green methanol is a relatively new one. Can you maybe highlight, where the attractive end markets are for that? So a little bit more color on where you see the potential for green hydrogen. And then I'll come up to my second question.

A
Ahmed K. El-Hoshy

Sure. I mean, green hydrogen, we see a lot of potential, and I think we've had some discussions over it -- around it for the last year. But it's both kind of public and private sector related. So let's start with kind of the public sector. In the U.S. -- sorry, in Europe, there's basically the ETS program for carbon. So that's intensifies those with the European asset base like ourselves, look at opportunities over the last several years, leading up to this year, around ways to reduce our carbon footprint because it actually pays you to improve efficiencies and look at feedstocks like green hydrogen. So definitely green ammonia is a big focus. And I'll start with that and get into green methanol. But green ammonia is a big focus, and I won't rehash a lot of what our peers have said and what we've said around just the advantages of ammonia from a storage/transport perspective. And also the fact that it burns very cleanly because it doesn't have any carbon it. So it's an excellent fuel once you have that infrastructure in place. So on the green ammonia side, OCI Nitrogen is a very good candidate for that, which is our plant in the Southern Netherlands. We're in discussions now on opportunities around OCI Nitrogen specifically, and we've been going on for quite some while.And the other area, which is a little bit behind and more recent than OCI Nitrogen, is the Middle East, one of the big costs for these types of projects is getting access to reliable, high load factor, renewable power. Our assets, for example, those in Egypt, those in Abu Dhabi, even for those in Texas, have the benefit of being in good areas for both wind and solar generation. And particularly, in a country like Egypt, where there's been significant capacity build-out for power over the last half a decade, it's been a political move by the Egyptian government. We're seeing a lot of opportunities close to our plants in Egypt have access to cheap, reliable power, which could ultimately be converted with our existing ammonia capacity into green ammonia and transported to areas, where there may not be as much abundant renewable feedstocks like Western Europe or other locations or even East Asia.The other advantage of that area is, obviously, we have significant experience there in terms of building the assets. We know the landscape and construction costs, if there would be an electrolysis plant, for example, built, whether it's on our balance sheet or on someone else's balance sheet would be cheaper to build in a country like Egypt than in some more industrialized countries or places where construction cost is more expensive.With regards to green methanol, similar to green ammonia, those markets need to continue to develop, and we anticipate them developing over the course of the decade. In terms of the government's other big focus is about, where is the carbon charge. So right now, it's being charged to those closer to the hydrocarbon like ourselves and everybody in our industry. But ultimately, we think, as you go further downstream, and you have carbon passed on to the final end user. End users will ultimately potentially pay a slightly -- very slightly higher price because of the small amounts of ammonia or methanol in that product, they have a green product ultimately. Those types of pulls from a demand perspective, as well as subsidies should afford us the ability to continue to make our asset portfolio more green.With regards to green methanol, one big advantage which OCI has is that we are the #1 producer of biomethanol globally. This is a market that we've been going over the last 5 years. We purchased BioMCN, which helped us establish that footprint in Europe in the middle of 2015. And used what we learned about that market to actually be a large biomethanol producer in Texas, where we produce biomethanol using waste gas as a feedstock, and then we sell that into markets that can pay a premium for that product. And we saw the announcement today with ExxonMobil. That's one of the few initiatives we've had, which is in the biofuel space, where you get an additional premium selling renewable products like biomethanol, a second-generation renewable product because it's made from wheat, it's not made from, for example, all-purpose corn like ethanol, which gets additional credits in the biofuel space. So we anticipate those markets to continue to develop. We think -- but we're still in the infancy right now about -- with countries focusing on it. They have renewable energy directors. They have renewable fuel directors, and they're still looking at the different possible products that can be used there both biomethanol, green methanol, as well as green ammonia are all very suitable candidates and stand toward the top of the list for marine fuels, transportation fuels, generally, and just in general industrial chemical feedstocks that have a renewable base.

T
Thomas P. Wrigglesworth
Director and Chemicals & Basic Materials Analyst

Changing tack, on to UAM. You cite in your release that there's been an intense price based competition in the U.S. Gulf. Can you just clarify from your -- is that a function of -- you're saying that's a function of discounted imports coming into the market? Is that correct? And do you think that's something that the participants in that market will just wait to bring to the attention of the authorities? Or is this something that you're alluding to in your comments that demand will pick up and should normalize out this, kind of, temporary competition?

A
Ahmed K. El-Hoshy

Sure. I think it's a combination of those factors. So on the demand side, UAN, you still need a few million tons of the input before the spring season. We're seeing corn acres and outlook for corn acres improving for the next season, next spring versus initial estimates a few months ago for UAN. And I think as you heard me in the prepared remarks today, UAN is at the absolute cheapest level it's been relative to corn in modern history. So it's a very attractive product to be used. So we think from a demand perspective, the demand will be there, but there's been a bit of this basically a trepidation from buying early. And so what we anticipate is over the coming few months to help get the UAN and freight economic investments. The Midwest, we anticipate that prices should improve on that demand from that, and we'll watch how the fall ammonia season progresses as we're well into the midst of that right now. In terms of the reasons behind where the pricing is at. We want to -- basically, what we're pointing out is this disconnect, economics don’t make sense right now that the price in the U.S. Gulf is less attractive for Trinidadian producers that are close by, as well as Russian producers that are further away than actually going and selling into a country like France, which is a major UAN producer and consumer that actually would require an antidumping duty of anywhere from low EUR 20s to EUR 40 a ton being paid for any product sold there. That's a significant disconnect for the UAN markets overall. And we anticipate that those prices have to come back up, and that differential in economic prevail ultimately, where people will think from an economic perspective around how they move the product.So that, coupled with the fact that we've seen gas prices in Europe really increased markedly triple, since the middle of this year despite UAN remaining flat, since the middle of this year in the U.S., there's a disconnect, and also the euro strengthening. I mean there's significant, I think, push from a supply side perspective as well as a demand flow perspective to suggest that UAN should start trading at more reasonable levels relative to where fundamentals and prevailing economics are taking.

Operator

Our next question comes from the line of Lisa De Neve from Morgan Stanley.

L
Lisa Hortense Maria De Neve
Equity Analyst

Congratulations on your operational performance this quarter. I have 3 questions. One short one on -- the first one on tax. And maybe I'll just start with that one first, and then you can answer and I can ask you a second question. So very topical with the elections, if there were to be a change in U.S. tax policy, how would this affect your tax rate going forward?

A
Ahmed K. El-Hoshy

Well, as to our previous guidance, as you know, we -- our guidance is to continue to have a very low cash effective tax in the future, in line with the circle years. I think for the U.S. context, it's a good question, because we are between our operations in Texas, Beaumont and IFCO, we have north of $1 billion M&A that can be invested or carried forward. So we really – nothing in the medium-term that would impact us in terms of U.S. tax policy. So, we continue to see that. Also worth highlighting that in Egypt a few days ago, I think almost a week ago, the Egyptian Parliament passed a new law to reintroduce free zone status for certain sectors, fertilizers as mentioned. So, it's wait and see, see how that will manifest around which exact companies will be included, but there is a good possibility there that our Egyptian operations again get sort of a perpetual cover from tax - from income taxes going forward, but that's something to be - was yet to confirm So overall, I think we continue to have a good handle on our -- keeping low taxes in the future.

L
Lisa Hortense Maria De Neve
Equity Analyst

And then another sustainability question for you, related to the European green deal. So European Commission has some very ambitious, let's say ambitious, agricultural targets to reduce fertilizer consumption by 20% by 2030. But has yet to set out any sort of targets on how this is to be achieved. Now, how do you see a 20% reduction in fertilizer consumption possible in Europe? And how are you planning to respond to this European request?

A
Ahmed K. El-Hoshy

Yes. I mean, it's a good question, Lisa. And it's something, obviously, we've been focused on. We have a couple of feed studies in 1 or 2 member states to focus on. But ultimately, the nitrogen is going to need -- to actually to get into the ground. So the use of products like urea inhibitors, as well as maybe potentially more nitrates demand could help achieve that. I will say that, obviously, you saw that we ratified a policy as the Board, following recent events in the last few months to take a strict policy to not produce ammonium nitrate. Obviously, whether it's insurance and just overall having that tail risk is something that we didn't want to be involved in. We haven't done anything with ammonium nitrate as a product. It does have some imbalance from a mission perspective, but we think that as a product, it has significant disadvantages on that tail risk about being -- about ensuring that the downstream users appropriately take all the safety mechanisms. So I think there's a little bit of a push that could be helpful for products like UAN, like CAN as good beneficiaries of potentially reducing emissions over time, local emissions of ammonia, as well as having a safer fertilizer base. It provides the same nutrients that basically, the farmers are going to need to achieve food security globally.

L
Lisa Hortense Maria De Neve
Equity Analyst

And obviously, we all noted this very nice rebound in methanol prices and sort of recovery, import -- the demand side as well in the last couple of months, I can say now. But I'm thinking about things a little bit more structurally, I mean, where do you see sort of the largest revenue opportunities of revenue growth opportunities for methanol over the next 3 to 5 years, both on the green side, green ethanol and green methanol?

A
Ahmed K. El-Hoshy

Yes. I mean, methanol took a hit, like ammonia took a hit and melamine took a hit and industrial urea took ahead all this year. And so, what we've been seeing starting east and now moving westward. The -- on a short-term basis, the Chinese industrial machine has kind of turned back on, in early Q3, Europeans hitting more of its pedals in Q3 as well as the U.S. So what we've seen is that methanol on the green side, it continues to find a home and seen good demand growth, on a kind of quarterly basis, not overall year, but on a quarterly basis, kind of, quarter-over-quarter, I think we're almost 10% higher in Q3 versus Q2. Next year, we anticipate mid-single-digit methanol demand growth driven by more run rate MTO consumption of methanol as a green industrial precursor for plastics and other downstream users of olefins. And the phenylacetic acid market continue to grow as well, those are good GDP linked growth drivers in that space. But the other overall one, which kind of cross over to green and gray is methanol as a fuel. It's a clean burning fuel, easy to transport, easy to store like a refined product, and it can be on for road transport, like what we're doing with biomethanol with ExxonMobil as announced today and other consumers in Western Europe.As well as a green methanol, a gray methanol has kind of stepped towards getting into that space. In, for example, in south, there's a pilot project in India that's been ongoing, a little bit delayed with COVID-19, but potentially having methanol blended with gasoline as a good way to diversify even just economically, putting the clean attributes of methanol aside, economically diversify and have a cheaper fuel into the Indian markets.And a bit more medium to long-term as well over the next -- maybe on the latter part of your date range there is the marine fuel. At the very least methanol vessels that carry methanol should be over time converted fully into methanol supply. And overall, when we think and people step back and the IMO is taking a look at its carbon targets overall, not just sulfur, which has been the focus through 2020. Looking at carbon targets, both methanol and ammonia are very much up there as top contender with significant attributes on energy density that makes an advantage versus something like hydrogen based, which I think would just be very difficult.And then with regards to LNG, that also needs to be refrigerated. It's a very big process to refrigerate it, expensive and it has to be also minus 200 degrees to get LNG liquefied.  And methanol obviously is quite easy. It's just not much in terms of adjustment relative to a diesel carrier or a fuel oil carrier. So, a lot of potential kind of green shoots on that side. And even if you're a drop in the ocean just how big of a consumer these vessels are for energy, that could be quite significant on a methanol market that's just touching 100,000 tons a year.

Operator

Our next question comes from the line of Henk Veerman from Kempen.

H
Henk Veerman
Research Analyst

I have 3 questions, if I may. The first one is about the dividend to noncontrolling interests, which is EUR 26 million in Q3. How much do you expect to pay to noncontrolling interests in Q4? And then how large is the current dividend accrual to noncontrolling interests. That's my first question.

H
Hassan H. Badrawi
Group CFO, Executive VP & Executive Director

Yes. Yes. With regards to the dividend, obviously, with the consolidation of the Fertil there is an impact of incremental leases as offset by the access to perceived cash flow and of course, the synergies number. And we've been talking about how we've been on track with the synergy realization in Fertiglobe that is estimated at north of $60 million, which we're very happy about. And so there's a little bit around that. I think we've disclosed in the past that our -- that we estimate around $140 million of run rate minorities linkage reflected basically our structure. It tends to be lumpy at times. So I would say we expect probably to see additional linkage in the next 6 months. I can't really give you quote of the estimate. We're also looking at part of the reason also called -- for the -- sometimes the delay in dividends within the JV, that we're also look we have some prepayment of debt in Algeria, which after the recent bond, we are evaluating our -- sort of our capital structure and our existing debt. And we realize that this is the most expensive debt in the system, close to 6%. So we're evaluating some prepayment opportunities there. Balanced against the fact that there's a 30% delta of discrepancy between the spots, official [ GDP ] rates in Algeria and the black market rate with ever growing country rates. Typically, and as you typically have seen in many of these emerging markets, inevitably, there tends to be some form of a devaluation. And that could actually have a meaningful deleveraging impact on our consolidated balance sheet. So we're balancing up repayment of debt to reduce our interest costs and run rate business against some -- against the potential impact of a devaluation in the future. But I hope that answers your question.

H
Henk Veerman
Research Analyst

Second question will be on the net debt in Natgasoline. I think it's currently about USD 800 million to USD 850 million, net as you see the Q3 report. But what is the target net debt in that JV? So at which point in the future will you start streaming cash again in -- from Natgasoline to OpCo.

H
Hassan H. Badrawi
Group CFO, Executive VP & Executive Director

I mean similar to Ahmed reply earlier, really commodity prices had a significant impact on our numbers -- on the numbers you mentioned. In Natgasoline, I mean, the important factor in that for us would be to the -- also the extraction of dividends. And I think that is something we have to monitor going forward. And in terms -- typical of the financing in place, we have some reserve requirements that have to be satisfied, after which we're able to extract dividends from the company. So, of course, with the improvement of methanol prices as we've covered quite excessively in this announcement, and with the sort of positive trajectory there, we hope that we can, later next we can start looking at potential extraction of dividends from Natgasoline.

H
Henk Veerman
Research Analyst

But the last time you paid out a dividend was the net debt was about $800-something million. So I mean, if you have, let's say, a good -- a couple of good quarters in Natgasoline, should -- already expect a dividend, let's say, end of 2021, for example? Or will you be delevering in that JV.

H
Hassan H. Badrawi
Group CFO, Executive VP & Executive Director

Based on the existing trajectory it's possible to see maybe a little bit later than that, but just around that.

H
Henk Veerman
Research Analyst

My last question would be on the -- I mean, in the press release, you state explicitly that you are looking to -- for further sort of optimization of the capital structure and simplifying the capital structure. I mean, your -- the maturity of your debt is now a couple of years out. Are there any like obvious changes or obvious actions to, let's say, the next 12 to 18 months to further optimize your capital structure? Or can you maybe illustrate that sentence that you made in the press release today?

H
Hassan H. Badrawi
Group CFO, Executive VP & Executive Director

I mean, we have completed -- as we already -- as I mentioned, we just completed a pretty sizable bond issue. That went super well and helped us reduce our cost of debt at N.V. combined with Fertiglobe refi, which was a little bit further certification because of those -- regardless of some legacy structures that were highly restrictive, more restrictive and now -- now it's given us better access to cash flow in Fertiglobe on a quarterly basis. And I think going forward, there are some things we can do to further simplify the direction of travel is to sort of take the debt up say and de-lever. And those will be -- in doing so, not just simplify but also achieve further interest savings. We haven't identified specific projects yet. But I mean I think I see the evidence what's still out there that we can -- that we could possibly look at. But the direction of travel is definitely to further consolidation of the corporate.

Operator

Our last question comes from the line of Frank Claassen from Degroof Petercam.

F
Frank Claassen
Analyst

I got one question left, and that is on DEF. How are you seeing the current price and competitive environment in the U.S.? And when do you see room to ramp up to your maximum capacity of 1 million tons in Iowa?

A
Ahmed K. El-Hoshy

It's a good question. I mean, obviously, we've been pleasantly now happy to see the recovery here in Q3 with some of the record-setting volumes we've seen in the market. And that's been a big driver of our ability to do more volumes even out of Wever's N-7 platform because now we have 4 plants between our North Dakota Beulah facility, 2 facilities that we now manage for Dyno Nobel in the Northwest, as well as our existing Wever facility. So we typically grow market share in DEF, and we're happy to see the volume ramp-up there. And just by definition, we see market share go up because imports does not make sense for imports to come in because DEF continues to be priced off of NOLA. So like I was saying previously on where our UAN imports was supposed to come and also some of these lower-priced Arab Gulf urea cargoes going into the U.S. on contract. You're getting a place where kind of economics prevail. So DEF continues to grow. This year had a bit of a slowdown with what happened in Q2. But we're seeing that next year, we should see the annualized recovery of truck volumes, more trucks moving over, higher dosing rates and SCR driving demand growth for DEF next year. And from a supply perspective, imports, which played a big part of that  just aren't incentivized to come anymore because you're linking it to NOLA, which is the lowest urea price globally. So DEF is priced off of NOLA urea. And it gets a premium from NOLA urea, and that premium varies based on customers and location. But ultimately, linking what is something that is -- what is something that is not in the fertilizer space to NOLA urea has the detrimental effect from a supply perspective of crowding out a lot of imports from coming in. So we think, over time, the market, the supply-demand balance looks tighter on DEF going into next year. And our volume, how much we take of that, and we were asked about our capacity of 1 million tons, will depend on ultimately what opportunities are there versus the fact that our big production facility at Wever in the United States has flexibility to produce 4 products, 3 of which outside of DEF are in the Midwest, so benefits from the Midwest premium. So we have to evaluate in terms of our product mix, how much goes into DEF relative to that and just the [ netbacks ] when we decide how much to contract for next year.

Operator

We have no further questions from the phone lines. [Operator Instructions] Please continue.

A
Ahmed K. El-Hoshy

So there are no more questions, operator?

Operator

We have no further questions. Please continue.

A
Ahmed K. El-Hoshy

Okay. Well, thank you. Thanks, everybody, for joining this call. We appreciate your time. Stay safe. And we look forward to the next discussion.

H
Hassan H. Badrawi
Group CFO, Executive VP & Executive Director

Thank you, everyone.

Operator

Ladies and gentlemen, that does conclude our conference call for today. Thank you for participating. You may now disconnect.