OCI NV
AEX:OCI
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OCI NV
Earnings Call Analysis
Q3-2023 Analysis
OCI NV
The company reported a consolidated revenue of $1.1 billion, an adjusted EBITDA of $242 million, and an adjusted net loss of $95 million for the third quarter, which marked a decrease from the results achieved in the same period last year.
The strategic review was mentioned, hinting at potential significant announcements by the end of the call. The consolidated free cash outflow stood at $3 million for the quarter with a particular distribution relating to minority interest taking place in Q4. The company's investment grade status was reaffirmed, showcasing a healthy liquidity status and a consolidated debt leverage of 1.5x as of September 2023, indicating a robust financial position looking into the next year.
The European nitrogen business saw a resurgence, posting an adjusted EBITDA of $60 million, and expects improved results post-turnaround activities. In contrast, the U.S. nitrogen business experienced a decline, recording an adjusted EBITDA of $36 million in Q3 from $161 million the same quarter last year, which includes a financial impact of approximately $34 million due to extended major turnaround activities. Fertiglobe's adjusted EBITDA was a robust $199 million, driven by an 8% increase in own-produced sales volumes. The methanol segment faced headwinds despite a 35% year-on-year increase in own-produced methanol sales volumes due to lower selling prices and gas hedging losses.
The company maintained its full-year growth CapEx guidance at up to $450 million for 2023 with a projection of around $600 million for 2024, catering to the expansion of its Texas Blue Clean Ammonia facility and other growth initiatives. A cash dividend payment of EUR 0.85 per share was made in October, amounting to just under $200 million, bringing the year's total to approximately $1 billion and the capital repayment program's total to $2 billion since last year.
There has been an encouraging increase in urea and ammonia prices, coupled with a recovery in demand for fertilizers across various regions and products during the quarter. Brazilian urea imports lagged but are expected to catch up during peak demand months, against a backdrop of limited new greenfield urea supply additions and emerging ammonia demand from clean energy applications.
The medium and long-term market fundamentals for ethanol remain positive, with demand for methanol as a marine fuel growing exponentially. The company is actively progressing in its energy transition goals, with advanced discussions for long-term offtakes and potential equity participation in the Texas Blue Clean ammonia project, reflecting strong commercial interest in securing low carbon ammonia. Additionally, the company is considering an expansion to further capitalize on the anticipated demand.
OCI is exploring potential asset monetization opportunities in consultation with financial advisers, engaging in discussions focused on attractive propositions to bridge the valuation gap between individual assets and the holding company discount. The company did not provide guidance on planned outages for competitive reasons but clarified that the maintenance CapEx guidance for the year remains unchanged at just over $350 million.
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Hello, and welcome to today's OCI Global Third Quarter 2023 Results Call. Thank you for your patience. Today's call will begin in just a few moments time. Today's call will be hosted by Sarah Rajani, Vice President, Investor Relations and Communications. [Operator Instructions] Once again, today's call will begin in just a few moments time. Thank you for your patience. I'd like to pass the call over to Sarah Rajani, Vice President of Investor Relations and Communications. Sarah, please go ahead.
Thank you. Good afternoon, and good morning to our audience in the Americas. Thank you for joining the OCI Global Third Quarter 2023 Conference Call. With me today are Ahmed El Hoshy, our Chief Executive Officer; and Hassan Badrawi, our Chief Financial Officer. On this call, we will review OCI's key operational events and financial highlights for the quarter, followed by a discussion of OCI's outlook and strategic review. As usual, at the end of the call, we will wrap up with Q&A.
The results press release and presentation are available on our website at ociglobal.com. We will be referring to slides in the results presentation during this call. I would like to remind you that any forward looking statements made on this call involve risks, and the actual results could differ materially from those statements. With that, let me hand over to Ahmed. Ahmed?
Thank you, Sarah, and it's great having you on the OCI team. For listeners on the call, Sarah Rajani was recently appointed as global [Technical Difficulty]
Apologies, ladies and gentlemen, for the slight connection issue. We'll be back with you in just one moment's time. Apologies for the inconvenience.
Yes. Sorry for the slight connection issue, but I was just thanking Sarah for the introduction and welcoming Sarah and Chintan to the team who are Global VP of IR and Communications and IR, respectively, and they've just recently joined us. I also was extending my gratitude to Hans for leading the IR function at OCI for the last decade and wishing him well for his next role, which is a leadership role within the OCI team.
So as always, I'm starting with safety, which is our top priority. Our 12 month rolling recordable incident rate was 0.34 incidents per 200,000 man hours at the end of September 2023. This continues to be well below industry averages, but unfortunately represents a small increase from the previous quarter.
We continue to work tirelessly on operational and process safety and strive for zero injuries and believe that every injury is avoidable throughout the organization. We also believe this is a key indication for overall manufacturing excellence.
We're starting to see signs of recovery in our nitrogen end markets following the extensive market headwinds that we experienced through most of the first half of this year. Healthier pricing is signaling the return of demand in a tightening supply environment and the shift away from the demand referrals and new capacity concentration that marked the latter part of 2022 in the first half of 2023.
Since reaching trough levels in June and early Q3, ammonia and urea prices are now up 150% and 35%, respectively. As is expected during the quieter summer months, there is often a lag effect of several weeks and sometimes up to 2 months between average realized pricing and moves in the benchmark indices. The effect this year was exacerbated on account of a strong order book at the beginning of the quarter and the loss of tons from IFCo's turnaround, which commenced in September.
Consequently, Q3 did not fully benefit from the recent benchmark price increases. However, we expect these gains to become apparent in Q4, underpinned by a strong order book for our nitrogen products, namely ammonia and urea, through year end.
Moving to ethanol. Although prices remained challenged during the quarter, hitting a low during the summer months, global methanol pricing has rebounded more than 40% over the last couple of months. Positive supply side dynamics are translating into higher European and U.S. prices, while China pricing has seen improvement driven by higher MTO utilization rates, underpinned by steady growth across other demand sectors.
We remain positive on both methanol fundamentals and future medium term demand driven by the accelerating delivery of methanol-fueled ships within a positively evolving regulatory landscape. These are trends that OCI is well placed to exploit given our strategic and competitive positioning and the sizable potential of our green methanol business in the biofuels market as well as our leading global position in low carbon methanol production. We will share more about our hydrogen fuels transition initiatives and progress later on this call.
In short, we're on target to increase our green and low carbon ammonia and methanol portfolio from around 200,000 metric tons of combined production capacity today to circa 1.7 million tons by 2025. We're further pleased to see significant commercial interest in our clean ammonia project, Texas Blue, where we're engaged in active discussions for long term product offtakes and potential equity participation.
Finally, you will note the comments on the strategic review on today's announcement, which we will come to at the end of this call. I'll now hand it over to Hassan to walk you through some of the key highlights of our financial performance during the quarter. Hassan?
Thank you, Ahmed. We'll start by turning to Slide 7 of our results presentation for a summary of our financial results. We reported consolidated revenues of $1.1 billion and adjusted EBITDA of $242 million and an adjusted net loss of $95 million for the third quarter. These results were lower compared to results achieved in the same quarter last year, and the reduction was driven by lower selling prices compared to the significantly higher prices we experienced in 2022, which could not be offset by the higher sales volumes.
Noting that nitrogen prices in Q3 were circa 60% lower compared to the same quarter last year, methanol prices were also lower than last year and compared to the previous quarter, with spot prices experiencing the steepest decline. The impact of lower pricing compared to the record year last year translated to just under $1 billion of lower adjusted EBITDA in the quarter.
The direct impact of lower natural gas prices in Q3 compared to last year amounted to $476 million. We know that we realized hedge losses of $35 million during the quarter, bringing the total realized losses in the 30th of September for the 9 months to $181 million. Based on the current forward curve, we expect less than $20 million of additional realized hedge losses in Q4.
We noted in our previous results calls that the natural gas hedges are near term front loaded. We therefore note that the mark to market on the basis of mark to market of the current forward curves for 2024 and onwards, these hedge losses would be substantially lower.
Sales of own produced volumes continued to improve year on year, notwithstanding made a major plant turnaround in Iowa, our IFCo and somewhat expected outages at Natgasoline and in the Middle East. Own-produced volumes in Q3 increased 8% year on year, reflecting also demand recovery. Finally, the Q3 results last year included a positive EUA sales of $56 million versus none contributed to the third quarter of this year.
Turning to Slide 8. We recorded operating free cash outflow of $3 million in the quarter, bringing the total for the 9 months to a positive $359 million. Consolidated free cash outflow was similarly an outflow of $3 million in the quarter, as the delta usually reflects between the two cash flow figures, usually reflects minority decrease for which there was none recorded during the quarter.
However, on the point of minority interest, the distribution of softwares dividend did take place in Q4 with our Algerian software dividend partners on track receiving $830 million in dividends and super equity margin attributable to the record results of 2022, with Fertiglobe consequently receiving $182 million of dividends. As a result, this leakage figure will appear as part of the minorities leakage in Q4 results, as previously guided.
Additionally, Fertiglobe has declared a $275 million dividend payable in Q4, of which 50% is attributable to minorities, including our partner, ADNOC and the free float, which also appears as minority distributions. This will result in almost $1 billion of minorities in Q4.
Based on the 2023 results, year to date, we expect this figure to be significantly lower in 2024. On financing, we know that Fertiglobe has today completed an agreement with a group of its core relationship banks on the terms of a new $500 million term facility, which was 1.9x oversubscribed. The proceeds will be used to refinance short term borrowings, further improving Fertiglobe's maturity profile and liquidity. The company remains well within the investment grade zone with significant access to liquidity going into 2024.
Rating agencies reaffirmed both Fertiglobe and OCI's investment grade status as recently as August and with consolidated debt leverage of 1.5x. And as of 30th of September 2023, OCI continues to have access to ample liquidity going into the next year.
Turning to our operating segments with a few highlights to note. Our European nitrogen business returned to positive EBITDA territory, recording $60 million of adjusted EBITDA. We know that deliveries of own-produced volumes in the segment increased 13% year on year as demands fare better in Europe. We continue to import ammonia through our terminal in Rotterdam to support downstream production.
Adjusted EBITDA was negatively impacted, however, in the quarter by $25 million due to shutdowns and planned turnarounds. However, we look forward to improve results in the coming quarters post these turnaround activities. Our U.S. nitrogen business recorded an adjusted EBITDA of $36 million in Q3 versus $161 million the same quarter last year and $99 million in the second quarter of 2023. The Q3 decline can be attributed primarily to the extended major turnaround at IFCo, which impacted the month of September and has extended into Q4.
This, in addition to the lower average selling prices for all products quarter on quarter and the negative realized gas hedging results within the segment just explained the figures. The production downtime due to the major turnaround in IFCo had a financial impact of circa $34 million in the quarter.
Fertiglobe's own-produced sales volumes this quarter were 8% higher compared to Q3 last year, primarily due to a 10% increase in own produced sales volumes, urea sales in Northern Europe. Fertiglobe's Q3 2023 adjusted EBITDA was $199 million, reflecting healthy free cash flow conversion. Operating free cash flow was $126 million before dividends to minorities. As Ahmed noted in his opening remarks, our realized prices in the quarter do not reflect all the recent moves in the benchmark indices due to various positioning of the order book. However, we expect these price gains to become more apparent in the coming quarter.
In methanol, notwithstanding a 35% year on year increase in own-produced methanol sales volumes in the third quarter, the business was negatively impacted during the period by lower selling prices compared to the same quarter last year and the previous quarter, as mentioned previously, as well as some realized gas hedging losses housed within the segment as well.
Turning to guidance. Some guidance on CapEx, our maintenance CapEx for the full year 2023 is expected to exceed $350 million as per the guidance we provided during our Q2 results call, which reflects some timing of invoicing payments related to 2022 turnarounds and some big IFCo investments that have been made.
Our guidance for maintenance CapEx for 2024 is closer to $275 million. We continue to focus on manufacturing improvement as a potential key contributor to our future results, and we expect a meaningful step down in maintenance CapEx in outer years.
Our full year growth CapEx guidance for 2023 remains up to $450 million, as previously guided. And we now share our guidance for 2024 at circa $600 million, driven by the build out of our Texas Blue Clean Ammonia facility as we approach operation in early 2025. The guidance also includes other attractive growth CapEx initiatives, including the U.S. nitrogen landfill in Texas, the completion of the New Star pipeline connection, the Rotterdam terminal expansion work and continued progress on Sorfert, Fertiglobe's low carbon project in Abu Dhabi.
On capital returns, the company paid a cash dividend of EUR 0.85 in October, equivalent to around just under $200 million. And this brings the calendar year distribution to a total of one calendar 2023 distributions to approximately $1 billion and a total of $2 billion since the start of our capital repayment program last year. We reiterate that we will continue to target a balanced capital allocation policy maintaining our IG credit profile, investing in select energy transition growth initiatives and returning capital to shareholders. And with that, I would like to hand back to Ahmed for further commentary on the market backdrop to our results and some of the ongoing strategic initiatives. Ahmed?
Thanks, Hassan. As highlighted earlier, Q3 saw a turning point in nitrogen prices and demand amidst rapidly tightening markets. The 2022 to 2023 fertilizer application season concluded with record low inventory levels in North America and Europe, and as I said earlier, trough pricing reflecting the market dynamics in the first half of this year.
Encouragingly, urea and ammonia prices have sequently increased materially as I discussed earlier. We believe price are returning to more normalized levels supported by a robust supply and demand profile and healthy agricultural fundamentals over the medium to long term. You can see this visually on Slide 6 and further in the appendix of the investor presentation.
Demand for fertilizers recovered across regions and products during the quarter, notwithstanding the usual summer lull for fertilizers as farmers benefited from low prices and strong farm economics. This is further evidenced by our strong order book looking ahead to our year end and ongoing low inventory levels in several regions, including North America.
Chinese exports remain constrained, and we are seeing positive dynamics for some of the main importing regions. We saw record sales in India in July to August with the Indian tender activity stepping up during the last few months. India saw 5.1 million tonnes of imports between January of this year and the end of October with a further 1.7 million tonnes from the most recent tender with shipments through December 20 of this year. We expect further tenders as India's demand profile remains robust with around 2 million additional funds needed between now and March of next year.
Brazilian urea arrivals have been lagging for the greater part of the year and by as much as 1 million tonnes. Some of this gap was closed over the course of Q3, but imports are still around 400,000 tonnes below last year's level, a shortfall that will likely be needed to be made up during the peak demand months of November to February '24. No major large scale greenfield urea additions are expected in the remainder of this year or in 2024 with limited additions at high risk only between 2025 and 2027, generating a meaningfully either global supply and demand market with a gap of approximately 4 million tonnes of supply lagging demand, signifying, like I said, a tight market even before some of the shutdowns, which we're anticipating and starting to see more of in Europe.
Furthermore, the extreme heat this summer resulted in curtailments in various locations as gas usage was prioritized for energy consumption for power and for air conditioning due to the hot weather, and that's redirected away from industrial production, including ammonia. There have been more recent curtailments in Egypt, reflecting the latest geopolitical events, a situation we continue to monitor closely. That said, we experienced minimal disruption of less than 2,000 tons over the last month and a bit, which is just above 1% of monthly production since the 7th of October, with all plants now running at or very close to normal rates.
Whilst recent supply disruption has no doubt benefited ammonia pricing, after lagging urea for most of the quarter, it is possible that we see some volatility in ammonia pricing over the next few months as this capacity starts coming back online. That said, high marginal cost in the EU and the demand driven environment just described is expected to act as an offset on such volatility. A rebound in industrial demand when it materializes will also be incremental to the recovery we are seeing in agricultural end markets.
While overall industrial demand remains soft and currently below historical levels, there have been pockets of optimism, for example, a substantial increase of ammonia imports into China. In the medium term, there are significant potential incremental ammonia demand from the new clean energy applications that we discussed earlier, including power generation and marine fuels.
For power in Japan and Korea, those markets alone for co firing could result in up to 9 million tonnes of ammonia demand on an annual basis by 2030 compared to a 20 million tonne merchant market today. Similarly, the marine fuel market as of today in that market, there are 227 vessels on order or operational that are ammonia ready for an ammonia engine. This could translate into ammonia bunkering demand of over 6.5 million tonnes in the medium term, and that demand would start utilizing in our belief, existing infrastructure for the most part that we enjoy and have today.
Finally, cost curve economics should start putting more pressure on producers once again. European gas boards until 2025 are implying ammonia cash cost support levels, excluding CO2 charges of $605 a tonne, and if you include CO2 charges $770 a ton, which will result in temporary or further permanent closures of European marginal production if pricing remains below cost versus same period. We're already seeing this played out as we've talked about shutdowns in the past, and as evidenced by the shutdown we just heard about this week in France, where a fertilizer major is planning to stop nitrates and NPK production in France.
Fortunately, at our facility in OCI Nitrogen, we enjoy economies of scale with the second largest fertilizer plant in Western Europe, key importing capabilities, a diversified product mix, and last but not least, continue to have one of the best gas convergence to ammonia in the world. As a reminder, OCI's U.S. operations and Fertiglobe account for over 91% of our gas consolidated consumption in Q3 and they enjoy first quartile position on the cost curve on production distribution economics.
Turning to ethanol. Key methanol markets continue to be weak in Q3, but spot methanol prices have recently recovered supported by higher oil prices, reduction in supply availability in the Americas and Europe and improved MTO rates in China, which reached the highest levels in over a year. Rising coal prices in China also provide a higher cash cost floor despite the weak industrial demand we've been seeing.
The spot price recovery has continued into Q4 for the U.S. and Europe with seasonal winter strength in Chinese coal production driven by power generation, supportive of both Chinese and broader Asian methanol pricing. Despite the continued macroeconomic challenges, medium and long term ethanol market fundamentals remain positive, driven by three key factors: One, limited new methanol greenfield supply additions; Two, methanol as a fuel continues to grow for road use and transportation for blending to decarbonize, for example; and Three, most importantly, demand for methanol as a marine fuel is accelerating exponentially. And at current diesel prices, we're seeing strong demand for not just green methanol, but even gray methanol where many of the ships on the water, which are dual fuel, are starting to burn gray methanol because it burns more cleanly than diesel and is cheaper. We also expect further incremental demand for methanol dual fuel retrofit projects as they come to market.
Turning to Slide 11 in the presentation. Incremental demand for maritime sector today is expected to reach approximately 7 million tonnes per annum from the mid to late 2020s based on current new orders of more than 230 new vessels. In terms of the container vessel dual fuel propulsion order book, methanol continues to outperform LNG quarter on quarter as the leading decarbonization fuel.
That leads me to our next topic, our energy transition focused growth initiatives and goals to decarbonize energy intensive industries and create value. We continue to make huge strides in this area with several announcements in the past 2 months, demonstrating OCI's global leadership in supply and trading renewable and low carbon fuels.
Our 1.1 million tonne Texas Blue Clean ammonia project remains on track to commence production in early 2025. We're currently in advanced discussions regarding long term offtakes and potential equity participation, reflecting strong commercial interest and an increasing appetite from strategics to pay a premium to secure long term, low carbon ammonia given regulatory scores.
Critically, any further expansion at the site will benefit from enhanced project economics with cost benefits deriving from an early-mover advantage as well as the ability to leverage existing infrastructure and utilities, which, as we've said before, have been sized for a second line. With this in mind, and against the backdrop of a positively evolving regulatory environment, we are prudently evaluating a second line at the site to capitalize upon anticipated demand, taking our clean ammonia production capacity and clean fuel capacity in total to 2.8 million tonnes and increasing low carbon fuels as a percentage of OCI's overall mix.
However, the focus today is on the offtakes for and the equity in and completion execution of Line 1. In September, we announced the green hydrogen supply agreement with New Fortress Energy, which allows OCI to scale up its green ammonia production capacity by about 80,000 metric tonnes per year in 2025 and can reach 160,000 metric tonnes per year in 2026. To put this in perspective, this represents almost half of OCI's current production capacity in Texas. This green hydrogen can also be used to make a low carbon methanol or an e methanol.
We also announced the doubling of our world leading green methanol production capacity to 400,000 metric tonnes per year. This will come from a mix of renewable feedstocks, including renewable natural gas, green hydrogen, as I just mentioned, and other over-the-fence feedstock partnerships. This includes new supply agreements for renewable natural gas that will provide over 100,000 tonnes of green or biomethanol annually and the securing of waste and development rights from the city of Beaumont, allowing us to obtain biogas from the landfill that we're developing. This will be OCI's first upstream RNG or renewable natural gas production facility with production expected to start in the first quarter of 2025.
As you are aware, the first ever green methanol container vessel owned by A.P. Moller - Maersk successfully made its maiden voyage from Korea to Copenhagen, arriving in port in September. This vessel was successfully fueled with OCI high fuels green methanol, and we expect to leverage this success and visibility with further green methanol sales to the marine sector as we expand our marine business and obviously take that into the low carbon ammonia business for marine applications later in the decade.
Finally, you have heard me talk about the recent issues in the green methanol space, but to provide some additional context, we are encouraged to see regulatory matters moving in the right direction to support and incentivize this market as a demand activator, as evidenced by the RFNBO targets, renewable fuels for non biological origin, set by RED III for 2030: number one, a 42% RFNBO hydrogen use target for Industrial Solutions in EU member states; and number two, a combined share of advanced biofuels and RFNBO in transportation of 5.5% in 2030 with a minimum for RFNBO of 1% in transportation.
This market is real and it's tangible and accelerating. And moreover, we at OCI are extremely well positioned strategically and competitively to create value from these regulatory developments in the medium term.
Finally, a brief update on the strategic review. Following a constructive dialogue with Inclusive Capital. OCI has hired financial advisers to explore potential asset monetization opportunities with a view to bridging the gap between the combined value of the individual assets in the company's portfolio and the holding company discount. As a result of this process, the company is engaged in active discussions with a focus on attractive propositions.
Let me conclude with extending my thanks to the entire OCI and Fertiglobe teams for their contributions and achievement this quarter. And with that, we'll open up the line for questions.
[Operator Instructions] Our first question today comes from the line of Christian Faitz from Kepler.
A couple of questions, please. First of all, can you elucidate the rationale behind the search for an equity partner for the Beaumont Blue Ammonia project? Second question, could you give us any scheduled maintenance outages you planned for Q4 that we should be aware of? And then also, can you please go in further detail about the minority leakage you expect in Q4.
Sure. Absolutely. I can start with question 2. Unfortunately, we don't give information on planned outages for competitive purposes. But going to question one and why we're evaluating an equity investment potential, so there are a couple of reasons. But number one, obviously, we're well advanced on the project and we expect the mechanical completion towards the end of next year, and it's become a line of sight. We're still the only FID blue ammonia project in the United States that's a new build.
With the incentives that are being provided for the utility space in the power space in Japan and Korea, there is, for some of the offtakers many of the off takers, their requirements have an equity participation in the upstream production of that low carbon ammonia. So that's part of the reason is that as part of the offtake, this is kind of a quid pro quo where there will need to be an equity participation.
In addition, these investors could come with lower return requirements than what we may be looking at. So that's something that could allow for a higher premium for the transfer of equity in that project, particularly because it's more well developed.
The other reason is also it does allow, when you look at our overall balance sheet, our target towards maintaining a strong dividend, continuing to grow the business as well as maintaining an investment grade profile. This allows us to leverage our investment and potentially look and grow our business over time when you bring in some equity participants as a support there, too. So that's some of the reasoning behind why we've taken a lot of these active discussions seriously, and we share that with the market here.
On your third question, I'll maybe hand it over to Hassan.
Yes, sure. On the minorities leakage, I think we tried to explain during the first part of the call that we are experiencing an extraordinary minority leakage related to the distribution of dividends from Sorfert Algeria, which is a subsidiary of Fertiglobe, and it has to do with the super ?cr?mage or super dividend attributable to the state oil and gas partner, Sonatrach for record profits achieved in 2022.
Algeria typically or the subsidiary in Algeria typically pays an annual dividend, so sort of a single annual dividend per year, typically, around September, October. This year, it's still in the month of October. And as a result of the record profits achieved in 2022, the figure is pretty high. So about just over $800 million or exactly $850 million is received by Sonatrach.
That, in addition to the fact that Fertiglobe already declared as part of the results earlier today a $275 million of dividend to shareholders, of which half then appears as further leakage, hence, sort of explaining the number of around $1 billion of leakage in Q4. Obviously, this results in a little bit of uptick in our leverage, but we expect that to normalize as our performance improves going forward. And also, with the expected collateral benefit of equity participation in Texas Blue, that also has a positive effect on our balance sheet going forward.
Now going back to your maintenance CapEx question, just to maybe help clarify. As I have mentioned, we don't give exact guidance on the planned turnarounds across our portfolio. But we did highlight that our guidance for maintenance CapEx for this year has not changed, which is just in excess of $350 million, although that tends to be impacted specifically in Q4 by timing of invoicing cycles, so that number could fluctuate a little bit. However, our guidance for next year, which we shared for the first time now is around 2.75%, and we expect this number really to get to step down further in outer years as our manufacturing improvement plan sort of comes to begins to bear fruit, and we need to spend less on some on our various sites. I think that this number will step down quite meaningfully in 2025 onwards. So maybe I'll stop or pause there.
The next question today comes from the line of Aron Ceccarelli from Berenberg.
The first one is on the outlook for the nitrogen market. I think the picture is pretty clear on the supply side. While on the demand side, we have seen grain stocks to use ratio restoring now close to 5 years average, which usually has an inversely impact to corn prices so we should see pressure on corn prices in the short term. How confident are you that on the demand side, we're going to remain on a strong foot in Q4 and Q1 next year?
The second question is on the comments you made on asset monetization. I think the company has always been very open on unlocking values, and this is something you've been talking for quite some time now. So what has really changed today with this statement? Or is it just a way to stress this again, but I mean we are still on track with the previous comments?
Yes. So on the demand side, I mean, I think I mentioned a little bit in the prepared remarks, but first of all, we're seeing healthy demand. The pharma economics are still strong and above the 10 year average despite an increase in the stocks to use ratio. And the stocks-to-use ratio, as you mentioned, is still below the 10 year average.
So when we see what's in front of us this season, if you're talking about Q4, Q1, we see still a robust application of nitrogen. We think there was a bit of under application last year. There's always the risk of weather effects on what comes to the market. And we're despite the run up we've seen on urea pricing and ammonia pricing and nitrate pricing in the last few months, the farmers are still very much incentivized to buy and put in the ground.
So we're seeing good demand here. There's obviously sometimes pockets where it goes up and down in terms of how much liquidity is in the market, but like we said, we see Brazil ticking up here in the next few months. We have a very solid ammonia application here in the United States in November for fall ammonia. And I think there's going to be probably some farmers going on allocation because not all terminals have availability there. And I think that bodes well for spring ammonia. It bodes well for spring nitrates.
Overall, given nitrogen needs supply be applied every year so that you can bring up a lot of these grains, even rice where we've seen a bit of a tick up in price, we're seeing pretty solid demand. So that's where we stand at this point. And it's well received because the industrial market has continued to be quite weak, and the ag has really picked up a lot of that slack and we think looks quite good.
On your second question, I mean, Hassan, you want to take that?
Yes, sure. I mean on the second question, obviously, at this juncture, we can't really share more information than what we have included in our press release and the remarks made by Ahmed earlier in the call. The only thing we can add is that we do expect to make - to provide further updates before year end and that we have good interest in the active discussions. We'll leave it at that.
And maybe just a clarification on your interest expenses. I saw your interest expenses picked up quite significantly in Q3. Is this the kind of run rate we should think about for Q4 as well?
There's a little bit yes, I mean, there's a little bit of fluctuation in the interest because -- due to some usage, some utilization of our RCF in the second half of the year, which is captured in our overall net debt figures and leverage figure that we communicated earlier.
So sub run rate basically.
The next question today comes from the line of Faisal Azmeh from Goldman Sachs.
Just maybe two from my side. The first is just in relation to the net debt position that the company has as we think about the minority outflow by the end of the year and the minimum dividend requirement or the minimum dividend payment that we've modeled so far, which is the $400 million. Is there a level at which you might consider to cut the dividend if it compromises the investment grade rating?
And maybe to ask this in another way, should you reach a certain level, do you envision yourself cutting the dividend? Or do you feel comfortable at these levels in today's prices where you can maintain the dividend and while kind of maintaining as well the investment grade rating. That's my first question.
And just my second question is just relating to prices. We've seen prices kind of come off a bit recently. Is that largely a function of how you feel demand kind of breaks down at a certain level? Or do you feel it's just due to the fluctuation in gas prices?
Yes. On your question of leverage I mean we've reiterated on the previous call, and I believe I tried to do so earlier in this call, that we continue to try to balance our accretive growth capital allocation with our target to remain investment grade and our ability to repay capital. Obviously, given that there is an ongoing strategic review, and including the strong interest and equity participation in Texas Blue, I believe these are all factors that will play into how we approach capital allocation in the future.
Faisal, on your second question on pricing, I mean, I wouldn't read too much into kind of the day to day or weekly pricing. A lot of it is sentiment-driven. You see kind of gas going up and down. In Europe, that drives a bit of sentiment. We just how many tonnes go into the India urea center, et cetera. But you're coming to that time of the year that November, you usually see ammonia start running a little bit in the Midwest. Towards year end, there's sometimes some softness.
I think it's hard to read into week-to-week. I mean, we saw actually prices come up a bit on urea yesterday in the U.S., but on ammonia, they've come down a little bit with some of the supply coming back into the market. Net net, we just kind of step back from the noise. We still feel very good about the SNDs for nitrogen over the next few months and quarters because, as I said on the earlier question, we still see a very big push for demand to increase grain stocks and strong farmer incentives to do so. And we don't see any real supply coming online for the next couple of years for urea, with quite questionable supply being added in 2025 through 2027 with risks around that in the locations that they're at, which you'll see in the investor presentation.
The next question today comes from the line of Rikin Patel from BNP Paribas.
I had a couple. Firstly, on the portfolio review. I know you can't say much, but is today's statement an indication that you're no longer considering shifting the listing to either the Middle East or the U.S.? And then secondly, we've heard in the last couple of weeks that gas supplies are restricted to urea plants in Egypt. I'm just curious if that at all impacted your operations and what else you're seeing on the markets on that front.
And then just finally, on the maintenance schedule. So I saw that your European plants were also put into a planned turnaround in Q2. I'm just curious what the thinking was there given, I suppose, demand seemed like it was coming back during the quarter. So I'm curious whether it was planned, both in the upstream and the downstream or whether there was something sort of last minute which meant that you had to run those lines at a lower rate.
Yes. So to answer each of your questions one by one. On the listing note, it's something we're still obviously considering. But just given the strategic review that takes precedent because when the overall look of the portfolio, I think, is an important decision making factor with regards to where the listing takes place. So that is still open but would be subsequent to the update that we're going to provide on strategic review.
Number two, you had a question on production in Egypt. We actually said it briefly during the prepared remarks. We actually had no effect really on urea production in Egypt. We lost a couple of thousand tonnes of ammonia since October 7. And so well less than 1% of annual capacity. And we're running basically at or very close to capacity in Egypt right now, so I'd say a negligible effect on us.
I just want to remind you also, we're one of the largest exporters from Egypt and one of the larger dollar generators in Egypt. So we have that benefit, and this only affected one of our two plants of ammonia in Egypt.
On your third question with regards to maintenance, no, this was a planned maintenance. As you recall, in our OCI nitrogen facility in the Netherlands is a couple of ammonia lines, which we've been running in general for the last 2 years. It was just 1 of 2 lines because of the high gas pricing and importing a lot of the ammonia. And then we have downstream. We have nitric acid, and urea lines to make CAN, UAN, melamine and then in the next few months, CAN process and AdBlue or DEF. So we're massively increasing our product footprint.
This was a planned turnaround in the middle of the year for our urea plant, which prevented us from making melamine and where we're also undertaking a turnaround, and it also prevents us from making UAN for a period of time. So that's part of why we ended up not having as much production in our plant. And we actually once I think urea was back up, while melamine was still finishing the turnaround, we made UAN and basically took some of the nitric acid that's used to make CAN. So it resulted in less CAN production, a bit more UAN production. So sorry to go through all the details on it, but that's kind of we're looking to always maximize the product mix. And this was a prescheduled turnaround that we executed over the summer, which was reflected in our maintenance guidance as well as some of those lower volumes.
[Operator Instructions] The next question today comes from the line of Charles Bentley from Jefferies.
This is Charlie Bentley from Jefferies. So just a couple on CapEx. So Hassan, you said the $600 million, is that the growth CapEx for next year? Can you just, one, confirm that?
And two, just in terms of the split of CapEx between Texas Blue and anything for TA'ZIZ, and then just kind of incrementally to that, should we think of that as the kind of peak of CapEx depending on how you choose to fund the rest of the projects, the TA'ZIZ projects?
And then just a final one. Just operationally, I mean, one of your peers has indicated the European season starting relatively slowly. Just any thoughts on how things are going from your perspective.
Yes, maybe I'll take the first 2 questions and Ahmed can address the third question. Correct on the growth CapEx. This is the first time we give more specific guidance for 2024 in the area of $600 million. Obviously, given the target to commission our Texas Blue 1.1 million tonne facility in early 2025, it means that the bulk or the focus of the CapEx is in 2024 as we ramp up -- as work on the site is ramped up and we continue to progress swiftly and on schedule on the project.
Based on the current profile of projects in the system, you are also correct that this will be construed as a peak year for us based on projects that are FID-ed and that we've announced so far. I would also share that, naturally, the lion's share of this $600 million growth CapEx is really -- pertains to Texas Blue.
And just to kind of remind you of the TA'ZIZ project, that's a project that has kind of 4 key attributes, although we consolidate 100% of the CapEx. One, it's at Fertiglobe. Two, we own a minority stake in that so we're not paying for all equities. Three, we're going to be putting leverage on it on a nonconsolidated basis because we have a minority stake in it, so that's going to reduce how much we have to put in. Four, it's a back end ammonia plant. And five, it's being built in Abu Dhabi, which has cheaper construction costs.
So kind of for all of the above reasons, that plant, despite being 1 million plus tonnes, we don't anticipate ever going over double digit in terms of spending on that plant for CapEx. For some of these other projects, New Star, the OCI expansion for the terminal in Rotterdam, the landfill, all of these are projects that have a relatively quick payback. And that, along with this, Hassan said the lion's share, which is the Texas Blue project is comprising this larger CapEx spend for growth next year.
On your question with regards to the slower European start, we've seen that buyers are probably about 20% less covered as far as this year versus last year. So there has been a little bit of deferral of buying and trying to time the market. So we've seen a little bit of that. And we think that the stocks aren't at the same levels as they were in some of these prior years now.
The key thing to point out is we think that the sense of being one of those periods where some of the smaller plants are being tested. Like I mentioned, this week, French plant shutting down NPK nitrates, that's a pretty significant event. I think also that one area that we talked about in the last call, which I think you're going to start seeing more of this depending on the nitrates positioning in Europe, is that the duties on ammonia and urea tariffs came back in the summer, so in June, those have kind of taken a 6 to 9 month holiday. So having those back ends up being a little bit more of a protection against nitrate prices in Europe. We think that it makes sense to still plant heavily here in Q2.
So we think that sometimes it is a seasonal lull in November, and we should see a little bit of buying back in December and early next year. And our product mix, adding sulfur to our nitrate production, we think, is going to be great because that is usually applied earlier in the season, and we're going to be doing that later this quarter.
There are no additional audio questions waiting, so I'd like to pass it back to the management team for any written questions.
From the webcast, we have a question from [ Mohammed Barrick ] Can we have some more color with regard to progress on the ground for Texas Blue, please?
Sure. So we tried to add, [Mohammed], some details in the investor presentation this morning. But if you were to drive by the site, you'll see that we've gone quite vertical with steel structure. We're getting some major pieces of equipment delivered in the next couple of months. The piling is basically almost done fully, including both not just the storage tanks, but also the ISBL and OSBL of the plant. Things are making good progress there.
We have underground piping that's really moved forward quite quickly and we're wrapping that up soon as well. And as a reminder, we did take this decision to really add in a lot of those utilities for pipe racks, underground piping, utilities to serve that potential second line in the future, which, in our opinion, means that the next plant to be built in the U.S. should be the -- our line 2, which is given how attractive that proposition would be in the future.
And then we have one other question from the webcast from [indiscernible]. You stated in the press release that you want to bridge the gap between current value and combined value. If you agree with the undervaluation, why would you not consider commencing a significant buyback program?
I mean that's always a possibility as well, and that's something that we look at in terms of returning capital to shareholders between share buybacks as well as dividends, but that's definitely in the cards. But as Hassan mentioned, we'll probably give an update on strategic review ahead of any next distribution in whatever form it takes.
Thank you. There are no further questions on the webcast.
Thank you. That seems to be the last question for the session, so I'd like to pass it back for any closing remarks.
Thanks all for joining the call, and we'll see you on the next one.
This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.