Nov 8, 2021
Disclaimer*
This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear.
The machine-assisted output provided is partly edited and is designed as a guide.:
Operator
00:02 Ladies and gentlemen, thank you for standing by. I am Stuart, your Chorus Call operator.
Welcome, and thank you for joining the OCI N.V. Third Quarter Twenty Twenty One Results Conference Call.
[Operator Instructions]. 00:32 I would now like to turn the conference over to Hans Zayed, Investor Relations Director.
Please go ahead.
Hans Zayed
00:40 Thank you, good afternoon and good morning to our listeners in the U.S. Thank you for joining the OCI N.V.
Third Quarter Twenty Twenty One Conference Call. With me today are Ahmed El-Hoshy, our Chief Executive Officer; and Hassan Badrawi, our Chief Financial Officer.
On this call, we will review OCI's key operational events and financial highlights for the quarter, followed by a discussion of OCI's outlook. As usual, at the end of the call, we will host a question-and-answer session.
01:06 As a reminder, statements made on today's call contain forward-looking information. These statements are based on certain assumptions and involve certain risks and uncertainties, and therefore, I would like to refer you to our disclaimers about forward-looking statements.
01:18 Let me hand over to Ahmed.
Ahmed El-Hoshy
01:21 Thank you, Hans, and thank you all for joining us today. This quarter has been highly [Indiscernible] with many corporate developments, including the recent listing of Fertiglobe in Abu Dhabi and some exciting ESG growth initiatives.
We've also seen the positive momentum of our products continue, which has accelerated our goal to achieve strong balance sheet as we capture the fruits of our expansion over the last decade. We can now fully focus on future transformational value accretive growth opportunities and on returning capital to our shareholders.
Our competitive business model, diversified exposure and state of the art production platform are really starting to show how we are differentiated from our competitors. I'll touch upon these topics, but I would like to start by covering our top priorities to see as we want all our employees and contractors to go home safe every day.
Our twelve month rolling recordable incident rate at the end of September was zero point (eight three) [ph] incidents for two hundred thousand manhours, global industry average. This is still not where we would like to be and I'd like to reiterate that our goal remains prioritized processed, safety and to reduce occupational safety incident is zero at all our production facilities across the quarter.
I think I mentioned zero point eight three, I mean, zero point three eight incident, I'm sorry, for two hundred thousand manhours. 02:35 Likely to give some highlights of our performance during the quarter.
Despite multiple large turnarounds during the quarter, namely IFCo, Natgasoline [Indiscernible] EFC one of the two lines and [Indiscernible] lines turnaround and lower volumes as well as the shutdown of our European methanol operations since middle of the year and significantly higher piece prices in Europe. Our Ebitda and cash flow from operations improved significantly year-on-year.
Our business model showed its effectiveness during the quarter as we continue to operate and maximize our downstream production in Europe by sourcing ammonia from multiple locations, including convertible in the United States. 03:15 By doing so, we are able to weather volatility and trough pricing and help agricultural markets by addressing product shortages and food security concerns.
We also continue to enhance our ammonia logistics with the addition of a dedicated fourth charter vessel and increasing throughput capabilities at our ammonia import terminal in Rotterdam. Further strengthening our world leading ammonia production and trading platform.
03:39 Our own product sales volumes were down eleven percent two point five million metric tonnes during the Q3 twenty twenty one period compared to Q3 twenty twenty period. Total owned nitrogen product volumes are relative we flat year-over-year as a twenty one percent increase in volumes at Fertiglobe were offset by the vehicle shutdown, I mentioned earlier.
IFCo is now back to running at high levels, which bodes well for end season sales in Q4 and next year. Methanol volumes were down substantially very good performance that our OCI Beaumont plan was offset by the turnaround at Natgasoline.
The first ones since starting up the plant in twenty eighteen. 04:17 Before I hand it over to Hassan to discuss the financial results in more detail, I'd like to thank all our employees for making this another excellent quarter and for their strong commitment to improving and growing our business.
A lot of hard work has going and bringing us to this point and I'm excited about what our team assets and aspiration can accomplish with this balance sheet and market backdrop. Hassan?
Hassan Badrawi
04:37 Thank you, Ahmed. First conference gratitude our employees for the resilience commitments that has been instrumental and achieving the results that we had here.
Turning to the results our third quarter showed strong financial performance despite as I mentioned earlier the sizable turnarounds as several of our facilities. Our consolidated revenue increased by one hundred and four percent to one point five billion dollars and our adjusted EBITDA rose by one hundred and sixty one percent to five zero one million dollars in the third quarter of twenty twenty one compared to the same quarter of last year.
Our adjusted EBITDA margin also improved considerably from twenty three percent in the third quarter of twenty twenty to thirty four percent in the third quarter of twenty twenty-one. We continued the benefit from the increasing prices for our products, selling prices improved across the board in the third quarter, and this third quarter compared to the same period last year with increases ranging from anywhere between eighty percent to two hundred percent.
05:40 Prices of our key cost inputs natural gas was an average higher for the group in the third quarter of twenty twenty one compared to last year, especially in Europe, which resulted in the total consolidated negative impact, which we quantified to be around one hundred and three million dollars. Our consolidated net income line saw significant improvement with the returning to profitability.
Our reported net income after minorities for the quarter turned from a negative thirty seven million dollars last year to fifty three million dollars. Adjusted net income was at a similar level as the reported net income at fifty six million dollars with an impairment of our European methanol facility BioMCN of one hundred and sixty two million dollars offset by a couple of factors including the recognition over the first tax asset of our Iowa plant IFCo of ninety seven million dollars.
06:31 Turning to the group's balance sheet and cash flow performance. Ahmed described the series as a transformational year for OCI and this could not be more true for our strong balance sheet as we reach another milestone by dropping to a net leverage of one point seven times.
The partners trajectory continues into the fourth quarter as we expect to drop below one time during the first quarter, based on our outlook and subject to market conditions of course. This could be needs improvement in the company's leverage profile has translated into double B plus, up from BB by S&P, which we hope is a start of a series of similar improvements as we maintain our path a stronger balance sheet.
07:14 As a result of higher EBITDA, we achieved significant increases in cash from operations from fifty six million dollars in the third quarter of last year to around four hundred million dollars in the third quarter of twenty twenty one. The operating cash flows will offset by a payment of forty three million dollars resulting from the acquisition of a fifteen percent stake for minority shareholders in our Egyptian, ammonia, EBIT facility and two thirty seven million dollars of dividends paid to minority interest primarily related to minorities in Algeria and weakest of achieving dividends to OCI from Fertiglobe.
07:56 Total cash expenditures were seventy six million dollars in the third quarter of twenty twenty-one and one hundred and sixty four million dollars in the first nine months of twenty twenty one and year-to-date, and we continue expect to achieve our guidance of three hundred million dollars of total capital expenditure for the year as per our earlier guidance. 08:19 Maybe just to cover some recent developments as well and some detail, OCI and Fertiglobe have been active with a number of transactions during the past few months.
During the third quarter of this year Fertiglobe resets its capital structure and the one point four billion dollars financing which consists of a one point one billion bridge loan applied versus one hundred and five bps with an eighteen month maturity extended to, in total to three months and a three hundred million dollars revolver facility maturing in twenty twenty six at an interest rate of LIBOR plus one seventy five bps. Subsequently October, Fertiglobe repaid the current EFC and Fertiglobe outstanding loans and dividends and return dividend of one point one six five billion to two shareholders OCI ADNOC with OCI share of proceeds at standing at six seventy six million dollars.
This sort of – this resets was done in the lead to the IPO. As you are all – as you also be aware by now, on the twenty seventh of October twenty twenty one OCI and ADNOC successfully listed a thirteen point eight percent stake in the Fertiglobe on the Abu Dhabi stock exchange known as the AGX, which generated further proceeds to OCI of around four sixty one million dollars.
Following this IPO, OCI continues to own just over fifty percent of Fertiglobe’s shares and we will continue to fully consolidate the company just for clarity sake. 09:51 Given all these movements in October, which came after the close of the financial quarter, we have added table to our press release showing OCI’s performance net debt adjusted for the resetting of the Fertiglobe capital structure, the IPO and showing dividend distributions as of thirty September.
On that basis, consolidated net debt was around three point one billion dollars. Are also like just to highlight the progression of our cash interest, which continues to drop.
During the third quarter, we reduced recurring interest expense excluding debt restructuring cost by fifty three million dollars in the year-to-date versus the same period as last year. We continued these efforts in the fourth quarter, and we have redeemed five forty million dollars of our five point two five percent senior secured notes and another four hundred million euros of three point one two five percent senior secured notes, almost one billion dollars of redemption.
These will further provide benefits in terms of recurring interest expense, reduction in excess of forty million dollars per annum from twenty twenty two onwards. 11:06 And finally, to the additional commentary that we provided in our earnings release on dividend policy.
We've already indicated our previous conference call and earnings release if you recall, the expect to begin paying cash dividends on twenty twenty two onwards. Now we've added that this will be with a first semi-annual dividend to be announced in February at the time of our annual results expected to be paid in the April twenty twenty two.
We see this as a very exciting development, but we have not been in a position certain capital shareholders to see if this is in Netherlands in early twenty thirteen. Going forward, our dividend policy state that we intend to maintain a robust and disciplined capital allocation policy, designed to balance availability of funds and accessory free cash flow for dividends usual are pursuing, the value accretive ESG and other exciting growth opportunities that we see before us.
All of course while maintaining a disciplined commitment to a target of two times net leverage through the cycle and an investment grade profile. 12:11 And with that, I'd like to hand back for Ahmed for additional commentary on the markets and our outlook and group strategy?
Ahmed?
Ahmed El-Hoshy
12:21 Thanks, Hassan. The outlook for OCI remains positive for the balance of twenty twenty one at least into twenty twenty three supported by strong underlying demand for nitrogen fertilizers driven by low-grade inventories and healthy farm economics.
We also see continued good demand in our industrial markets ammonia, methanol, melamine and DEF and other industrial area products. We have good visibility into Q4 twenty twenty one and the first half of twenty twenty two with a healthy order book across our core markets and are benefiting from further increases in selling prices compared to Q3.
12:55 If I start with outlook for nitrogen markets. Low grade inventory levels and stocks-to-use ratio was globally will take at least two years through replenish together with the higher demand for feed and ethanol use, this is supportive of sustaining crop prices at current levels, which amplifies the need for the application of nitrogen fertilizers.
Tech crop yields and ease food security concerns. OCI with its low cost global platform, world scale young assets and strong logistics can help address these grand shortfalls by delivering essential nitrogen products to the food supply chain.
Current crop prices are supportive of farm incomes in key grain exporting regions even with the higher prices. 13:35 Input prices, incentivizing farmers expand properly and maximize yields.
USDA highlights titled global grade markets in twenty twenty two versus twenty twenty one with forward corn futures in the range of five dollars per bush to the end of twenty twenty four. We are seeing robust fertilizer demand in key import markets with U.
S., Europe and Latin America and India, all competing for products ahead of the spring season in Q2 twenty twenty two. 14:05 The U.
S. Nitrogen outlook remain small, but strong supported by low inventories and strong demand with high grain prices driving expanding crop area in the next two seasons.
We are seeing a good start to the far ammonia season which we got last week around our IFCo plant with current ammonia prices in the Midwest over twelve hundred dollars a ton and the system is expected be empty going to the spring season providing more upside for Q1 twenty twenty one. 14:34 Brazil still needs imported an additional one million tons before the start of the schizophrenia season in February of next year.
In Europe, we maintain a healthy order book as nitrates demand is very strong with limited pre buying the season and low inventories across the system. Sustained production curtailments due to high gas prices could lead to further market tightness in the spring.
14:57 The UAN market balance also remains extremely tight in Europe for the twenty twenty two season with lower imports due to less supply from Belarus, Russia and Trinidad with more products being shipped to the U. S.
As USUAN prices have been strong on the back of reduced [Indiscernible] this is likely to lead to increase substitution to our main product in Europe, which is CAN. 15:20 India by key year import market needs to be import at least an additional three million tons for the end of Q1 twenty twenty two, which means at least three more tenders, and this is expected to continue to drive urea price strength ease of with the absence of Chinese participation in future upcoming tenants.
The same time, the medium term supply outlook is tightening as projected new year capacities are below the level seen of the past five years below projected demand growth and startups are currently being delayed. In the short-term, global supply has been severely curtailed in twenty twenty one and is expected to remain at a lower level at least until H2 twenty twenty two.
16:00 Higher feedstock prices have significantly raised EU ammonia import demand due to capacity being shut on the ammonia side. Urea export bounce from China at least until the end of their domestic season in H2 twenty twenty two and Russia also recently placing export quotas on urea, nitrates until June twenty twenty two altogether tightened global balance is further.
These factors suggest that strong fertilizer event could last beyond twenty twenty two as some regions may be unable to secure product, lowering yields and deferring demand into future planting season. 16:34 India is a prime example of where a lack of available products has hampered for demand in twenty twenty one as domestic production is around eight fifty thousand tons lower year-to-date October and imports have been limited by key buying in most other markets.
Significant rebound is expected in twenty twenty two, in Indian demand with continued expansion crop area and government subsidies supporting urea. 16:57 We expect markets such as Africa and Asia to step up in H2 twenty twenty two with the end of the season in the Western hemisphere and purchase large quantities of urea to cover their needs into these markets.
On the industrial side, we're also benefiting from a strong rebound in all major global economies and in major sectors in many sectors. This gives us good visibility on our end markets, and we'll lose demand for methanol, melamine, DEF, and ammonia which are used many downstream products across various end markets, including transport, healthcare, construction, automotive tech sales among others.
17:33 Furthermore, and specifically on the transport side, and we're seeing increased in bolstered demand for our product keeping the market quite tight. Ammonia markets have been buoyed by a structural tightening this year and merchant ammonia availability is expected to decline with minimal net capacity the additions between twenty twenty one and twenty twenty four whereas merchant demand is expected to grow by over five million tons over that same period.
Supporting sustained price increases over the medium term. 18:02 Melamine prices have continued to be – melamine markets, sorry, have continued to be tight driven by strong demand from home renovation construction markets, tight supply in Europe and low global inventories across the supply chain.
Quarterly contract prices in Q3 twenty twenty one increased by twenty percent and in Q4 and meaning Q4 we announced an additional seven fifty euro per ton increase in October and another increase of two fifty euros per ton in the month of November. DEF now represents more than thirty percent of our sales volumes, from IFCo and DEF prices have been highly supported by the recovery and transportation demand and higher urea benchmark prices as well.
18:47 The higher net back for this product enable us to continue to enhance our returns for our U. S.
Nitrogen operations going forward and provide a very good playing field to generate significant free cash flow out of our IFCo plant and direct product towards what we see to be a very high margin product. Methanol markets remain – methanol markets fundamentals remain positive.
U. S.
Spot and contract prices have been supported by low global inventories. Demand continues to recover, and new supply has been delayed and a slow to ramp-up.
Strong demand is set to continuous operating rates for major derivative segments, including formaldehyde acetic acid, MTBE, and MMA are reported as higher rates in U. S.
And provide good visibility on our sales and prices in Q4 into beginning of twenty twenty two. 19:31 Oil linked demand methanol is strong and olefins prices are holding near eleven hundred dollars a ton supported by the strength in oil and related feedstock and building well for an increase in capacity utilization rates of the MTO sector, which was been very highly muted following and significant turnaround season in Q3 on the methanol side.
In the long-term, clients demand fundamentals are tightening with new capacity additions at about two percent for annum needed meet expected demand growth of four percent per annum from twenty one to twenty twenty six. 20:07 This like in the case ammonia doesn't consider the additional upside from clean fuel demand.
For example, Maersk has ordered up to – Maersk, the shipping company has ordered up to twelve methanol consuming containers which alone are expected to consume most of a million tons per year of methanol if run for the entire year on methanol and long-term demand growth from marine fuels represents meaningful upside for this market. 20:33 Higher marginal costs are also providing supports all our markets.
CPS futures are currently pointing to sixteen dollars MMBtu for twenty twenty two, which is lower than today's price and are around ten dollars MMBtu for twenty twenty three and twenty twenty four, which is two times higher than the levels we saw on average from twenty sixteen to twenty twenty, which raises the cost floor and the lower utilization rates from marginal producers, providing support for selling prices over the medium term period. 21:03 Like to also give an update on our ESG initiatives.
We continue to make this progress in our efforts to capture value creative opportunities from emerging demand for clean ammonia and metal as we evaluate blue and green projects across our platform, which fit well with our ESG strategy. Fertiglobe recently announced the seventy thousand ton scale up of blue ammonia capacity through low cost program in Abu Dhabi and partnering with ADNOC consult, blue ammonia from the UAE to customers in east Asia.
Fertiglobe joined ADNOC and 80Q is partner in a new world scale one million dollars tons per year flat. That is the producible Ammonia at the southeast project and rates in the UAE.
21:45 In October, we added an agreement with Caustic and the sovereign fund Egypt just develop on electrolyser project as well to one hundred megawatts produced green hydrogen in the feedstock at EBIT in Egypt from to ninety thousand tons of additional green ammonia production. Egypt is an ideal location given us one of the best solar and wind corridor orders in the world, which allows the robust future growth of hydrogen production using attractive renewable energy and supported by abundant land to place that renewable energy.
Location, the rest of using years is waste technologies which is ideal given future fund potential with ability to go east to Asia investment markets and West European markets to serve key importing regions for ammonia. 22:29 This conclude before we go into Q&A, we are excited about the prospects of the company's shorter term, we expect the meaningful step up in adjusted EBITDA in Q4 compared to Q3 twenty twenty one, driven by higher selling prices, various feedstock costs in MENA and United states as well as additional volumes.
We expect to drop a net leverage below one point three times by year end twenty twenty one and below one times during first quarter of twenty twenty two, which positions us well start returning capital to shareholders and focus on ESG and other projects across the group. 23:05 Our end markets are looking positive into twenty twenty three and potentially longer and nitrogen and industrial markets continue to be the strong that we've experienced in years with the robust underlying demand driven and fund supporting our medium to long-term outlook.
We also see large upside from additional demand in a range of new applications and sectors as a result of the energy transition, where ammonia and methanol are ideally positioned as the two major hydrogen uses. We are all, we are ideally positioned as we leverage our low cost global platform, growth scale young assets and strong commercial logistics asset base and harmonize ambitious sustainability with our relentless focus on shareholder results.
With that, we'll open the floor for questions.
Operator
24:16 ladies and gentlemen [Operator Instructions] One moment for the first question please. First question is from the line of Christian Faitz from Kepler.
Please go ahead.
Christian Faitz
24:27 Yes. Thank you very much.
Good afternoon, Ahmed, Hassan and Hans team. Three questions if I may.
First, can you please give us an idea of how much of your current capacity is idled particularly in Europe? And would we see any shutdown still in the close of this year or early next year?
Additional shutdown that is. 24:51 Second, also on pretty much on that European plant shutdown topic.
Could you please share with us how much of your north effort and capacities are yet to European demand and how has that shifted considering the recent European shutdowns? 25:07 And then third, question and final question.
Can you remind us of the payment schedules for the dividends to so truck when the next payment due? Thank you very much.
Ahmed El-Hoshy
25:20 Sure. Thanks for the question.
So, I'll try to take them here one by one myself, exactly. Current capacity in Europe that is idled, we are in the idle on our methanol capacity in Europe.
And you can see that large volumes that were there in Q3 and just given where gas pricing is at right now and there replace the cost from methanol. We're okay with that continuing to be idle until gas from down and or methanol rights?
And as you know that's been kind of more of a swing plant when you have these higher feedstock pricing environment. 25:54 On the nitrogen side, OCI nitrogen has significant downstream capacity right, it produces UAN, CAN, and melamine, which are enjoying very strong margins right now.
It has two ammonia lines. So has the flexibility to turn down or turn off both lines where turn off one of those lines.
So, kind of the view is then to the extent weekend import ammonia. For lower than the price of procuring natural gas to continue to run our downstream operations and feed our customers we're doing so.
And so, we definitely have reduced production on the ammonia side, given the north of twenty dollars per MMBtu gas cost we see today. And what the OCI actually has been able to do well on is basically by that ammonia at pricing that is much less than replacement cost and generate additional margin versus running those lines and keeps the downstream lines operations.
So, that's the approach that we've been looking at and we've expanded logistics capabilities significantly and we're in a very unique position being an inland class that can sell to customers with the position to southern Netherlands with a proper supply chain and during the only ammonia terminal in Rotterdam, which is one of the, as you know one of the most liquid hubs globally. So, the team has done an excellent job of moving record amounts of ammonia into that plant and also going to keep its customer base and kind of that's how we look at the overall European landscape for production.
27:27 Your second question, which is regarding how much of our capacity is geared towards North African production sorry, how much of the North African production geared towards Europe. I mean, that question, I think the simple answer is we do have some contractual customers in Europe for ammonia.
Right? But when it comes to urea and some of our spot ammonia, we're fully flexible.
We're fully agnostic at Fertiglobe. On the Fertiglobe side, our view is go where the high priced product market is.
Today, for example, we see NOLA finally caught of bid going just above eight hundred dollars a short ton, which is eight hundred eighty dollars, eight ninety dollars a metric ton. That's a deliberate price into a nitrogen importing market.
We would not sell any middle Eastern product into the U. S.
And get a lower net lower tax than we can guess, for example, in India, like we just participated heavily in this last tender. 28:19 Similarly, IFCo with its flexible production would rather produce the DEF at a premium to urea and UAN, which is premium to urea than granular urea and of itself and also capitalize on the ability to not have to sell into that low priced market for urea right now, which we're seeing in the United States besides seeing a deficit market.
And so when it comes to our allocations and how we think about capacity, we do have some contractual customers that are in Europe that we're feeding but we've also been increasing our trading capabilities to be able to buy from the Baltic to be able to buy from the Black Sea buy from the Arab Gulf ammonia and service the European markets and we've also even moved some tons from the U. S.
Into Europe, which we saw were under-priced when the Tampa market was well below the price of natural gas replacement to produce that in Europe for the marginal cost producer. Is that clear?
Christian Faitz
29:13 Yes Absolutely. Thanks, Ahmed.
Ahmed El-Hoshy
29:16 And then the third question, which is with regards to I think, can you repeat third question again, dividends?
Christian Faitz
29:22 Dividends schedule, so to speak?
Ahmed El-Hoshy
29:28 Yeah. Yes, So maybe, Hassan, if you want to discuss, I think you're asking about when is the next dividends and how that over?
Christian Faitz
29:34 exactly because you had relatively high payments…
Hassan Badrawi
29:37 Yeah, we had a little bit of lumpiness in in terms of minority leakage as we approach the IPO Fertiglobe. We wanted to clear some of the backlog there, which was done efficiently.
So, the leakage that you see of two thirty seven million dollars represents effectively majority of the – vast majority that relates to dividends from Algeria attributable to previous years, not yet the twenty twenty one. That gets paid annually, so it will show up in twenty thirty two.
And of course, any up streaming leakage from Fertiglobe to OCI as now we have minority is representing ADNOC and Fertiglobe. So, this is going to be a consistent.
So, it's a little bit lumpy, that’s how the big the numbers, will be in the future. It might be normally big because of the results that you're seeing now, but as the percentage changes there.
Christian Faitz
30:35 Okay. Thank you very much.
Hassan Badrawi
30:37 Thanks.
Operator
30:40 Next question is from the line of [Indiscernible] from Citi. Please go ahead.
Unidentified Analyst
30:50 Thank you for taking my questions. Just coming back to commentary on the European market.
Can you talk about the overall European marketplace? And how much of the capacity do you see currently shut down?
And at what point do you think the capacity can kind of restart? And then just a couple of commentary around your dividend policy.
I think Hassan mentioned, it's going to be focused on capital availability. So, I mean mark conditions are quite supportive to say at least going forward if the market was turn and maybe be battery to look at the tougher would they dividend go far as being suspended or would you kind of go to a big minimum and kind of carry on paying that?
Sort of question is it is there payout ratio that you working with? 31:41 Last the second question.
And on the green ammonia, can you just provide some comments on the timeline and kind what kind of end market or kind of customers you will be targeting and are you already in conversation with customers for the offtake there? Or is that kind to early at the moment?
I to trying figure out the you see ability and whether actually work for? Thank you.
Ahmed El-Hoshy
32:08 Sure. Thanks.
So, the three questions there. Maybe I'll take first question with regards to how much has been idled and the third question with regards to green pneumonia that I'll hand it over to Hasson to discuss the second question what you said regarding division policy.
So, in terms of what we believe to be idle, we believe approximately eleven million tons of silver ammonia been idled in Europe given the pricing and where it at right now for natural gas. And on kind of downstream products a little bit more difficult to ascertain because downstream products are making a margin right now, in terms of just where pricing is for urea and nitrate, but we think potentially over six million tons or offline maybe seven or eight on the downstream product side, depending on where you are overall in Europe.
33:01 Those who have the flexibility like OCI nitrogen to import ammonia, which is what we're doing and continue to generate good margins on Melamine, UAN, and CAN, they'll try to do so with some of the other ones that are land that don't have the ability import ammonia it could have a bit more difficult or just have to stomach the higher gas pricing and agents their margins on the downstream side and may still continue to operate. So, I'd say definitely ammonia is going to be more of the story of what's offline right now on the nitrates and on urea side, probably not as much our finance a little bit more difficult to see in the market does feel despite that quite tight.
33:42 On the timelines for the green ammonia and this is one of the projects, so we announced recently Scatec, our goal is to move extremely quickly on this one. We see an opportunity just given our development history in the Middle East as well as ADNOC development history as well and our relationships with the key players on the construction side on the government side and now this new partnership with Scatec and the Sovereign Fund of Egypt.
A lot of good alignment. I mean [Indiscernible] twenty seven is going to be in Egypt of next year.
So a year from today, there's a big focus on the hydrogen economy out of Egypt and we're looking to move and get into position where we're in a competitively priced hydrogen over the medium-to-long-term, not kind of seeking build and they will come mentality. So, all of above is being worked on right now.
We hope to come back to the market with further development on the project, but we're highly focused on it and are happy to be participating with the involvement of the Norwegian as well as well as the Egyptian government. 34:53 Maybe I hand it over to, further questions on those questions one and three maybe had it over to Hassan, but I will say one thing that's kind of an interesting one and that's why we were thinking the team both earlier that we've been very busy.
Looking at projects, looking at opportunities, looking at ways to decarbonize given the positioning of our U. S.
European as well as our middle east and assets. So, one of the question marks, not just how the pricing of the product is, but just what's the growth CapEx look like.
So, we're looking for the right return opportunities and hope that more developments and ensure that that with the market over time because there are a lot of interesting developments in the U. S.
That we've been seeing recently with the recent builds have been passed as well as in Europe with the positioning of some of our assets that can take advantage of very strong downstream capabilities and bring on renewable hydrogen as a feedstock and generate a good return.
Hassan Badrawi
35:50 No, that's very true and that kind of fees well into the response because as we've designed the dividend policy, we to flash out further with the heavier results in terms of quantifying what that would look like and takes a bit more shape. We do believe that this year has been extremely transformational for us in terms of our grow that production and leverage improvements.
There's is a bit of a catch up game as you can see with all our being able to sort of – being able to reduce our interest expense and the restructure our debt is still some opportunities that lay ahead in that regard, but having said that, we believe we have sufficient capacity and firepower to pursue the good opportunities that will be extremely disciplined and approach, and of course, they take time in terms of deploying that growth Capex. Balance that again, what we have been very disciplined and committed in terms of managing optimizing our balance sheet.
I think that will continue and you'll see another job in our interest expense in the coming years as we continue to improve, but we also have because of our free cash flow conversion capacity to return capital to shareholders next year on onwards next year onwards. Because we haven't announced them out, so I can really answer your question very specifically, but we will be looking to create a baseline going forward for our returning capital to shareholders, and not at any point be sitting on a lazy balance sheet.
37:38 We want to be efficient in how we allocate capital and that also includes being able to manage our cash flows accordingly including returning capital shareholders. The unique future of our business allows us even if you look at our performance in a completely different set of environment, which is not we believe the market environment is quite robust for looking going into twenty twenty three, but we can really forecast too much beyond that.
But even in a dial size scenario where our EBITDA is a business gets significantly reduced, I believe we still have the capability to continue to pursue the key opportunities we're looking at and balance that with our articles, including a dividend policy.
Unidentified Analyst
38:38 That's very helpful. If I could squeeze in one follow-up from your comments.
That’s on the growth capital. What should I be thinking about for twenty twenty two CapEx?
Ahmed El-Hoshy
38:54 That's a bit of a moving target because that's a function of the opportunities that we're evaluating today. So, some projects have already are on the runway like that – like our participation in the Southeast project on-site, ADNOCs and ADQ but the CapEx project in Egypt, the partnership [Indiscernible] right as well…
Hassan Badrawi
39:20 Our ammonia project and as we talked about there as well. I will say maybe they kind of give a high level guidance that we're actually giving the America guidance has benefit these products they take engineering in the beginning, to some long lead items after reached FID so I wouldn't imagine kind of a fair material step up in growth CapEx we're talking about a very significant number in terms of of modeling that out, but we hope to provide further clarity of the market as we continue to kind of make progress on some of the various initiatives we're working on both closer that are now [Indiscernible].
Unidentified Analyst
39:59 That's helpful. Thank you.
Operator
40:10 [Operator Instructions] That question is from the line of Lisa Dee Hansen from Morgan Stanley. Please go ahead.
Lisa De Neve
40:16 Hi, this is Lisa De Neve. So, I have three question.
So first, is you talked about strong demand that looks supported by low-grade stock used ratios. High strong profitability are still healthy and so there a rebound in GDP levels.
Now, my question to you is, I mean, where do you actually see the possibility for potentially lower demand next year or normalization. So that's the first question.
40:42 Secondly, I mean, the maritime opportunity seems like one of the more sizable alternative revenue routes for methanol, ammonia and as your producer of both, it seems to meet that so far just somewhat more announcements related to methanol, particularly as it relates to dual fuel engines and understand that those chemicals have different market sizes, But how do you see the adoption of methanol as a maritime fuel versus Ammonia? And how do you see that developing?
And specifically, what is the appetite you're seeing from shipping companies and sort of engine builders? What are their sort of opportunities and reservations around that?
And then lastly, sorry for the long speaking. 41:20 What are your thoughts on the Russian fertilizer export control, specifically as relates to nitrate?
Simply because the most problem the players in markets are Europe and Russia, how do you think that will impact the Americas and European markets? Thank you.
Ahmed El-Hoshy
41:36 Thanks, Lisa. And good, good to hear these questions all very relevant.
So, on the grade stock, the grade stock use side in terms of demand and where we can see reduced demand, we discussed this a bit on the pretty globe earnings as well. I mean, the farmer incomes are still strong from what we can see despite the higher inputs.
But there could be those marginal acres in certain locations where they say I'm going to lower intensity soybean rather than the corn for example. We still see from what we can see on this next upcoming spring strong demand in the U.
S. And Brazil in Europe.
There may be some marginal acres in some of those locations that don't apply and maybe a function of action of being able to receive product like we were talking about. With a lot of the under buying it's in a lot of the markets and just getting the markets so the – the product of the markets there.
42:35 So potentially, there could be some in Europe, nitrates prices are very very high what we're seeing switching into your rear to some extent. But overall, like said it's delayed not a destruction in demand because you're going to have to make up that inventory of grains to be able to support the Global markets and I think the big wildcard that's really come up heavily in the last couple of months, particularly last month it's been ethanol, which we've seen really take off in terms of demand with what's happening in the oil markets.
43:08 Now that's relevant moving to kind of your next question, which is methanol. Mean, as you know, we are the largest producer of bio-methanol and market of bio-methanol globally.
And we use bio-methanol blend for example into the UK fuel market with petrol. Both as the blender, like, petrol, all also blended in alcohol mix with ethanol.
So, it's an ethanol bio-methanol mix and that bio-ethanol is a second generation biofuel that's not based on crops but actually based on waste So, we're seeing a lot of demand in the outlook for road transportation a methanol there. And we do see that recovery and transportation demand that we've talked about the last few quarters being lagging as finally started to take effect in some of the key markets we go into.
43:56 Now moving from the road transportation to the sea transportation, we're having very interesting discussions with multiple players in the market. As you know, we announced earlier this year, development of methanol and pneumonia, the fuel ships with MIN engines with Eastern Pacific out of Singapore and the Heartland group out of Hamburg, Germany, and those are progressing quite well.
But if I look at that kind of as the micro causing pool we see in the market, methanol ships are already in the markets and our on the water today, and it's we've seen the order from Maersk with essentially twenty twenty for a significant amount of demand starting to hit that market. So, I'd say that similarly, we see for low carbon and lower mission fuels methanol being the first quarter and then ammonia to follow that kind of towards the middle of the decade as we see the ammonia driven engines for shipping kind of in the middle of the decade time period and capitalize that going forward.
Both you said dual fuel – both are kind of looking at for example, LPG and ammonia together or methanol other more traditional fuels together as kind of a shipping engine driver, and we think that the market for heavy fuel is so big that there's space for both the grow significantly and I put methanol a little bit ahead of ammonia just given the development of the engine around that. And this is a very significant demand?
When you think about one million tons from Maersk alone for eight plus ships, that million tons of demand is one percent of the global methanol market today. Right.
45:40 And so anyway, we'll continue to see developments on that front and our global footprint between Fertiglobe as well as the Rotterdam.
Lisa De Neve
45:55 Hello. Ladies and gentlemen, thank you for holding.
The conference will continue shortly.
Ahmed El-Hoshy
46:37 Hi.
Operator
47:22 Okay. Please go ahead.
Ahmed El-Hoshy
47:25 I think we got disconnected Lisa. So where did I leave?
Lisa De Neve
47:28 In the middle of the maritime fuel opportunity and that and when you apply likely lag messing not a little bit. Just before my third question.
Ahmed El-Hoshy
47:38 Sure. Okay.
I think we covered that was ending with on that with the price of Co2 can help utilize and actually make green ammonia more attractive than every fuel oil when you price in Co2 depending on that price of Co2 and also low carbon methanol. For overall product costs, The third question was with regards to what about…
Lisa De Neve
48:03 Can I say, so basically, basically I just want to get your thoughts on potential Russian fertilizer export controls and specifically on the nitrate market, because there's such a big player and specifically see European market and secondly, the America's markets. What could be the impact of that?
Ahmed El-Hoshy
48:24 Yeah, I mean it's something that we have an eye out on. I mean, we're on the nitrate side particularly AN, which with the product we don't produce solid AN, we do expect less of that had during the European market, which mean that supports UAN and CAN and even urea and directly in terms of just a further tightening of that market, and we could see additional we could see additional demand come out of…
Lisa De Neve
48:53 Please think that means that there some substitution potential?
Ahmed El-Hoshy
48:58 Yeah. I mean, generally they're not suitable, but actually is the urea demand has really picked up a bit.
We're continuing to build an order book on nitrates for UAN and CAN in Europe but these very attractive pricing, there might be some marginal acres in the UK and the kind of what's in European markets that can take on a little bit more urea because it's still priced on a bit of a nitrogen discount versus the nitrate, but generally is not that much substitution on that front.
Lisa De Neve
49:28 Okay. Perfect.
Thank you so much.
Operator
49:38 Next question is from the line of Adrien Tamagno from Berenberg. Please go ahead.
Adrien Tamagno
49:44 Hello good afternoon. I have two questions please.
The first is that one a few peers mentioned having locked sales for the next couple of months. And since we are talking about order book I was curious to see how much of your production volumes also agreed as of today for Q4 and Q1 next year, especially in the U.
S.? 50:14 And second question to me is that is due day in March this year.
You mentioned around seventy five million dollars of TBA improvement and that was when urea was at the around [Indiscernible]. So is it fair to expect an increase in this contribution by this thing magnitude of prices go up?
Thank you.
Ahmed El-Hoshy
50:44 Yes, I mean, relevant questions with regards to our order book. We did mean to say we expected that quite a strong Q4 and that applies in the pretty markets, but as well as the non-pretty globe parts of the business, for example, the U.
S., the ammonia season is going on right now for our IFCo plants and in terms of order book, we don't guide in terms of how forward so we are, but say that as we've seen the pricing as it's kind of evolve we have looked to book out some of this higher pricing we've seen on the way up here for UAN, CAN and some of the other products. The one thing I can point to that we said publicly is back on the Fertiglobe side because we had just anticipating the public India tender.
We put in over three hundred thousand tons of two ninety five million dollars sales for November and early December deliveries, at eight ninety plus dollars a ton from Egypt and UAE. So, with that, obviously, we'd had some extra inventory ending the quarter and kind of we're able to sell and benefit from the pricing that we've seen now in those markets and have additional tons to sell at these higher urea prices.
But on the nice side on the DEF side and so of the ammonia, market time, we don't provide good visibility on. We don't provide the actual order books, but we do say that we have pretty strong visibility on our performance for Q4 being very robust relative to Q3.
And it bodes well for the early part of next year on what we're seeing in potential sales during period. 52:37 On the second question, yes, to answer in short, yes.
Obviously, the operational excellence guidance of seventy five million dollars was on much lower pricing than what we're seeing today. We didn't update that number, but the focus is continued to be on improvements with very significant turnaround discovered that we had, particularly in the U.
S. With Natgasoline and IFCo getting a significant reduction in volumes is around getting that higher reliability going forward and post turnaround around, we continue to experience after turnaround placement catalyst adjusting kind of known bad actors in the past, etcetera, experience better performance and utilization rates going forward and energy efficiency rates to consume less natural gas for time.
Operator
53:32 Tamagno, you finished with your questions.
Adrien Tamagno
53:39 Okay.
Operator
53:41 Next question is from the line of Vijay Singh from Sierra Capital. Please go ahead.
Vijay Singh
53:47 Hi. Thank you for the opportunity.
Just one question from my end. The previous one, I mean, if been answered the questions previously.
In terms of the U. S.
Plants, could you kindly throw more light on the utilization and the shutdown periods in the third quarter and what is the expected sort of a utilization given where we are for the fourth quarter?
Ahmed El-Hoshy
54:16 Yes, Vijay. Good, I mean good question.
For Q3, we have pretty deep, we have this U. S.
Segment that we segment out and you can see much lower DEF volume, much lower UAN volumes which were the only plant that produces that is difficult plant in the U. S.
When you think about the U. S.
Segment. And so on the U.
S. Side, utilization rates were quite low for the Nitrogen business, and we see much, much stronger rates with the rates we're running out right now.
And see much stronger rate close turnaround to allow and capitalize on the higher price period we're seeing now here in Q4. On the OCI Beaumont side, that's performed very well as we said and you can see that in the figures methanol, but you don't have the volumes from Natgasoline because that had a major turnaround as well.
So, we anticipate stronger volumes overall on the methanol side in the U. S., relative to Q3.
Vijay Singh
55:21 Sure. And was IFCo go down for close to two months and for this third quarter?
And this is now running, is it now operating fully.
Ahmed El-Hoshy
55:31 Yes.
Vijay Singh
55:32 Okay. Perfect.
Thank you.
Operator
55:37 There are no further questions at this time. And I would like to hand back to Hans Zayed, Investor Relations Director.
Please go ahead.
Hans Zayed
55:48 Yes. Hi, I will read some of my questions that we have received.
The first one will be why not buyback stop instead of paying dividends, dividends are very tax inefficient?
Ahmed El-Hoshy
56:03 Thank you for the question we anticipate the discussion of course. I think as I mentioned we've yet to give more guidance and the explicit plan, we will announce the market that part of our year end results, which are typically in February, and that would include for sure cash dividend, but we will also study all other avenues that are available to us.
56:33 Noting of course that as we now will be benefiting from a semi-annual dividend from Fertiglobe where the policy there is clear to distribute excess cash flow and then to upstream it to OCI, our partner ADNOC and of course, the free float, but I think that's a foundation to build on, but we will explore as I mentioned, all avenues for returning capital shareholders.
Hans Zayed
57:04 Even next question comes from [Indiscernible] any development in the investment business regarding the decisions about the strategic review earlier this year?
Ahmed El-Hoshy
57:21 Yeah. Nothing to report at this time and obviously if there's anything that changes, we would come back to the market.
Hassan Badrawi
57:30 Ahmed, I think we have clarified in our previous call that we had the result of our thinking and the fact that there is such a strong clean fuels angle now being looked at in terms of the methanol side in terms of new opportunities for methanol to be deployed that provides potential growth I think if we explore anything in the future, I think we believe we mentioned that will be in the form of partnerships that as value. 58:05 These will come in many forms, but that's something that we continues to be the foundation of any thinking we do for the methanol segment going forward.
Operator
58:19 [Operator Instructions].
Hans Zayed
58:33 Next question is what will be the publication date of the fourth quarter results and is just possible to communicate this area than one week before? And the answer is, yes, we will be publishing any a calendar and we will also have target to publish within forty five days of the end of the quarter.
Hans Zayed
58:56 And next question is, can you please elaborate on your plans for your capital structure, are you planning to keep bonds in the capital structure in the future?
Ahmed El-Hoshy
59:10 I mean as we mentioned earlier, we've done almost almost one billion dollars of redemptions in terms of existing bonds which resulted in the forty million dollars run rate savings, but we do believe that going forward, the bond would provide the bulk of our core debt structure as we look to a more sort of turbulent capital structure base to work from, but we still have some work of for us over bit together.
Hans Zayed
59:50 And the next question is, you have given we can impact of higher natural gas prices for Q3 twenty one. Are you able to guide for the impact for Q4 twenty one assuming the natural gas prices will not change from the current levels?
Ahmed El-Hoshy
60:03 I think that that one, I think probably that investment potentially or the research challenge could potentially try to use the public information around historical gas prices and current gas prices we're seeing in Q4 and the projections in the forward curve of this year, I will say that our goal has been to try to get a better benefit and offset it by buying in ammonia a year below the price of production. Mind you produce ton of ammonia is in kind of the mid to high [Indiscernible] for on average and where gas prices are today plus cost of Co2, you're really various point that we can buy ammonia at a cheaper price that we can grasp these lower price products for example, in the air both right now and where the trade and as you know, when you think about it our overall business, between the U.
S. And the Middle East, we have significant implicit hedging in place.
So, we have guided that we've had significant hedging in Texas in our Natgasoline plants and our OCI Beaumont plant, which capped three point five zero dollars and in pretty globe, we have the low cost feedstock with some profit sharing with the governments, but despite that profit sharing, getting a benefit an outsized benefit on the EBITDA margins when we when we participate. So overall, there's kind of an implicit hedge when you think about the blended business, including our European nitrogen business.
Hans Zayed
61:48 Yes. And the next question is, can you use describe benefit of the DEF, it is day for more efficient use of fuel.
So as fuel prices rise, the DEF is more valuable or just a function of rising the month means to tighten market and price increases.
Hassan Badrawi
62:02 It would be function of both. So, I mean, it's a mandated product, DEF is the mandated product in U.
S. And in Europe and other markets for diesel consumption for new engines they come out and consumers of that, DEF are looking to increase dosing rate because it actually improves the fuel economy of diesel and when you improve the fuel economy diesel been at higher prices diesel your more incentivized to try to dose a higher rate of DEF.
So, to your question, yes, you would like to use more DEF when it's higher priced environment, but also higher price environment is a result of more transportation demand and west supplies. So, we're also seeing just volume growth year over year continuing very robust levels and being one of the largest DEF producers of marketers in the U.
S. 62:57 We're looking to serve customers.
I think the team did an excellent job with the four plus network between [Indiscernible] that we market for to not give a beat in terms of delivering that DEF to the customer, not fully force measures delivering it to that customer in June, sorry, the July, August period and the times where that has be to see if you have to realize on the trucking side, if a trucker stops to fill diesel and wants the refill DEF and DEF is not available there. That really damages the relationship of that truck stop with the tracking fleet or the trucking customer.
So, for us, our focus is on making sure that the customer has that, and we think that we've built a solid brownie points over above our positioning in the market given that we are a reliable supplier despite having a turnaround at Ira economy.
Operator
64:00 Okay. We have one more telephone question from Kenny King from JPMorgan.
Please go ahead.
Kenny King
64:08 Hello. Thanks for presentation and thanks for the opportunity for asking question.
So, want to ask like there any potential target acquisition in a pipeline and the fact that you emphasized on dividend distribution and also debt payment. Does mean you don't see a sufficiently get target, so that you rather allocated capital otherwise?
Ahmed El-Hoshy
64:36 So, I mean it's a good question. I think when we think about growth CapEx, we're thinking about not just organic growth.
But in inorganic growth, we always keep energy the ground. I mean that's something that we would look at.
Now, what we do is we would look and see how does that compare where we're trading. How does that comparison to what type of synergies we can get out and something that comes up?
So, we're always open to it generally as we've provide CapEx guidance, it's not to be part of our capex guidance is it be more lumpy around something like that from an acquisition perspective if we do so and that includes also potentially logistics assets and things like that.
Kenny King
65:23 Okay. Thank you.
Ahmed El-Hoshy
65:23 Yes. Any other questions?
Operator
65:26 There are no further questions on the telephone lines, and I would like to hand back to the speakers if there are any closing comments. Thank you.
Ahmed El-Hoshy
65:34 Yes. Thanks all for joining this call.
Look forward to the speaking in the next quarter on behalf of Hassan, Hans, and myself and the OCI team. Thanks for continued interest.
Hassan Badrawi
65:45 Okay.
Operator
65:49 Ladies and gentlemen, the conference has now concluded. You may disconnect your telephone.
Thank you for joining and have a pleasant day. Goodbye.