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Highlights:
Revenues were $848 million and adjusted EBITDA $237 million in Q4 2019 versus $942 million and $269 million in Q4 2018 respectively, as an increase in volumes sold was more than offset by lower selling prices.
OCI-produced volumes sold increased 19% to 2.9 million metric tons in Q4 2019 versus Q4 2018.
Adjusted net loss was $43 million in Q4 2019 compared to adjusted net income of $17 million in Q4 2018.
Net debt was $4.06 billion as of 31 December 2019, unchanged from 30 September 2019, with an improved EBITDA from Q3 to Q4 offset primarily by a temporary increase in receivables and inventories of c.$115 million.
As part of the strategic review of the methanol group, the company has initiated a process with several interested parties that may result in a partial divestment or other structures.
Following an extensive planned turnaround schedule in 2019, the company expects a healthy increase in production and sales volumes in 2020, in addition to the full consolidation of Fertiglobe.
Statement from the Chief Executive Officer – Nassef Sawiris:
“Following a transition year and the completion of our capex expansion program in 2019, we have reached an inflection point and are fully focused on operational and commercial excellence across our platform in order to deliver on volume growth and free cash flow generation.
Our nitrogen operations were steady during the fourth quarter despite an environment of low selling prices, as results were supported by strong execution and low gas prices. We have already started to see a positive effect on onstream performance and cost efficiency from last year’s extensive turnaround program across our nitrogen operations, and in particular at our high-margin operations in the US and Algeria.
IFCo continued to set new record production levels in the fourth quarter and in the first quarter this year, and since the turnaround and debottlenecking program last summer the upstream plants have operated without interruption at a utilisation rate of about 115% of nameplate capacity on average. On the back of this strong performance, S&P and Fitch have both upgraded the rating on IFCo’s outstanding bonds by one notch, to BB- and B respectively.
In Algeria, following the conclusion of major turnarounds in 2019, all of Sorfert’s production lines ramped up during the fourth quarter, reaching record utilization levels by December. We are pleased that the plants have been running at high and stable asset utilization levels since then.
Our methanol business was affected by a combination of low methanol prices and unplanned shutdowns in the US during 2019, but should see an improved contribution in 2020 following a return to better production. Natgasoline resumed operations following the previously mentioned unplanned shutdown, for which an initial insurance payment for business interruption and repairs was received in November.
We also accelerated a planned turnaround at OCI Beaumont from the second quarter of 2020 to the fourth quarter to ensure improved performance going forward. During this comprehensive turnaround, we refurbished waste heat boilers, which were the primary cause of the repeated extended shutdowns last year. The ammonia plant restarted in the beginning of January and has been running at up to 104%, whereas the methanol plant restarted production mid-February and is currently running at around 112% of nameplate capacity and slowly ramping up further.
As a result of our initiatives, we expect to benefit from on average higher and more efficient asset utilization rates across our platform, the ramp-up of the new capacities in our methanol portfolio, as well as the full consolidation and realization of synergies of the Fertiglobe joint venture. We anticipate that this combination of factors should result in a healthy increase in our sales volumes in 2020.
Our priority remains to maximize free cash flow generation and we remain committed to our financial policy to deleverage towards 2x through the cycle, and we continue to evaluate our capital structure to identify further cost-effective refinancing opportunities.“
Outlook
Nitrogen
After a challenging 2019, global nitrogen markets are showing improving fundamentals supported by a combination of limited new capacity additions, expected increased acreage in the US this year, favourable farm economics for nitrogen and strong demand from key importing countries.
In the shorter term, we are well-positioned for the start of the 2020 spring season with a healthy order book and urea production almost sold out for the first quarter.
As a result of our advantageous location in the US Midwest, we expect to benefit from an expected improvement in demand in North America, driven by an anticipated return to normal planting conditions and an increase in planted acreage.
The European nitrates market has witnessed a better price environment than the UAN market in the United States in recent months and the outlook for this business remains positive.
We expect to continue to benefit from a positive outlook for Diesel Exhaust Fluid (DEF) in the United States, following a doubling of our product volumes in 2019.
In January, our joint venture N-7 finalized an agreement with Dyno Nobel to market their DEF, urea liquor and automotive grade urea in North America. This further strengthens N-7’s position as a major supplier, whilst providing additional geographic reach from a total of four sites across the United States.
Methanol
Methanol prices have risen steadily as a result of tighter global markets, and the current spot price in the US is up more than $100 per metric ton since reaching a trough last summer. USGC spot prices are also up almost 30% year-to-date.
While prices remain at levels below mid-cycle, the increases bode well for a better 2020 compared to 2019.
Against this price backdrop, we expect to benefit from the ramp-up of our new methanol capacity, as well as the normalization of production and improved onstream efficiency in 2020 compared to the low asset utilization rates in 2019 as a result of unplanned downtime.
Gas Markets
Natural gas prices have been beneficial to our operations during the fourth quarter of 2019 and we expect to continue to be a beneficiary of the low gas price environment in 2020 and beyond:
European and US spot natural gas prices dropped considerably during 2019 and have remained at attractive levels into 2020.
We believe there has been a structural shift in the European gas markets and expect prices to remain within a core bandwidth of $3 – 5 per MMBtu, barring any surprise weather shocks, as a result of increased Atlantic basin LNG exports competing with Russian imports into Europe. European natural gas spot prices are currently at the low end of this range.
In the US, Henry Hub benchmark prices have recently been at globally competitive prices below $2 per MMBtu, and the forward curve suggests prices will remain at low levels for the foreseeable future.