Statement from the Chief Executive Officer – Nassef Sawiris:
“We reported an improved result for the quarter despite lower selling prices as we delivered a step-up in operational performance and ramped up volumes by more than 60% during the quarter. We achieved this with an excellent safety record and best-in-class 12-month rolling recordable incident rate. In addition, production has to date not been disrupted by the COVID-19 crisis.
The nitrogen business was the main driver of the growth in sales volumes. Utilization rates of our nitrogen plants were significantly higher during the quarter than before their extensive turnarounds carried out in 2019, with particularly our Algeria and Iowa facilities reaching record rates.
We are also expecting our methanol production to reach higher utilization rates. Following a major turnaround, OCI Beaumont is already achieving steady production levels near its maximum potential since it restarted successfully in February. We expect methanol volumes to ramp up further after completion of an on-going turnaround in the Netherlands and Natgasoline improvement activities.
As a result, we maintain our forecast that we are on track to deliver robust volume growth in 2020.
All OCI’s products are regarded as vital by governments to ensure uninterrupted supply of food and other essential products for everyday life. Our team has made it priority to keep our plants running and provide critical inputs for the global food supply chain, at the same time ensuring the safety and well-being of our people, partners and communities under significantly enhanced safety measures.
Despite COVID-19 challenges across the globe, nitrogen demand is looking favourable for 2020. Our order book for the second quarter is healthy as the spring application season across our main end markets is developing well.
In the US, spring planting is ahead of last year with the latest USDA data showing corn planting currently more than 50% complete. We expect this, coupled with forecast record corn acreage, to result in a strong increase in nitrogen demand compared to 2019. Additionally, urea imports into the US are significantly below last year, which would imply ending the season with minimal carry-over inventory.
In Europe, the application season started towards the end of March. Weather conditions are currently optimal for growing crops which we expect to underpin strong demand in May and June in our core European nitrate markets. Similarly, Fertiglobe benefits from ongoing demand in major importing countries or regions for urea, such as Europe, South Asian & Pacific countries and our previous commitments to East Africa.
The methanol business, which represented c.14% of adjusted EBITDA in the first quarter, has seen a decline in methanol prices as a result of COVID-19 and the significantly lower oil prices in the past few months. However, there are a number of factors that can mitigate anticipated lower demand in the near term and support the balance in the market. Many marginal cost producers, particularly in China, are already operating well below cash costs and are expected to shut down if prices continue to stay low. In addition, existing production curtailments and postponements of key projects already announced by other producers eliminate supply and will also help offset weakness in global demand.
Furthermore, OCI is one of the lowest cost producers globally and maintains a solid competitive advantage with cash costs of production significantly below current methanol sales prices. We expect to remain a beneficiary of the current natural gas price environment in the US and Europe for the foreseeable future, especially in the Netherlands where the drop in natural gas prices this year has been the most pronounced.
Our priority remains to optimize free cash flow generation and we remain committed to our financial policy to deleverage towards 2x through the cycle, with timing to achieve this greatly dependent on the pricing environment.
In an environment of low selling prices, we are fully focused on what is within our control – operational and commercial excellence, volume growth and controllable costs. Our consolidated liquidity of around $1.3 billion as of the beginning of May, consisting of c.$550 million cash and c.$750 million undrawn committed facilities, is very healthy and has been helped by our strategic and refinancing actions over the past two years.