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OCI NV net loss narrows as higher volumes boost revenue

November 27/2020

MOSCOW (MRC) -- Methanol and nitrogen fertilizer producer OCI NV (Amsterdam, Netherlands) reports an adjusted net loss of USD67 million for the third quarter compared with an adjusted net loss of USD120 million in the same period last year. Revenue increased 19% year on year (YOY) to USD752 million and adjusted EBITDA jumped 79% to USD192 million, reported Chemweek.

A 30% YOY rise in sales volume to 2.8 million metric tons boosted revenue, the company says.

Industrial end markets for methanol strengthened significantly through the third quarter and into the fourth quarter, the company says. Nitrogen fertilizer prices have also improved, but the US nitrogen market remains challenged with prices at steep discounts to global benchmarks due to intense price-based competition for urea ammonium nitrate (UAN), and urea imports into the US priced below the point of origin, OCI says.

We reported another quarter of healthy volume growth in both our methanol and nitrogen segments, driving a material increase in adjusted EBITDA year over year, says CEO Ahmed el-Hoshy. We remain on track to deliver robust volume growth in 2020 and, as we reach run-rate production, we expect to benefit from a further step-up in volumes in 2021.

Hoshy confirms that the COVID-19 pandemic has not had a direct impact on OCIs operations, but our results were held back by significantly lower nitrogen and methanol prices compared to a year ago. However, we have recently started to benefit from an improving price environment, as global nitrogen markets enjoy positive tailwinds for the remainder of this year and into 2021 and the outlook for our methanol end markets has strengthened significantly, he says.

Worldwide urea prices have rebounded since reaching a trough in the second quarter and ammonia started to recover in October, according to Hoshy. However, US nitrogen prices are trading at severely discounted prices relative to global benchmarks. Despite being a deficit market, US urea imports continue to be priced below the point of origin in the Arab Gulf, a situation which could trigger antidumping investigations. UAN has been impacted by increased domestic volumes contributing to intense price-based competition in the US Gulf. Since July, it has been more favorable for Russia and Trinidad to export UAN to Europe inclusive of duties than to the US Gulf, he says.

OCI expects nitrogen fertilizer demand in importing countries to remain healthy, supported by rising corn prices. Ammonia prices have lagged urea, but have started to benefit from a recovery in industrial markets, high-cost capacity shutdowns, and higher feedstock prices, the company says.

Meanwhile, US methanol spot prices have roughly doubled since reaching a bottom below USD150/metric ton in June, OCI says. Rising utilization rates of methanol-to-olefin (MTO) plants in China on the back of healthy MTO economics versus naphtha crackers have been a key driver of a rebound in methanol demand, it says.

The outlook for downstream demand for methanol has improved, with fuel consumption picking up, and a gradual return of industrial and construction activity worldwide, it says. Following record methanol production for OCI in the third quarter of 2020, normalization of production and improved onstream efficiency is expected to drive volume growth in the second half of 2020 and in 2021, the company says.

Separately, OCIs board has formally ratified a decade-long group policy to not produce, sell, or trade solid ammonium nitrate (AN) and has committed not to do so in any future partnerships or transactions. Given the increasing concerns surrounding the explosive nature of AN, the product is easily substituted by much safer other nitrogen products, the company says.

As MRC informed earlier, worldwide demand for methanol is forecast to expand at rates below GDP growth for the first time, said Mike Nash, vice president/syngas chemicals at IHS Markit. Speaking last Tuesday in a panel session at the 38th World Methanol Conference, being held by IHS Markit in a virtual format, Nash said that global methanol demand is predicted to grow on average 2.8%/year during the next 10 years, lagging world GDP growth of 3.2%/year. The methanol market is at a turning point, Nash said. The current and forecast lower crude oil price means less demand for methanol from the fuels industry, according to Nash. Meanwhile, low crude prices are helping to weaken the economics of methanol-to-olefins (MTO) production. Growth in MTO capacity in China has kept methanol demand growth above GDP growth in recent years, Nash said. MTO plants have operated at high rates and generated high margins in 2020, but there is a challenging time to come, he said.

We remind that in early September 2020, Ningxia Baofeng Energy Group Co. (Baofeng Energy) selected KBR's proprietary cracker technology for its new methanol-to-olefins (MTO) project to be built in Ningxia, China. Under the contracts, KBR will provide process technology licensing and process design packages for Baofeng Energy's 500,000-t/y coal-to-olefins facility and its 500,000-t/y C2-C5 comprehensive utilization project. Once complete, the complex will be the "largest" single-train MTO plant in the world, KBR noted.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
Author:Margaret Volkova
Tags:Europe, PP, PE, PP random copolymer, propylene, HDPE, ethylene, gas processing, fertilizers, petrochemistry, Ningxia Baofeng Energy, OCI Company, China, Russia, USA.
Category:General News
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