All Posts from December 22, 2023

OCI to Sell Iowa Fertilizer Co. to Koch for $3.6 Billion

ADNOC - Abu Dhabi, Ammonia, Blue Ammonia, Featured, Nitrogen, U.S., UAN, Urea

OCI Global announced on Dec. 18 that it has entered into a binding equity purchase agreement for the sale of its Wever, Iowa-based Iowa Fertilizer Co. LLC (IFCo) to Koch Ag & Energy Solutions LLC (KAES) for $3.6 billion on a tax-free basis, subject to a customary cash, debt, and normalized level of working capital adjustment.

OCI is selling 100% of its indirect equity interests in IFCo and said the agreement follows a highly competitive process “with multiple rounds” and a strategic review launched earlier this year. The transaction does not require the approval of OCI shareholders and the company sees little regulatory risk to the sale.

The transaction is OCI’s second in less than a week. On Dec. 15, the company announced a binding agreement to sell its entire 50% + 1 share stake in its Abu Dhabi-based joint venture Fertiglobe Plc to UAE state-owned oil giant Abu Dhabi National Oil Co. (ADNOC), which already owns a 36.2% stake in the jv (GM Dec. 15, p. 1).

Responding to analyst questions at a company Investor Day call on Dec. 18 whether more asset sales can be expected, OCI CEO Ahmed El-Hoshy confirmed the company’s strategic review is now completed, and there would be no further asset disposals in the short term.

The Fertiglobe and IFCo sales, which remain subject to customary closing conditions and anti-trust approvals in their respective jurisdictions, will bring in $7.2 billion in tax-free gross cash proceeds for OCI. OCI expects the IFCo transaction to close around mid-2024 while the Fertiglobe deal is also expected to close in 2024.

The proceeds from the two sales will be used to significantly reduce holding company net debt, OCI said. The company’s net debt stood at $2.3 billion as of Sept. 30, 2023. OCI said it will continue to receive cash flows from IFCo until the transaction with Koch closes.

OCI launched its strategic review in March, with the objective of closing the discount to OCI’s intrinsic value and unlocking value for its shareholders. The review followed a request by one of its largest shareholders, activist investor Jeff Ubben of Inclusive Capital Partners, which owns 5% of OCI. Ubben urged OCI to explore strategic options, including asset sales, especially for its IFCo unit, amid shareholder concerns about the company’s stock prices.

Net proceeds after debt and closing adjustments, including transaction costs, are estimated to be in the €2.5-€2.6 billion range (approximately $2.7-$2.8 billion at current exchange rates), El-Hoshy told analysts and investors on Dec. 18. There is about $1 billion of debt and other adjustments related to the IFCo transaction.

“The transaction is expected to result in a reduction in holding company net debt and to allow for the return of capital to shareholders, which will be considered within the context of OCI’s capital returns framework and also will provide some firepower for potential continued growth, and if it makes sense, future investments,” he said.

OCI CFO Hassan Badrawi said the IFCo and Fertiglobe transactions unlock the equivalent of approximately €27 per share for OCI, notwithstanding the company’s continuing business. Badrawi said OCI has not yet discussed the detailed use of the sales proceeds in the wake of the two transactions, but he emphasized the company will have a well-capitalized balance sheet and a reduction of debt, in addition to a meaningful return of capital to shareholders through what they believe are tax efficient avenues available to them.

Commissioned in 2017 as a large-scale greenfield nitrogen fertilizer facility at a cost of $3 billion, IFCo has 195,000 mt/y of sellable anhydrous ammonia capacity, and production capacity for 1.5 million mt/y of UAN and 420,000 mt/y of urea. The plant also has diesel exhaust fluid (DEF) production capacity, which has increased from the original 315,000 mt/y to over 1 million mt/y, with the potential to achieve 1.3 million mt/y, OCI reported in February (GM Feb. 17, p. 33).

“We began developing IFCo in 2012, and at the time, it was the first greenfield nitrogen fertilizer plant to be built in 25 years. It revitalized the nitrogen fertilizer industry in the US Midwest, particularly since we focused on developing the surrounding region’s distribution logistics infrastructure to support the Midwest agricultural industry,” El-Hoshy said.

“As IFCo reached maturity with steady operating rates, we concluded it would be better served by a nitrogen-fertilizer focused company that can steer IFCo through its next phase of growth, and we launched a competitive process to unlock the intrinsic value of an unappreciated asset within OCI’s overall valuation” he added.

“Today’s announcement is an important step forward for KAES as we continue to invest in our fertilizer business,” said KAES President Mark Luetters. “This investment complements our existing business, and we look forward to advancing this transaction with OCI to completion.”

Once all closing and regulatory conditions are met, Koch said the Wever facility will be added to the existing Koch Fertilizer portfolio, which produces, markets, and distributes nitrogen fertilizers, DEF, and phosphate fertilizer products.

“We are excited about the opportunity the Wever plant will provide us to better serve existing and new customers with expanded products and services,” said Koch Fertilizer Executive Vice President Scott McGinn.

Neither Koch nor OCI confirmed whether the sale of IFCo includes any offtake agreements from the plant, including whether OCI would retain its share in N-7, the joint-venture marketing agreement between OCI, Dakota Gasification Co., and Dyno Nobel Inc. reached in December 2019 (GM Dec. 6, 2019).

“More details around N7 and how it will look post-transaction will be provided during the regulatory approval period,” El-Hoshy said. A three-year renewal of the N-7 marketing agreement was reached in November 2021 (GM Dec. 2, 2021).

OCI will retain two business hubs in the Netherlands and Texas after the IFCo and Fertiglobe sales. These include nitrogen fertilizer, methanol, and melamine production assets at its OCI Nitrogen site in the Netherlands. According to the Green Markets database, the site has 1.1 million mt/y of ammonia, 1.2 million mt/y of CAN, and 0.73 million mt/y of UAN capacity. The company is also adding CAN plus S to its product portfolio there.

OCI is also developing 300,000 mt/y of AdBlue/DEF production capacity at its Dutch production facilities (GM Feb. 17, p. 33), and is expanding its ammonia import capacity at the port of Rotterdam from roughly 400,000 mt/y to up to 1.2 million mt/y (GM June 17, 2022), which the company said will provide “the ability to distribute ammonia into the Dutch markets and Western European markets.”

OCI’s ammonia and methanol production facilities in Beaumont, Texas, include 0.3 million mt/y of ammonia capacity, according tothe Green Markets database. The company is also developing a 1.1 million mt/y blue ammonia facility at Beaumont, which it said is on track to start production in 2025 (GM Nov. 10, p. 27).

OCI believes the company’s continued business after the two transactions will generally have $600-$700 million of mid-cycle EBITDA.

“Today’s announcement marks an evolutionary step in our journey to create value for shareholders, and to enhance our focus on efforts in lower carbon initiatives,” said OCI Executive Chairman Nassef Sawiris. “Our strengthened balance sheet will support the acceleration of our strategy in the field of decarbonization projects, driving future growth and supporting the energy transition goals we share with many of our stakeholders, establishing us as a leader in the low carbon space.”

Green Markets Research Director Alexis Maxwell said the IFCo purchase price equates to $3.60 per unit of nitrogen and reflects a 58% premium to the Dec. 1 purchase by CF Industries Holdings Inc. of the 880,000 st/y Waggaman, La., ammonia production complex from Incitec Pivot Ltd. (GM Dec. 1, pg. 1).

“This reflects higher per-ton pricing for the upgraded fertilizers (urea, UAN, DEF) sold at Wever,” Maxwell said. She noted that CF expanded its US ammonia market share to 44% with the Waggaman deal, while Koch’s share of total US ammonia capacity will rise from 11% to 15.7% with the IFCo purchase.

Mosaic Diverts Vessel from Red Sea; Shipping Grinds to a Halt Amid Stepped Up Attacks

Africa, Brazil, Featured, Norway, Saudi Arabia, U.S.

The Mosaic Co. had a vessel enroute from Saudi Arabia to New Orleans that was diverted from the Red Sea, Bloomberg reported on Dec. 18, citing Ben Pratt, Mosaic Senior Vice President, Government and Public Affairs. No other details were available.

Shipping in the Red Sea is grinding to a halt with oil tankers idling and container vessels rerouting around Africa as violence linked to the Israel-Hamas war threatens to undermine the global economy. BP has halted all shipments of oil and gas through the Red Sea, citing a “deteriorating security situation” due to missile strikes on cargo ships by Houthi militants in Yemen.

More than 100 container ships are now taking the long route around Africa to avoid violence, creating extra costs and delays, according to Swiss logistics giant Kuehne+Nagel International AG. Some 55 merchant ships entered or left the Red Sea on Dec. 16-17, according to data compiled by Bloomberg. That is down 35% from the start of the month.

European natural gas prices have surged amid the most concrete sign yet of a disruption to energy flows since the start of the war in Gaza. The Red Sea attacks are threatening a trade corridor through which about 12% of seaborne commerce normally passes, and are happening at a time when the world’s other vital ocean-to-ocean waterway – the Panama Canal – is being severely restricted by drought.

“Rising uncertainty in the Suez channel, combined with the global economy rebounding because of easier financial conditions, could put upward pressure on goods inflation over the coming months,” said Apollo Global Management Chief Economist Torsten Slok.

However, after three days of advancing, Bloomberg reported on Dec. 21 that oil prices had edged lower as traders weigh surging US production against a disruption in the OPEC cartel and the Red Sea threat. West Texas Intermediate slipped below $74 a barrel after a three-day advance, with sentiment worsening after Angola announced its exit from OPEC.

Oil traders continue to see signs that supply remains ample as US crude output hit a record of 13.3 million barrels a day last week, according to government data. Oil is still set for the first annual decline since 2020, as booming production from the US, Guyana, and Brazil offsets output cuts by Saudi Arabia and OPEC.

The Iran-backed Houthis say they are targeting any vessel with a connection to Israel as a response to the country’s war with Hamas. The alleged links between Red Sea vessels and Israel have appeared increasingly tenuous as the attacks increase, however.

The owner of the tanker Swan Atlantic, which was attacked by a drone and an anti-ballistic missile on Dec. 18, said there was no such connection. The tanker was transporting biofuel feedstock to Reunion Island from mainland France when it came under attack.

“There is no Israeli link in the ownership (Norwegian), technical management (Singapore) of the vessel, nor in any parts of the logistical chain for the cargo transported,” said Norwegian investment company Rieber & Son.

Separately, bulk cargo ship M/V Clara was targeted the same day, but no damage was reported, according to the US Central Command.

An Israeli-linked chemical tanker carrying a cargo of phosphoric acid from Morocco to Asia was seized in a suspected piracy incident on Nov. 26 in the Gulf of Aden, about 30 nautical miles off Yemen’s southern coast (GM Dec. 1, p. 1). The vessel and crew were reported safe later that day following intervention by a US Navy warship.

The London-based Joint War Committee, which advises Lloyd’s marine insurance underwriters on risk, on Dec. 18 expanded the portion of the Red Sea that it considers to be part of the world’s riskiest waters. That means the amount of time that ships need cover against war risks will increase. The cost of such cover has surged almost 10-fold since the attacks first began.

Already rates to ship goods in containers from Asia to the Mediterranean are rising. According to Freightos.com, a booking and payments platform for international freight, the rate for that route through Suez as of Dec. 17 was $2,414 for a 40-foot container, up 62% since the end of November.

“The situation does mean an increase to shipping costs and some short-term delivery delays,” said Henning Gloystein, a director at research firm Eurasia Group. “All these costs will be directly passed on to consumers.”

Israel’s Eilat Port has seen an 85% drop in business since the stepped up Houthi attacks, according to the Jerusalem Post, citing the Port CEO Gideon Golber on Dec. 21. The port, which is adjacent to Jordan’s Aqaba Port, allows vessels to avoid the Suez Canal, but requires navigation through the Red Sea.

Eilat mainly exports potash from the Dead Sea and imports automobiles. Golber said it still has ships to export potash but they will not be able to go through the Red Sea. An alternative route via the Mediterranean and around Africa would add extra costs and up to three weeks.

“This is an international challenge that demands collective action,” Secretary of Defense Lloyd J. Austin said on Dec. 18. The UK, Canada, France, and others have agreed to create a naval task force to counter attacks on ships in the region. John Kirby, spokesman for the National Security Council, told reporters that talks will be about reinforcing “an existing maritime force under the Fifth Fleet in Bahrain.”

The Houthi rebels have vowed to continue targeting ships if the US moves to compile an international naval task force, however. The group also warned Washington that it is willing to retaliate if the US opts for military attacks on Houthi bases.

“We’re seeking to develop our military capabilities to overcome any obstacles and reach our targets,” Houthi leader Abdul Malik al-Houthi said in a televised speech on Dec. 20. If the US attacks Yemen, “we will target it” by firing missile and drones at US battleships and other vessels, he said.

Over the weekend, the US and UK navies shot down 15 drones launched from Houthi-controlled areas of Yemen. While the US is considering military action against the Houthis, it still prefers a diplomatic solution, Bloomberg reported.

Saudi Arabia supports a measured approach to the crisis to prevent the Houthis becoming more aggressive, said a member of the Saudi team negotiating with the Yemeni group. That could imperil a fragile truce in Yemen’s war and scuttle the kingdom’s attempt to reach a permanent cease-fire, the person said.

The Houthis have repeatedly proven their ability to disrupt or damage crucial infrastructure in Saudi Arabia and the United Arab Emirates. The most devastating attack came in 2019, when they briefly knocked out half of Saudi Arabia’s oil production with a drone strike on a crude-processing plant (GM Sept. 20, 2019). Since the truce with the Saudis in early 2022, they have largely refrained from firing drones and missiles against regional neighbors.

Unless the US bombs the Houthis’ missile launch sites, radars, airfields, and boats, its efforts to combat the threat to shipping will not be effective, said Riad Kahwaji, Founder of INEGMA, a Dubai-based security research group.

“If it’s only about escorting ships, it’s going to have very limited effectiveness, because you’re going to need to have a destroyer or frigate accompany every single ship going through in either direction,” he said.

Until the naval coalition eventually “shows its teeth, the Red Sea situation will continue to have an outsize influence on oil players’ thinking,” said Tamas Varga, an analyst at broker PVM Oil Associates Ltd.

IPL May “Walk Away” From Fertilizer Deal

Australia, Featured, Natural Gas

Incitec Pivot Ltd. (IPL) Chairman Greg Robinson has cited “complications” in negotiations for the proposed A$1.5 billion sale of the company’s fertilizer business, Incitec Pivot Fertilisers (IPF), to Indonesia’s state-owned fertilizer producer Pupuk Kaltim, according to the Australian Financial Times, saying IPL may opt to “walk away” from the deal.

IPL has been in negotiations with Pupuk Kaltim since last summer (GM Aug. 11, p. 1; July 28, p. 1) and shedding the fertilizer unit has been under consideration for some time (GM Sept. 6, 2019).

“The negotiation, like all commercial negotiations is, it’s mature, it’s got complications, and our objective is, in the very near term, to complete or walk away from that,” the Australian Financial Times quoted Robinson telling shareholders at the company’s annual meeting on Dec. 20.

Regardless, he said it is IPL’s plan to focus on its explosives business, Dyno Nobel, and eventually exit fertilizer. He said a planned share buyback program will not occur until IPF is sold.

Analysts have suggested several possible sticking points to the sale of IPF (GM Aug. 11, p. 1), including availability and supply of natural gas and sulfur for the company’s Phosphate Hill ammonium phosphate plant; gaining approval from Australia’s Foreign Investment Review Board for the sale of Australia’s only phosphate producer; and farmer fears that the Australian phosphates might go to Indonesia instead of Australia.

BASF to Carve Out Ag, Battery Units; New CEO Named

Asia, China, Europe, Featured, Germany

BASF on Dec. 7 announced that it plans to make its agriculture solutions and battery materials businesses legally independent by 2026 to give them more freedom and bolster profits, as both have come under pressure in Europe’s energy crisis.

“We want to raise the profile of these business units and steer them more strongly with their own performance indicators,” CEO Martin Brudermüller told reporters. “It is a measure to boost their performance; we have no intention to sell them.”

The separation of the two units, which employ a combined 2,500 people in Germany, follows the example of the successful coatings division, which has operated independently since 2010.

Europe’s biggest chemicals maker has doubled down on slashing operating costs after reporting falling earnings as the industry struggles with high energy prices and waning demand. The manufacturer is reducing investments by €4 billion ($4.3 billion) over the next four years to deal with the headwinds.

BASF also said it will change its short- and mid-term forecasting performance indicators from next year. The company will be focusing more on cash generation while also adapting the steering of its individual businesses.

BASF announced on Dec. 20 that current Asia Head Markus Kamieth, 53, will take over from Brudermüller in April. Brudermüller, 62, has been in the post since 2018 and his contract is due to run out early next year. He will become the Non-Executive Chairman at Mercedes-Benz.

Kamieth, a chemist, has worked at BASF since 1999 and has been running the Asia region for the past three years. It is the market Brudermüller focused on, with a €10 billion factory currently under construction in Zhanjiang, China.

The incoming CEO will have to tackle issues weighing on BASF in its home region, Warburg analyst Oliver Schwarz told Bloomberg. “BASF has considerably higher energy and raw materials costs in Europe than competitors,” Schwarz said. “Kamieth will need to work on raising profitability from the start, and this will not be easy as structural disadvantages in Europe are not going to disappear.”

Germany’s chemical producers see the industry still mired in a deep recession with a recovery unlikely to take hold before 2025, the German Chemical Industry Association VCI said last week. According to a survey, nearly one in 10 respondents said they were permanently closing production processes due to challenging industry prospects in the country.

BASF is borrowing $1.5 billion worth of privately placed debt, Bloomberg reported this week, citing people with knowledge of the matter. Energy-intensive manufacturers in Germany were particularly hard hit by last year’s energy crisis and are still struggling to ramp up production amid subdued demand.

Brazilian Port Considers $62 Million Expansion

Brazil, Featured, Grains, Green Ammonia, Green Hydrogen, Russia, U.S.

Prumo Logistica, the investment group behind Brazil’s Porto do Açu, is looking to spend 300 million reais ($62 million) to expand the port’s footprint in the agriculture sector with facilities that export grain and import fertilizer, according to Bloomberg. Prumo Logistica is seeking to combine grain exports with fertilizers imports, which would reduce freight costs to customers.

The port is heavily involved in oil and iron ore exports and is preparing to become a hub for offshore wind and green hydrogen and ammonia (GM March 19, 2021). The port earlier this summer signed a partnership with Japanese-Brazilian company Toyo Setal to jointly develop a nitrogen fertilizer plant at the port site in São João da Barra, in northern Rio de Janeira (GM July 14, p. 1).

The new funding would go to build a terminal that would have an annual capacity of 3 million mt/y of grain. The move is a bid to capture the market for crops transported by road, according to Rogerio Zampronha, CEO of Prumo Logistica, the holding company that owns Açu and is a joint venture between private equity firm EIG Global Energy Partners and Abu Dhabi’s sovereign wealth fund Mubadala Investment Co.

Brazil has recently overtaken the US as the world’s largest corn and soybean exporter. Additional investments in the nation’s port terminals are considered key to avoiding congestion like the one seen this year as the country produced record volumes of corn, soybeans, and sugar. 

Porto do Açu started operations in 2014 and was designed by former billionaire Eike Batista. Grain shipments through Porto do Açu made some initial gains in 2023, moving grain and oilseed cargoes of about 150,000 mt for clients such as Russian trading firm Sodrugestvo Group. Zampronha also cited the potential expansion of a railroad to Porto do Açu, which would increase annual grain volumes to about 16 million mt in the future. 

A final investment decision is expected during the first half of 2024, Zampronha said, and it will take an additional 18 months after that to get the new terminal up and running.

Mosaic P&K Volumes Up, Revenues Down

Brazil, DAP/MAP, Mono-Ammonium Phosphate, News Briefs, Phosphate, Potash

The Mosaic Co. reported increased sales volumes and lower revenues for its Potash and Phosphate segments for the October/November timeframe versus the year-ago period.

Potash volumes were 1.64 million mt, up from the year-ago 1.25 million mt, while revenues were off at $506 million from $780 million. Fourth-quarter sales volumes and potash prices at the mine are expected to be near the low end of previous guidance of 2.4-2.6 million mt and $235-$260/mt, respectively.

Phosphate volumes were 1.02 billion, up from 914,000 mt, while revenues slipped to $677 million from $785 million. Fourth-quarter sales volumes are expected to be near the low end of previous guidance of 1.6-1.8 million mt, with realized DAP prices at the plant to be within previous guidance of $530-$580/mt.

Sales volumes for Mosaic Fertilizantes were off at 1.47 million mt from 1.52 million mt, while revenues dipped to $811 million from $1.24 billion. Mosaic said dry weather conditions pose risks to Brazil fertilizer shipments in the fourth quarter.

Ammonia Injured Released from Illinois Hospital

Ammonia, News Briefs, U.S.

The two remaining hospitalized victims of the Sept. 29 Teutopolis, Ill., tanker truck accident that killed five and injured at least 11 (GM Oct. 27, p.25, Oct. 6, p. 1) have been released from the hospital, according to the Effingham Daily News, citing County Coroner Kim Rhodes.

Rhodes said that while one of the two victims had been taken off dialysis, they are still struggling with some eye issues. Both are said to be experiencing lingering health issues due to anhydrous ammonia exposure.

Disclaimer of Warranty
All information has been obtained by Green Markets from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Green Markets or others, Green Markets does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.

For additional details visit our Terms of Use.