They sometimes say that farmers always complain, but the current fertilizer prices now also give them a legitimate reason. Major producers such as Russia and Ukraine stopped exporting fertilizers and, under the influence of the increased gas prices, some fertilizer producers in Europe even closed factories.
OCI Nitrogen is located at the Chemelot industrial complex in Geleen, Limburg. It is part of OCI NV, an originally Egyptian company, now a concern with various subsidiaries in the chemical production. In Geleen, OCI produces, among other things, ammonia and urea: nitrogen compounds that are used as fertilizer. The subsidiary BioMCN, producer of methanol and biomethanol, is located in Delfzijl. The group also has factories in the Middle East and the US.
Since 2013, OCI has been listed on the Amsterdam stock exchange. For years the share value fluctuated around 20 euros. Shortly after the corona pandemic broke out, the price plummeted to 8 euros. But this year OCI is one of the best-performing stocks in the Midcap: from 23 euros at the beginning of January, the price rose by almost 70 percent: to 39 euros in April. “In the fourth quarter of 2021, OCI made a huge amount of money,” says Henk Veerman, analyst at investment bank Kempen.
On Thursday, the chemical company will present the figures for the first quarter of 2022 and Veerman expects excellent results again. “The large free cash flow allowed OCI to pay off a large part of its debt or negotiate new terms.”
This means that the company will have lower interest costs in the coming years. OCI also announced that it would pay a large dividend. These are all reasons why the stock price rose sharply.
Urea as standard
The fact that OCI earns so much money is mainly due to the enormously increased fertilizer prices. „Fertiliser is a commodity”, says Veerman. “The price is set elsewhere, and producers like OCI have to count on that.” To show how extreme the increase is, Veerman points to the price of urea, which is the generic standard for fertilizer prices. “Since early March, a tonne of urea has cost more than $1,000. Ten years ago, it was around $300. So that price has almost quadrupled.”
But what about the costs? A lot of natural gas is needed to make fertilizers. Veerman: “The gas price has of course also risen enormously in recent months, but a large part of OCI’s portfolio still benefits from relatively favorable prices that are fixed in contracts for a longer period of time.” And of course gas is very expensive in Europe, but its price in the US and the Middle East, for example, is much more favorable. That makes the profit margins on OCI production there very high.
Ultimately, in line with the western trend towards sustainability, OCI does want to get rid of natural gas. At least partially. Hydrogen is then the alternative to natural gas in the production of ammonia and methanol. The end of March OCI presented itself as a purchaser of NortH2, a consortium that wants to produce ‘green’ hydrogen in Eemshaven from 2030. This is done with electricity from offshore wind farms.
Sustainably produced methanol and ammonia are seen as clean fuels in the future, for example for shipping. It is certain, however, that converting the OCI factories to make them suitable for hydrogen will be a costly affair, says Veerman. “But it is certainly the right investment for the future.”
A version of this article also appeared in the newspaper of May 9, 2022