On Sep 26, we issued an updated research report on leading methanol producer Methanex Corporation (MEOH). While the company is well placed to gain from capacity expansion and healthy methanol demand, it remains exposed to natural gas curtailment issues.
Methanex saw its revenues and profit rise year over year in the second quarter of 2014, reported on Jul 30, on higher methanol pricing. However, both sales and adjusted earnings missed Zacks Consensus Estimates. The company expects methanol pricing to be stable in the third quarter.
Methanex is the world’s largest supplier of methanol. The methanol industry and its pricing environment appear attractive in the longer term as global demand is expected to surpass new capacity additions. Despite the global economic weakness, demand for methanol remains healthy driven by energy-related applications in Asia, particularly in China. Methanex estimates total methanol demand of roughly 57 million tons on an annualized basis.
Methanex has taken up a number of steps to boost capacity. The company is progressing with the relocation of two Chile facilities to Geismar, LA (Geismar I and Geismar II). The company expects to produce methanol from the Geismar 1 facility in late 2014 and from the Geismar 2 facility in early 2016. The Geismar project is expected to create significant value for its shareholders.
With continued initiatives to increase production in New Zealand and Medicine Hat (Canada) and progress in the Louisiana project, Methanex has the potential to increase its operating capacity by nearly 3 million tons by 2016, which in turn, will contribute to cash generation and increased supply to customers.
However, Methanex may continue to face headwinds due to curtailment of gas supplies, impacting its production. Short-term natural gas curtailment issues are expected across Methanex’s Chile, Trinidad and Egypt operations.
Methanex, last month, said that it expects higher gas curtailments in Trinidad in the second half of 2014 than what was seen during the first half. The company expects gas supply to be curtailed at its two Trinidad facilities – Titan and Atlas – and sees curtailments at these plants to be in the range of 20% for the second half.
Moreover, Methanex is exposed to volatility in methanol pricing. Methanol prices depends on a number of factors such as economic health, operating rates, global energy prices, new supply additions and demand.
Key Picks from the Sector
Other companies in the chemicals space worth a look include LyondellBasell Industries N.V. (LYB), PPG Industries Inc. (PPG) and Valhi, Inc. (VHI).
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