Struggle Continues for Methanex

Headquartered in Vancouver, Canada, Methanex Corporation (MEOH - Analyst Report), the world’s largest supplier of methanol to major international markets in North America, Asia-Pacific, Europe and Latin America is scheduled to release second quarter results on July 28, after the market opens. 

Methanex has not provided any guidance for the second quarter. However, it expects the global economic slowdown to continue to impact its business. The company expects methanol prices to remain relatively stable during the second quarter. In April 2009, Methanex’s average non-discounted price across all of the major regions was about $210 per ton. In its first quarter, Methanex reported a net loss of $18.4 million or $0.20 per share on a diluted basis. 

Methanol, a chemical, is a blend of 68% natural gas and 32% coal. About 80% of all methanol output is used in the production of formaldehyde, acetic acid, and a variety of other chemicals, demand for which is influenced by the levels of global economic activity. These chemical derivatives are used in the manufacture of a wide range of products including plywood, particleboard, foams, resins, and plastics. The remainder of the methanol demand largely stems from the energy sector for the production of methyl tertiary-butyl ether (MTBE), a gasoline component and a direct fuel for motor vehicles. Markets are also developing for the use of methanol for manufacturing bio-diesel and dimethyl ether (DME), in power generation, and in other applications. 

The methanol industry is a concentrated market. The top 6 producers account for nearly half of the global sales, with Methanex alone controlling nearly 15% of the market. In order to enhance this position, Methanex is constructing a 1.3 million ton per year methanol facility at Damietta on the Mediterranean Sea in Egypt. It expects the facility to be commercially viable in 2010. Methanex owns 60% of Methanex Methanol Company S.A.E. based in Egypt, which is developing the project. The company intends to sell 100% of the methanol produced by the facility through this Egyptian company. The company had completed 80% of the project by the first quarter of 2009. To boost production, Methanex restarted one of its two idled 900,000 ton per year facilities at Motunui, New Zealand, in early October 2008. The restart has added 450,000 tons of annualized methanol production to the company’s asset base. 

Lower methanol demand and pricing as well as an increase in worldwide inventories due to the global economic crisis are negatively affecting the company. Going forward, the company expects annualized industry demand for Methanex to be approximately 40 million tons, about 10% below the 2008 level. We rate the stock a Hold.