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We have reaffirmed our Neutral recommendation on leading methanol producer Methanex Corporation (MEOH - Analyst Report). While the company is poised to gain from capacity expansion and its Geismar methanol project, it remains exposed to natural gas curtailment issues and weakness across end markets.

Why Retained?

Methanex had a drab fourth-quarter of 2012 with both revenues and adjusted earnings missing the Zacks Consensus Estimates. The company turned to loss on a reported basis, hit by a hefty asset impairment charge. Operating rates were lower-than-expected across a number of plants.

Methanex feels that 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.

The company’s healthy financial position, strong global supply network and competitive-cost position is expected to strengthen its position as the global leader in the methanol industry and enable it to continue to deliver incremental returns to shareholders.

Methanex has taken up a number of steps to boost capacity. We are also optimistic about its Geismar, La., project which is expected to create significant value for its shareholders and meaningfully contribute in cash generation.

However, Methanex may continue to face headwinds due to gas supply constraints and weak spending across its end markets. Restricted supply of natural gas affected its operations in Chile, Trinidad and Egypt in the fourth quarter. Although Methanex is trying to resolve the issue, it expects the problem to continue in the near term.

Methanex currently carries a short-term (1 to 3 months) Zacks Rank #3 (Hold).

Other Stocks to Consider

Other companies in the chemical industry worth considering are Arkema S.A. (ARKAY), BASF SE (BASFY) and PetroLogistics LP . All of them hold a Zacks Rank #1 (Strong Buy).

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