Methanex Corporation (MEOH - Analyst Report) , the world’s largest supplier of methanol, reported net income of $64 million or 68 cents per share in the fourth quarter of 2011 versus $64 million or 27 cents per share in the year-ago quarter. Earnings exceeded the Zacks Consensus Estimate of 57 cents per share.
For the full-year 2011, Methanex earned $201 million or $2.06 per share compared with earnings of $96 million or $1.03 per share in 2010.
Quarterly revenues of $6.96 billion exceeded year-ago revenues of $5.70 billion. Sales volumes in the quarter totaled 1,904 thousand tonnes compared with 1,890 thousand tonnes in the year-ago quarter. Higher methanol pricing and higher production due to the start up of the Egypt and Medicine Hat plants led to increased volumes in the reported quarter. Total production in the quarter amounted to 961 thousand tonnes compared with 913 thousand tonnes in the prior-year quarter.
Chile: During the reported quarter, the company produced 113 thousand tons in Chile operating one plant at approximately 40% capacity versus 208 thousand tons in the prior-year quarter. The company operated its methanol facilities in Chile, significantly below the site capacity due to curtailed natural gas supplies from Argentina.
The company aims to increase its production at Chile, while generating natural gas from suppliers in Chile. For this, the company is working with Empresa Nacional del Petroleo (ENAP), the state-owned energy supplier, GeoPark Chile Limited (GeoPark) and others to help it to increase natural gas exploration and development in southern Chile.
Methanex is working with ENAP to develop natural gas in the Dorado Riquelme block. GeoPark also supplies natural gas sourced from the Fell block under a ten-year exclusive supply arrangement that commenced in 2008. During the fourth quarter of 2011, natural gas supplied from the Fell and Dorado Riquelme blocks aided about 75% production at the Chilean facilities.
The short-term outlook for gas supply in Chile continues to be challenging and the company is assessing the viability of other projects to increase the utilization of the Chilean assets. The company bought land in Geismar, Louisiana and is moving ahead with site-specific engineering works. It expects to make a final investment decision in the third quarter of 2012 and the plant is anticipated to be operational in the second half of 2014.
Trinidad: In the fourth quarter of 2011, production stood at 195 thousand tonnes compared with 266 thousand tonnes in the year-ago quarter. Among the company’s facility, Atlas operated at 70% capacity throughout the fourth quarter as a result of an equipment failure in July 2011. Production suffered in the quarter due to lower gas deliveries and outages for minor repairs. The company experienced upstream outages at its Tiffany facility due to which there was reduced supply of natural gas. The company expects to continue to face natural gas supply restriction in the near term. However, currently it is trying to find a solution for this problem.
New Zealand: During the fourth quarter of 2011, Methanex produced 211 thousand tons versus 206 thousand tons in the year-ago quarter.
The company expects to restart a second Motunui facility in mid-2012, which will add up to 650 thousand tonnes of additional capacity per annum to its operations in New Zealand. The company entered into a ten-year gas supply agreement, which is expected to supply up to half of the 1.5 million tonnes of annual capacity at the Motunui site.
Egypt: Methanex has a 60% interest in the facility and has marketing rights for 100% of the production. In the reported quarter, the Egyptian methanol facility produced 132 thousand tons.
Medicine Hat- The facility produced 130 thousand tons in the fourth quarter of 2011. The company has a program to purchase natural gas from the Alberta gas market and expects the long-term natural gas dynamics in North America to support the long term operation of this facility.
Consolidated cash flows from operating activities in the fourth quarter of 2011 were $158 million compared with $13 million for fourth quarter of 2010.
Cash and cash equivalents were $35.07 billion as of December 31, 2011 compared with $19.38 billion as of December 31, 2010.
The company does not see any significant movement in demand despite continued economic uncertainty. It also expects prices to remain stable in the first quarter of 2012. However, the company believes that methanol price will depend on the strength of the global economy, industry operating rates, global energy prices, new supply additions, the rate of industry restructuring and the strength of global demand.
As part of its strategy to strengthen its position as the global leader in the production and marketing of methanol, Methanex intends to continue pursuing new opportunities to boost its strategic position in the methanol industry. However, Methanex faces stiff competition from Celanese Corp. (CE - Analyst Report) and Eastman Chemical Co. (EMN - Analyst Report) .
Currently, Methanex has a Zacks #3 Rank, which translates to a short-term (1 to 3 months) “Hold” rating. Currently, we are maintaining a long-term (more than 6 months) “Neutral” recommendation on the shares of the company.