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Methanex Sees Coronavirus to Hurt Demand, Cuts Production

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Methanex Corporation (MEOH - Free Report) idled its Trinidad-based Titan facility effective Mar 16. The company will also idle its Chile IV plant starting from Apr 1. Further, the company stated that the changes are being made for an indefinite period.

The company expects that methanol demand might get affected in second-quarter 2020, considering that manufacturing activities have been reducing in countries that are witnessing significant COVID-19 outbreaks.

Consequently, the company is lowering production in the methanol facilities where it has flexibility in its gas agreements. It may be noted that Methanex does not expect this change in production to make a major impact on its cash flows in the current price environment.

The company is undertaking steps to strengthen balance sheet amid a challenging commodity price environment and uncertainty in the global economy. Methanex is also evaluating all capital and operating spending, including its Geismar 3 project.

The company has considerable liquidity of around $700 million, including cash in hand and an undrawn committed revolving credit facility. It also has an undrawn construction facility for the Geismar 3 project worth $800 million.

Shares of Methanex have lost 77.8% in the past year compared with the industry’s 49.8% decline.

In January, the company stated that it anticipates the Geismar 3 project to deliver strong returns on significant capital and operating cost advantages. Over the upcoming years, most of the large-scale capacity additions are anticipated to be in the Americas and the Middle East. Further, the company expects new non-integrated capacity additions in China to be modest on restrictions imposed by the government in China.

Methanex will also remain committed to execute its Louisiana growth projects and return excess cash to shareholders through dividends as well as share buybacks.

Zacks Rank & Key Picks

Methanex currently carries a Zacks Rank #3 (Hold).

Few better-ranked stocks in the basic materials space are Newmont Corporation (NEM - Free Report) , Franco-Nevada Corporation (FNV - Free Report) and Impala Platinum Holdings Limited (IMPUY - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Newmont has an expected earnings growth rate of 72% for 2020. The company’s shares have gained 23.4% in the past year.

Franco-Nevada has an expected earnings growth rate of 24.2% for 2020. Its shares have rallied 28.5% in the past year.    

Impala Platinum has an expected earnings growth rate of 424.1% for fiscal 2020. The company’s shares have inched up 1.3% in the past year.

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