Methanex Poised On Healthy Demand, Expansion Amid Headwinds

On Jun 13, we issued an updated research report on leading methanol producer Methanex Corporation (NASDAQ:MEOH) .

Methanex swung to a loss in the first quarter of 2016. Loss per share was wider than the Zacks Consensus Estimate. Revenues fell by double-digits on lower methanol pricing and trailed expectations.

Methanex is the world’s largest supplier of methanol. Demand fundamentals for methanol remain healthy despite the global economic weakness and a few near-term challenges. Methanex estimates total methanol demand of roughly 62 million tons on an annualized basis. Demand has been driven by both traditional derivatives and energy-related applications in Asia, especially China.

Methanex has taken up a number of steps to boost production capacity. The company started methanol production from the first Geismar plant in Louisiana in Jan 2015. The second 1-million ton Geismar facility also came online in late Dec 2015.

The start-up of the second Geismar plant expanded Methanex’s operating capacity by around 3 million tons over three years. The Geismar project offers excellent return potential and is expected to create significant value for the company’s shareholders. The company’s continued initiatives to increase capacity will contribute to its cash generation and increased supply to customers.

However, Methanex is exposed to volatility in methanol pricing. The company’s average realized prices slid around 26% year over year in 2015 and also tumbled roughly 32% in the first quarter, hurting its top line. Although prices have somewhat stabilized of late, they are expected to remain under pressure in the short haul.

Methanex’s production has also been crippled by shortage of natural gas supplies in various regions. Restricted supply of natural gas continues to affect its operations in Chile, Trinidad and Egypt.

Methanex continues to see gas curtailments in Trinidad as evidenced in the first quarter. This was caused by the mismatch between the upstream supply to the Natural Gas Company of Trinidad and Tobago (“NGC”) and the downstream demand from NGC’s customers. Short-term natural gas supply issues are expected to continue across the company’s Trinidad and Egypt operations.

Methanex’s business is also subject to the risks of operating methanol production facilities including longer-than-anticipated planned maintenance activities and unforeseen equipment breakdowns.

Methanex is a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked companies in the diversified chemical space include Albemarle Corporation (NYSE:ALB) , Asahi Kasei Corporation (OTC:AHKSY) and Innospec Inc. (NASDAQ:IOSP) , all sporting a Zacks Rank #1 (Strong Buy).


METHANEX CORP (MEOH): Free Stock Analysis Report

ALBEMARLE CORP (ALB): Free Stock Analysis Report

ASAHI KASEI CP (AHKSY): Free Stock Analysis Report

INNOSPEC INC (IOSP): Free Stock Analysis Report

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