Methanex Downgraded to Neutral - Analyst BlogTuesday, May 15, 2012
We have downgraded our long-term recommendation on Methanex Corporation (MEOH) to Neutral from Outperform following its mixed first-quarter 2012 results. The company’s earnings of 23 cents per share in the quarter missed the Zacks Consensus Estimate of 36 cents. However, revenues of $666 million increased 7.6% year over year, beating the Zacks Consensus Estimate of $633 million.
The company’s facility in Chile operated below the site capacity during the quarter due to curtailed natural gas supplies from Argentina. Methanex markets methanol it produces as well as that which is acquired from others. The company makes much more money from the methanol it produces and therefore its earnings were affected during the quarter as its facilities were operating below capacity.
Methanex remains exposed to tight economic conditions and uncertainties associated with the demand and pricing of methanol. However, the company expects strong methanol demand and an upward pressure on prices for the second quarter of 2012. The company believes that methanol price will depend on the global economic conditions, industry operating rates, global energy prices, new supply additions and the strength of global demand.
The company has started a project to relocate one of the Chilean plants to the U.S. Gulf Coast, and secured a site in Geismar, Louisiana, which is expected to provide good return. The project benefits from competitive natural gas prices and an excellent business environment in Geismar with extensive infrastructure and significant methanol demand nearby.
Methanex also plans to restart one plant in Medicine Hat, Alberta, which is expected to generate considerable cash flows in the years ahead.The company also announced plans to restart a second facility in New Zealand in mid-2012, which will provide an additional 0.65 million tonnes of methanol capacity. The company’s New Zealand facilities are ideally located to support the growing Asia Pacific market.
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