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Methanex(MEOH) - 2023 Q3 - Earnings Call Transcript
MEOHMethanex(MEOH)2023-10-26 20:43

Financial Data and Key Metrics - Adjusted EBITDA for Q3 2023 was 105million,withadjustednetincomeof105 million, with adjusted net income of 0.02 per share [2] - The average realized price for methanol was 303pertonne,withproducedsalesofapproximately1.5milliontonnes[2]−ThecompanyenteredQ3with303 per tonne, with produced sales of approximately 1.5 million tonnes [2] - The company entered Q3 with 500 million in cash and 300millionofundrawnbackupliquidity[28]−GlobalaveragerealizedpriceforOctoberandNovemberisestimatedat300 million of undrawn backup liquidity [28] - Global average realized price for October and November is estimated at 310 to 320permetrictonne[27]BusinessLineDataandKeyMetrics−MethanoldemandimprovedinChina,drivenbystrongerdemandforMTBEandmethanol−to−olefins(MTO)applications[25]−Theolefinsmarketshowedimprovement,butpricingremainsbelowmid−cyclelevels,withsignificantpressureonthesector[20]−Thecompanyisexploringopportunitiestoconvertunderutilizedassetsintogreenmethanolproduction,particularlyinthemarineindustry[21]MarketDataandKeyMetrics−CoalpricinginChinaincreasedfromaroundRMB800pertonnetoaboveRMB1,000pertonneduringQ3,drivenbysupplydisruptions[26]−MethanoldemandoutsideChinaremainedrelativelyflatcomparedtoQ2,withhighenergypricingandimprovedsupply−demandfundamentalsleadingtoslightlyhigherpricing[40]−NorthAmerica,Asia−Pacific,andChinapostedpricesforNovemberwere320 per metric tonne [27] Business Line Data and Key Metrics - Methanol demand improved in China, driven by stronger demand for MTBE and methanol-to-olefins (MTO) applications [25] - The olefins market showed improvement, but pricing remains below mid-cycle levels, with significant pressure on the sector [20] - The company is exploring opportunities to convert underutilized assets into green methanol production, particularly in the marine industry [21] Market Data and Key Metrics - Coal pricing in China increased from around RMB800 per tonne to above RMB1,000 per tonne during Q3, driven by supply disruptions [26] - Methanol demand outside China remained relatively flat compared to Q2, with high energy pricing and improved supply-demand fundamentals leading to slightly higher pricing [40] - North America, Asia-Pacific, and China posted prices for November were 549, 370,and370, and 360 per metric tonne, respectively, while Europe posted €375 per metric tonne [41] Company Strategy and Industry Competition - The company is focused on completing the Geismar 3 (G3) project, with commercial production expected by the end of 2023 and a budget range of 1.25billionto1.25 billion to 1.3 billion [67] - Methanex is working on green and blue methanol projects, with over 200 ships expected to use methanol as fuel by 2027-2028, representing around 7 million tonnes of demand [105] - The company is also exploring renewable hydrogen and CO2 projects to green existing assets [21] Management Commentary on Operating Environment and Future Outlook - Management highlighted challenges in the Trinidad gas market, with current production at 2.5 to 3 Bcf per day against demand of 4.5 Bcf per day [45] - The company expects higher adjusted EBITDA in Q4 2023 due to higher realized methanol prices and increased produced sales [43] - Methanex is monitoring the global macroeconomic environment, with high operating rates in the MTO sector and improved affordability from higher energy and olefins pricing [40] Other Important Information - The company is committed to repaying the 300 million bond due at the end of 2024, with any excess cash allocated to debt repayment rather than refinancing [28] - Methanex is working on long-term gas supply agreements in Trinidad and Chile, with improved gas availability from Argentina allowing for increased production guidance in Chile [42] Q&A Session Summary Question: Chilean Gas Situation and Pressure Profile - Joel Jackson asked about the Chilean gas situation and its impact on the pressure profile for 2024, particularly during the summer months [6] - Rich Sumner explained that the gas situation in Chile is improving, with both plants expected to run at full rates from September 2023 through April 2024 [42] Question: Underutilized Assets and Green Methanol Opportunities - Hassan Ahmed inquired about opportunities for underutilized assets, including the possibility of relocating the Atlas plant or converting it to green methanol production [18] - Rich Sumner responded that the company is focused on securing long-term gas supply in Trinidad and is exploring green methanol projects but is not currently considering relocating Atlas [98] Question: Trinidad Gas Situation and Short-Term Challenges - Ben Isaacson asked about the short-term challenges in Trinidad's gas market and whether the company expects improvement [44] - Rich Sumner acknowledged the tight gas market in Trinidad but expressed optimism about long-term improvements, citing ongoing developments and incentives to restart capacity [45] Question: G3 Project and Inventory Build - Joel Jackson followed up on the G3 project, asking about the expected inventory build and its impact on cash flow [16] - Rich Sumner clarified that the G3 project is nearing completion, with commercial production expected by year-end, and that the inventory build would likely take 45 to 70 days to flow through earnings [74] Question: Green and Blue Methanol Strategy - Kevin Estok asked for updates on the company's green and blue methanol strategy and the impact of current interest rates on future investments [104] - Rich Sumner highlighted the growing demand for methanol in marine fuels and the company's efforts to produce green methanol using renewable natural gas in North America [105][106] Question: Cash Flow and Capital Allocation in 2024 - Matthew Blair inquired about the company's cash flow and capital allocation plans for 2024, including potential buybacks [99] - Rich Sumner emphasized the focus on repaying the 300 million bond and generating free cash flow, with any excess cash likely allocated to deleveraging and potentially returning cash to shareholders [99]