On Dec 10, we reiterated our Neutral recommendation on leading methanol producer Methanex Corporation (MEOH). While Methanex should benefit from capacity expansion and its Geismar methanol project, we maintain a cautious stance given its exposure to natural gas curtailment issues.
Methanex’s third-quarter 2013 results, reported on Oct 30, were a mixed bag with earnings missing the Zacks Consensus Estimate while revenues beating the same. Healthy methanol market conditions and higher pricing boosted top and bottom lines in the quarter. Methanex expects the methanol industry fundamentals to be healthy in the fourth quarter.
Methanex is the world’s largest supplier of methanol. The methanol industry and its pricing environment appear attractive in the longer term as global demand is expected to surpass new capacity additions. Despite the global economic weakness, demand for methanol remains healthy driven by energy-related applications in Asia, particularly in China.
Methanex has also taken up a number of steps to boost capacity. The company is progressing well with the relocation of two Chilean plants to Geismar, LA, with the first facility (Geismar I) is expected to come online by end-2014 and the second (Geismar II) by early 2016. The Geismar project is expected to create significant value for its shareholders.
However, we feel that Methanex may continue to face gas supply restrictions in the near term. The company’s production has been affected by shortage of natural gas supplies.
Short-term natural gas curtailment issues are expected across the company’s Chile, Trinidad and Egypt operations. Moreover, methanol prices depend upon factors such as operating rates, global energy prices, new supply additions and demand.
Other Stocks to Consider
Other companies in the chemical industry worth considering include Asahi Kasei (AHKSY), Johnson Matthey plc. (JMPLY) and PPG Industries Inc. (PPG). While Asahi Kasei and Johnson Matthey carry a Zacks Rank #1 (Strong Buy), PPG Industries holds a Zacks Rank #2 (Buy).