We have reaffirmed our Neutral recommendation on leading methanol producer Methanex Corporation ( MEOH). While Methanex should gain from capacity expansion and its Geismar methanol project, we remain on the sidelines given its exposure to natural gas curtailment issues.
Methanex, on Jul 24, reported mixed second-quarter 2013 results with earnings missing the Zacks Consensus Estimate while revenues beating the same. Higher methanol pricing boosted revenues and profit in the quarter. However, restricted supply of natural gas affected its operations in Chile, Trinidad and Egypt in the quarter. Methanex expects the methanol industry and methanol pricing environment to be stable in the short term.
Methanex, which carries a short-term Zacks Rank #3 (Hold), is the world’s largest supplier of methanol. We feel that the company may continue to face gas supply restrictions in the near term.
Methanex’s production has been crippled by shortage of natural gas supplies in various regions. It expects short-term natural gas curtailment issues across a number of operations. The gas supply outlook in Chile is more challenging.
Nevertheless, 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 the first Chilean plant to Geismar, LA, and is also relocating the second Chile plant (expected to come online by 2016). The Geismar project is expected to create significant value for its shareholders.
Other Stocks to Consider