Methanex(MEOH) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2020, Methanex recorded adjusted EBITDA of $32 million and an adjusted net loss of $64 million, equating to $0.84 per share, significantly lower than the previous quarter due to reduced average realized prices and lower sales volumes [12][13] - Global methanol demand declined by approximately 5% or 1 million tons in Q2 2020 compared to Q1, and by approximately 12% or 2.5 million tons compared to Q4 2019 [14][15] Business Line Data and Key Metrics Changes - Methanol demand in China increased by approximately 4% in Q2 2020 versus Q1, driven by recovery in economic activity and improved fuel demand [16] - Outside of China, methanol demand declined by approximately 19% quarter-over-quarter due to lower manufacturing activity in key sectors like automotive and construction [18] Market Data and Key Metrics Changes - Global methanol supply declined by approximately 9% when comparing Q2 2020 to Q4 2019, with production in Q2 being 379,000 tons lower than in Q1 2020 [20] - Spot prices in China are currently marginally below the industry cost curve of approximately $200 to $220 per ton [21] Company Strategy and Development Direction - The company has deferred approximately $500 million in capital spending on the Geismar 3 project for up to 18 months to strengthen its balance sheet and preserve liquidity [23] - Methanex is focused on cash preservation and evaluating options to maintain financial capacity during the downturn, while planning for long-term demand growth for methanol [29][35] Management's Comments on Operating Environment and Future Outlook - The management expressed uncertainty regarding the full impact of the COVID-19 pandemic and lower oil prices on methanol demand, indicating that the near-term outlook remains uncertain [30] - Despite the challenges, the management believes in the long-term demand growth for methanol as it is a key ingredient in various applications [34] Other Important Information - The company ended the quarter with nearly $800 million in cash and has no near-term debt maturities, indicating a strong liquidity position [26] - Methanex has amended its credit facilities to provide financial covenant relief, allowing for greater flexibility in the current environment [27] Q&A Session Summary Question: Ability to push out G3 project timeline - Management confirmed that the completion date for the G3 project has been pushed out by another 12 months due to renegotiated terms with lenders [44] Question: Incremental costs from COVID-19 - Management indicated that the incremental costs related to COVID-19 were very minor, primarily associated with remote working [45] Question: Global methanol demand recovery - Management noted that demand outside China remains under pressure and is slow to recover, with significant declines still observed compared to Q4 2019 [46][47] Question: Inventory levels at Chinese ports - Management characterized current inventory levels in China as normal, despite a rise due to increased demand from MTO operations [51] Question: Methanol market contraction - Management explained that their sales volumes contracted more than the industry average due to a strategic decision to take certain plants offline in response to declining demand [60][62] Question: Turnaround plans for G1 and G2 - Management stated that G1 is not due for a turnaround for another three years, while G2 is approaching its turnaround schedule [64] Question: Trinidad gas supply negotiations - Management confirmed ongoing negotiations with the government to secure a profitable gas supply arrangement, with no immediate updates available [108] Question: MTO operating rates - Management reported that MTO operations remained high at around 90% during Q2, despite low pricing for ethylene and propylene [112] Question: Working capital and liquidity strategy - Management highlighted a positive working capital move in Q2, driven by methanol prices, and emphasized tight management of working capital going forward [120][124] Question: Methanol as a clean fuel alternative - Management reiterated that methanol is a viable alternative fuel and can meet future environmental standards, emphasizing its flexibility and availability [135]