Methanex(MEOH) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The average realized price for the first quarter was $371 per ton, a slight decrease from $373 per ton in the fourth quarter [5][16] - Adjusted EBITDA for the first quarter was $209 million, with adjusted net income of $1.11 per share [5][36] - The first quarter discount rate was approximately 21%, in line with guidance for 2023 [16] Business Line Data and Key Metrics Changes - Demand for methanol to olefins (MTO) increased slightly in the first quarter, supported by improved operating rates and increased methanol availability [6][17] - Production levels were higher in the first quarter compared to the fourth quarter, with limited unplanned outages [9][36] - Adjusted EBITDA was higher in the first quarter compared to the fourth quarter, primarily due to higher sales of Methanex-produced methanol driven by increased production in Egypt, Atlas, and Chile [36] Market Data and Key Metrics Changes - Global methanol demand in the first quarter was flat compared to the fourth quarter of 2022, with a slight decrease in demand for traditional chemical applications due to seasonal slowdowns [15] - The posted prices in North America, Asia Pacific, and China decreased by $20, $10, and $15 per metric ton, respectively, while the Q2 European price was posted EUR10 per metric ton higher than Q1 2023 [7] - Coal pricing in China remains strong, above RMB1,000 per ton, with the industry cost curve estimated at approximately $320 to $340 per ton [16] Company Strategy and Development Direction - The company remains committed to returning excess cash to shareholders through a 5% normal course issuer bid and has increased its quarterly dividend by 6% to $0.185 per share [19] - The G3 project is progressing on time and on budget, with expected production in the fourth quarter of 2023, and is projected to generate approximately $250 million of adjusted EBITDA per year at a $375 per ton realized price [21][41] - The company is exploring both brownfield and greenfield opportunities for future projects, but any new project would likely not be operational until the end of the decade [30][68] Management's Comments on Operating Environment and Future Outlook - The management expects a lower methanol price environment in Q2 2023 compared to Q1, leading to lower adjusted EBITDA [42] - The company is closely monitoring macroeconomic conditions and inflationary pressures, which present headwinds for global economic growth, but anticipates demand growth in traditional chemical applications as the housing and construction season approaches [38] - Interest from the marine industry for dual-fuel vessels running on methanol continues to grow, with an estimated demand potential increasing from approximately 300,000 tons today to 4 million tons in the coming years [39] Other Important Information - The G3 project capital remains unchanged at $1.25 billion to $1.3 billion, with approximately $995 million spent by the end of Q1 [10] - The company ended Q1 with approximately $709 million in cash and $300 million of undrawn backup liquidity [40] Q&A Session Summary Question: Can you discuss the high premiums of North American posted prices versus U.S. Gulf spot prices? - Management noted that the U.S. is a heavily contracted market, and recent pricing fluctuations are not indicative of overall methanol prices globally [24][25] Question: Will Q2 earnings be lower than Q1 of 2023? - Yes, due to decreased methanol prices over the last few months [26] Question: Is there a possibility for G3 to start production in Q3 instead of Q4? - Management confirmed that G3 is on track for Q4 production, emphasizing safety and quality in the project [27] Question: What is the long-term outlook for new projects? - Management indicated that new projects would not be operational until the end of the decade, even with modest growth rates [30] Question: How is the company approaching gas hedging? - The company is currently 85% hedged for 2023 and aims to maintain around 70% hedging for the first one to three years [142] Question: What is the status of the RNG efforts? - The RNG business is currently small, with one long-term R&D contract, but there is interest from customers in green methanol [112][114]