Methanex's Chile troubles overblown - HSBC

16 October 2007 15:16  [Source: ICIS news]

TORONTO (ICIS news)--Fears surrounding Methanex’s natural gas supply situation in Chile, its Chinese capacity additions and low methanol prices are mostly overblown, HSBC said on Tuesday, adding it has placed an overweight rating on the company and a 12-month target price of $35/share.

 

Despite running the Chilean facilities at below capacity, the methanol pricing environment should imply robust profitability and strong cash flow generation for the company over the next few years, the London-based international bank said.

 

Methanex’s Chile plants account for about 60% of the Canadian firm’s existing capacity but production in that country had been hampered over the past few years because of curtailments of natural gas supplies from Argentina, HSBC said.

 

In its models for Methanex, HSBC assumed a 70% operating rate for the Chile plants through until 2011. Argentine gas supplies would continue to be volatile, averaging about 50% of the plants’ requirements, it said.

 

A second factor surrounding the outlook for Methanex concerned rapid Chinese capacity additions, HSBC said.

 

However, the Chinese methanol market was a local one and should be considered a separate silo rather than integrated with global supply and demand, the analysts said.

 

Much of China’s capacity went into the domestic markets and the country’s coal-based methanol did not meet export specifications, they added.

 

A third factor were fears that methanol prices could head back down to the $100-150/tonne range once new capacities come on stream, HSBC said.

 

“We believe that given the shift in the production base and much higher energy costs, the current cost curve, along with the dramatic rise in capital costs, make prices in the $150/tonne area unsustainable,” HSBC said, adding that it saw a floor price in the range of $175-200/tonne going forward.

 

At 14:00 GMT, the company’s shares were at  $26.65 on the New York Stock Exchange (NYSE), down 1.41% from yesterday's close.

 

Methanex is the world's largest producer and marketer of methanol.

By: Stefan Baumgarten
+1 713 525 2653

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