Canada Methanex set for strong profit growth - analyst

06 January 2010 23:36  [Source: ICIS news]

HOUSTON (ICIS news)--Canadian producer Methanex should see strong profit growth through 2013 on improved natural gas supplies to its four plants in Chile and the expected start-up of a new 1.2m tonne/year joint venture plant in Egypt later this year, an analyst said on Wednesday.

“A ramp up in natural gas supply in Chile with normalised operations by 2013, in our view, coupled with a [first-half] 2010 start-up of the Methanex’s Egyptian facility should result in strong earnings growth through 2013,” said analyst Hassan Ahmed of Alembic Global Advisors.

Production of methanol at Methanex’ 3.82m tonne/year complex near Punta Arenas in southern Chile has been severely hampered since mid-2007 by a natural gas cutoff from neighbouring Argentina.

The facility has been running at approximately 25-30% of capacity for nearly two years, but Methanex invested heavily in local gas and upstream development, resulting in higher supplies of methanol’s key feedstock.

“With increased local gas supply we expect methanol production to steadily rise from around 1m tonnes in 2009 to almost full utilisation [3.8m tonnes] by 2013,” Ahmed said.

Ahmed's outlook comes as at a time of weak demand for methanol due to sluggish construction. Some estimates put global methanol demand at 38m-39m tonnes/year, down from close to 42m tonne/year.

Formaldehyde, which represents about a third of global methanol demand, was cut by 35% in the US during 2009 due to weak new-housing and automobile construction market.

North American capacity for formaldehyde derived from methanol was about 1.9m tonnes in 2009, down from 2.7m tonnes in 2005.

In fact, some view that the world methanol market is oversupplied.

However, Ahmed said that current global methanol “supply addition concerns are mostly overblown”.

Global shutdowns, such as small-scale Chinese plants running with higher-cost coal as feedstock, will more than offset additions, including Methanex’ Egypt plant and two 1.7m tonne/year plants in Iran and Malaysia, Ahmed said.

“Our analysis shows that much of the existing and planned coal-based capacity is disadvantaged and would, in our view, either be reconsidered, shuttered, switched to another product like ammonia or run at reduced operating rates causing methanol supply/demand balances to tighten again,” Ahmed said.

At the same time, the world's economy should expand, he said.

“The energy and construction sector is a key element, and if you take a look at the growth estimate for formaldehyde, I put it in line with normal GDP growth, at about 3.5%,” Ahmed said.

Nonetheless, Methanex could still face barriers to future production growth - including continued gas supply disruptions in southern Chile, Ahmed said.

“But what they may lose on the volume, they may gain on the pricing side,” Ahmed said

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By: Steven McGinn
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