Balanced Risk-Reward for Methanex - Analyst Blog


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On Mar 12, we issued an updated research report on leading methanol producer Methanex Corporation ( MEOH ). While the company should benefit from capacity expansion and its Geismar methanol project, it remains exposed to natural gas curtailment issues.

Methanex's fourth-quarter 2013 results, reported on Jan 29, were a mixed bag with adjusted earnings missing the Zacks Consensus Estimate, but sales beating the same. The company swung to a profit in the quarter. Healthy demand and higher methanol pricing boosted top and bottom lines. Methanex expects the methanol industry and methanol pricing environment to be healthy in the first quarter of 2014.

Methanex is the world's largest supplier of methanol. 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 in early 2016). The Geismar project is expected to create significant value for its shareholders.

With continued initiatives to increase production in New Zealand and Medicine Hat (Canada) and progress in the Louisiana project, Methanex has the potential to increase its operating capacity by nearly 3 million tons by 2016, which in turn, will contribute to cash generation and increased supply to customers.

However, Methanex may face gas supply restrictions in the near term. The company's production has been affected by shortage of natural gas supplies.

Short-term natural gas curtailment issues are expected across the company's Chile, Trinidad and Egypt operations. Moreover, methanol prices depend upon factors such as operating rates, global energy prices, new supply additions and demand.

Key Picks from the Sector

Other companies in the chemical industry with favorable Zacks Rank are The Dow Chemical Co. ( DOW ), LyondellBasell Industries NV ( LYB ) and PPG Industries Inc. ( PPG ), all with a Zacks Rank #2 (Buy).

DOW CHEMICAL (DOW): Free Stock Analysis Report

LYONDELLBASEL-A (LYB): Free Stock Analysis Report

METHANEX CORP (MEOH): Free Stock Analysis Report

PPG INDS INC (PPG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: DOW , LYB , MEOH , PPG

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