On May 21, we upgraded our recommendation on leading methanol
) to Outperform factoring in the strong methanol demand
environment. While the company remains exposed to natural gas
curtailment issues, it is poised to gain from capacity expansion
and its Geismar methanol project.
Why the Upgrade?
Methanex's profit soared more than two-and-a-half fold year over
year in first-quarter 2013, reported on Apr 24, helped by lower
costs and higher pricing. The company benefited from growing
demand for methanol in the energy industry. However, both
revenues and earnings fell short of the Zacks Consensus
Methanex, which carries a short-term Zacks Rank #1 (Strong Buy),
is the world's largest supplier of methanol. The company feels
that 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. The wide disparity between the price of
crude oil and that of natural gas and coal has resulted in higer
use of methanol in energy applications, which now accounts for
roughly a third of global methanol demand.
Methanex's healthy financial position, strong global supply
network and competitive-cost position is expected to strengthen
its position as the global leader in the methanol industry and
enable it to continue to deliver incremental returns to
shareholders. The company's Board, in Apr 2013, approved an 8%
hike in its quarterly dividend to 20 cents per share.
Methanex has 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 recently announced the
relocation of the second Chile plant. We are optimistic about the
Geismar project which is expected to create significant value for
With the continued initiatives to increase production in New
Zealand and progress in the Louisiana project, the company has
the potential to increase its operating capacity and pursue other
strategic growth opportunities over the next few years, which in
turn, will contribute to cash generation and increased supply to
Other Stocks to Consider
Other companies in the chemical space that are worth considering
Shin-Etsu Chemical Co., Ltd.
). While both Shin-Etsu Chemical and Celanese retain a Zacks Rank
#1 (Strong Buy), FMC holds a Zacks Rank #2 (Buy).
CELANESE CP-A (CE): Free Stock Analysis
FMC CORP (FMC): Free Stock Analysis Report
METHANEX CORP (MEOH): Free Stock Analysis
SHIN-ETSU CHEM (SHECY): Get Free Report
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