Methanex Corp T.MX

RBC

[retiredcf]

Current and upside scenario targets are US$45 and US$60.00. GLTA

March 1, 2021

Methanex Corporation

Methanol prices flat in Q1/21 but could weaken in H2/21 with improved supply conditions

Our view: We maintain our Sector Perform rating, as we believe methanol prices could pull back in H2/21 as methanol supply conditions improve. We note that global methanol prices are generally at or above the 10-year average of ~$350/MT, with the recent increase in pricing largely driven by near-term supply constraints. With the additional methanol supply set to come online in H2/21, we expect there could be downward pressure on methanol prices.

Key points:

Methanex reference prices unchanged for March. Methanex recently released its North America and Asia Pacific non-discounted reference prices for March, which were unchanged from February pricing at $492/ MT and $430/MT, respectively. Methanex posts its European reference pricing on a quarterly basis, which is set at €390/MT for the Q1/21 period. IHS’s latest published methanol spot prices also showed little change over the last month, with the U.S. Gulf Coast and European prices up 2% while NE Asia prices were unchanged.

IHS expecting tighter near-term methanol supply in North America. IHS made some upward adjustments to its North American methanol price forecast since we last updated our model, to reflect the initial effects of Winter Storm Uri on North American methanol production, which caused a significant tightening of supply. IHS noted that preliminary estimates are cautiously targeting a return to normal supply conditions by mid-March, but this estimate could be extended depending on the extent of damage/ limitations at each production site. On the demand side, neighboring methanol consumers also experienced similar shutdowns, but these are expected to restart at a quicker pace than methanol production, which could keep methanol supply conditions tight into Q2/21.

IHS continues to expect methanol prices to decrease in H1/21. IHS expects to see softening of pricing toward the second half of Q2/21 as supply continues improve, particularly with the expectation of the commissioning of YCI Methanol One plant, which is scheduled to start up within the next few months. Longer-term, IHS expects the addition of new supply to maintain downward pressure on prices through the end of 2021 and into 2022.

Raising estimates. We increase our 2021 and 2022 Adjusted EBITDA estimates to $709 million and $618 million (from $645 million and $616 million), respectively. The adjustments to our forecast reflects Methanex’s March reference pricing and IHS’s updated methanol price forecast. We note that the company is highly levered to methanol prices, and a $10/ MT increase/decrease would improve/reduce our 2022 EBITDA forecast by ~$50 million.