Post by
retiredcf on Jun 29, 2021 8:49am
RBC
Current and upside scenario targets are US$50 and US$60. GLTA
June 29, 2021
Methanex Corporation
Methanol prices remain higher for longer
Our view: On the back of Methanex posting flat prices for June, we are reiterating our Outperform rating on the shares of Methanex and believe the company will generate strong cash flows in 2021, supported by solid methanol prices. We also expect the company to announce this summer that they will be moving ahead with G3 (market response could be mixed), which should support additional production as the company is facing some natural gas supply headwinds in several regions.
Key points:
Methanex to post July Asian reference price in the coming days. Methanex recently released its North America non-discounted reference price at $542/MT for July, which is unchanged from June and May. Methanex also released its European posted contract price for the July through September period at €410/MT, which was also unchanged from the previous quarter (European posted contract prices set on a quarterly basis). We expect Methanex will update its Asian posted contract price in the coming days, and we expect the price to be similar to the June contract price of $430/ MT. For reference, IHS Markit estimates that NE Asia spot pricing decreased 3% M/M.
Temporarily curtailing some production in New Zealand, but no financial impact. Methanex recently agreed to curtail production at one of its two Montunui facilities for three months (~85,000 MT) to divert natural gas to support electricity generation in response to low hydrology levels and tight natural gas supply in the region. The company does not expect the curtailment to have a material financial impact, as the margin from the resale of gas will offset the margin from the curtailed production. This follows Methanex's announcement to idle the Waitara Valley plant indefinitely due to low gas availability in April, highlighting the tight supply of natural gas in New Zealand.
Another reason to move forward with G3. With the additional curtailments in New Zealand, we estimate that the company will have over 25% of its production capacity offline due to the lack of gas supply or the absence of a long-term contract. We believe that this could be an influential factor with the decision on whether or not to move forward with the G3 project in the U.S., where gas supply is abundant, and would support the company's objective to grow methanol producing in line with the market. Management plans to make a decision on the project this summer, and we continue to believe the company will move forward with the $1.3-1.4 billion development project.
Tweaking estimates. We have revised our 2021 and 2022 Adjusted EBITDA estimates to $898 million and $770 million, respectively (from $887 million and $767 million, respectively). The increase to our estimates primarily reflect IHS' updated methanol price forecast and Methanex's North American non-discount reference price for July and European posted contract price for Q3/21. Please see Exhibits 3, 4, and 5 for our updated financial forecast
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