Methanex Corp T.MX

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Methanex Corp.

(MEOH-Q, MX-T) US$33.06 | C$41.23

Q2/21 EBITDA in Line; High Prices Continue in August Event

Methanex reported Q2/21 adjusted EBITDA of $262mm, marginally above the consensus estimate of $258mm and our forecast of $260mm. The company also indicated that it expects Q3/21 EBITDA to be similar vs. Q2/21.

Impact: SLIGHTLY POSITIVE

• Q2/21 Results: Adjusted EBITDA of $262mm was the highest since Q3/18, and was up 8% vs. Q1/21, largely due to higher methanol prices.

• Methanol Prices: The methanol supply/demand balance loosened somewhat in Q2/21, as margins came under pressure for some methanol-to-olefins producers, and U.S. Gulf Coast production recovered from Winter Storm Uri. However, supply-side challenges have continued to-date in Q3/21, despite the ongoing start-up of a new U.S. plant. The latest issues relate to high prices/tight coal availability in China, which Methanex estimates have increased the marginal cost of supply in China to $300-$320/tonne. The company's North America posted contract price rolled at $542/tonne in August, which marks the fourth consecutive month at the highest price since mid-2014. The Europe posted contract price rolled at €410/tonne for Q3/21, and the Asia posted contract price was stable at $420/ tonne in August vs. July after spending five months at $430/tonne, the highest price since late-2018.

• Geismar 3: Methanex intends to resume construction on Geismar 3 in October, which we see as a very attractive brownfield project. The company expects to fund the completion of Geismar 3 with cash-on-hand and future free-cash-flow at an average realized price of $275/tonne+, which is below the normal pricing band of $300-$400/tonne, and well below the Q2/21 average realized price of $376/tonne. At a sustained average realized price of $325/tonne+, Methanex anticipates that it will have the capacity to further deleverage and increase shareholder distributions during the Geismar 3 construction period.

  TD Investment Conclusion

  We are attracted to Methanex's methanol market leadership and its unique position as the only methanol supplier with well-established production and sales in all major regions. We estimate that the stock is trading at a free-cash-flow yield of 9-11% at an average realized price of $300/tonne, which we characterize as the low end of the normal range, and at a free-cash-flow yield of 20%+ at the Q2/21 average realized price of just over $375/tonne.