Methanex sees alternative fuel use as a growth for methanol business in future
Published Wednesday July 23rd, 2008
VANCOUVER - Methanex Corp. (TSX:MX), a producer of methanol used in gasoline, paint and other products, says a push for alternative fuels could be a long-term benefit for the company as it faces falling demand for the industrial chemical in North America.
Bruce Aitken, president and CEO of Methanex, said while millions of tonnes of methanol are already being mixed with gas in China, the blend is expected to become more popular in North America amid rising oil prices.
"There are moves being made to recognize that alcohol-based fuels are part of the solution to providing fuel to run our motor vehicle fleets," Aitken told a conference call Wednesday.
He said methanol is defined as an alternative fuel in the United States and a bill was introduced recently that supports that use.
China, the second-highest consumer of oil behind the United States, is expected to use about three million tonnes of methanol for mixing with fuel this year alone - well above expectations.
"Clearly there is a big drive to increase the consumption of methanol in gasoline in that country," Aitken said during the call to discuss the company's recent earnings.
The estimates are despite driving restrictions now in place in Beijing meant to help curb pollution before the Olympics being held in the Chinese capital next month.
Aitken said while methanol consumption has dropped in North America and parts of Europe, it is expected to increase in Latin America and Asia, balancing out demand globally for his company.
He said demand from Methanex's customers worldwide was strong in the second quarter of 2008.
Late Tuesday, Vancouver-based Methanex reported a second-quarter profit of $38.9 million or 41 cents per share compared to a profit of $35.7 million or 35 cents per share for the same period last year.
Revenue rose 29 per cent to $600 million, up from $466.4 million a year ago.
Methanex is the world's largest producer and marketer of methanol, which is produced from natural gas. The company has plants in Chile, Trinidad and New Zealand and more than six million annual tonnes of production capacity.
It currently has more than six million annual tonnes of production capacity. It plans to increase output from about four million tonnes this year to 7.5 million tonnes by 2011.
Methanex is restarting its larger plant in New Zealand in the third quarter and plans to open a new operation in Egypt by 2010.
The company is also hoping to increase production at its plants in Chile, where it was forced to curb output last year due to a shortage of gas supply from neighbouring Argentina.
Methanex said its methanol facilities in Chile produced 261,000 tonnes during the second quarter of 2008 compared with 309,000 tonnes during the first quarter of 2008.
It currently sources natural gas for its methanol facilities in Chile from Empresa Nacional del Petroleo (ENAP), the Chilean state-owned energy company, and from GeoPark Chile Ltd.
The company said production in Chile was lower during the second quarter due to lower natural gas supply from ENAP due to higher demand for natural gas general use in southern Chile during the winter months as well as some deliverability issues.
Canaccord Adams analyst Bob Hastings said the reasons for lower natural gas supply from ENAP "raises new concerns."
"Consequently, the company needs to secure more gas in Chile at reasonable prices and complete the plant in Egypt to justify the current share price," Hastings wrote in a note to clients.
Hastings also said new supply coming into the market from other countries will drive down prices and make some higher-cost plant uneconomic.
"Our concerns with the valuation of the company surround gas availability issues, demand growth in a trying economic environment and new (cheap) supply being added over the next year, much of which will occur over the next six months," said Hastings.
"Consequently, we anticipate declining methanol prices and a resulting overhang on the shares of Methanex."
Methanex said the average realized price of methanol was $412 per tonne, up from $286 a year ago, while sales volumes slipped five per cent.
Methanol prices reached historic highs of US$575 to US$620 a tonne late last year on short supplies, which began in mid-2007 after Methanex was forced to shut much of its production in Chile.
Prices then began to fall and currently sit around US$350 to US$450 per tonne.
Shares in Methanex rose 66 cents, or 2.5 per cent at C$22.46 on the Toronto Stock Exchange on Wednesday. The stock has ranged between C$20.40 and $33.85 in the past 52 weeks on the TSX.
More Business
Search Articles
More CE Network Sites & Partners:
