Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Methanex Corp (MEOH, Financial) reported a higher adjusted EBITDA of $164 million for Q2 2024, up from the previous quarter due to higher average realized prices.
- The G3 plant has successfully restarted and is expected to ramp up to full production in the coming weeks, significantly increasing cash flow generation capability.
- Global methanol demand increased by over 3% compared to the prior quarter, driven by traditional chemical applications and energy-related demand.
- Methanex Corp (MEOH) has secured additional gas supplies from Argentina outside the winter period, providing more than their operational needs.
- The company ended Q2 2024 with approximately $390 million in cash and plans to repay a $300 million bond due in December, indicating a strong financial position.
Negative Points
- The G3 plant restart incurred $13 million in delay costs, impacting adjusted EBITDA negatively.
- Methanex Corp (MEOH) faced gas constraints in Chile, Egypt, and New Zealand, leading to lower production compared to the first quarter.
- The New Zealand operations continue to face challenges with lower-than-expected gas deliveries and redirection of contractual gas to the broader energy sector.
- Adjusted EBITDA for Q3 2024 is expected to be lower than Q2 due to lower produced sales from Chile and New Zealand and initial inventory build post-G3 startup.
- Methanex Corp (MEOH) anticipates continued limitations on gas supply in Egypt through Q3, affecting production rates.
Q & A Highlights
Q: New Zealand seems to be disappointing on a fairly consistent basis. Does it make sense to indefinitely idle one of the two Motunui plants?
A: Right now, we're working through two big issues: lower-than-expected gas deliveries and short-term dynamics in the industry. For the foreseeable months, we are considering a one-plant operation and will assess the situation for the rest of the year.
Q: On the Entropy deal, what are the constraints preventing others from copying what you've done and adding another 5% to 10% of supply?
A: We're happy to be working with Entropy, which already has this technology in place. You need a supportive regulatory framework and sequestration availability. This project will capture about 400 metric tonnes of CO2 per day, with two-thirds used in production and the remaining third sequestered.
Q: What is your current expectation for when G3 should be fully running and impacting earnings?
A: We expect G3 to ramp up to full rates in the coming weeks. Currently, the plant is operating at 70% rates. We don't expect significant G3 impact in Q3, but Q4 should reflect a run rate with G3 at full production. At $350 a tonne, G3 generates around $200 million to $250 million in EBITDA per year.
Q: On the Entropy announcement, is the project dependent on receiving government funding?
A: The project will look to access provincial and federal incentive programs. The first phase captures 400 metric tonnes per day, with two-thirds used in production and one-third sequestered. The second phase aims to capture all Scope 1 emissions, requiring more infrastructure and certainty around carbon pricing.
Q: How should we think through the discount rate for the rest of the year and into next?
A: We're guiding to $350 to $360 per tonne for the coming quarter. We're focused on realizations rather than discounts, which have crept up due to competitive pricing but reflect tight market balances expected to continue for the rest of the year.
Q: Can you comment on the curtailments to Trinidad gas and how you're seeing that develop through this quarter?
A: Our outages were due to maintenance on the air separation unit, not gas-related. There were gas outages upstream affecting other producers, but not our Atlas operations.
Q: How round is the 7 million tonnes of Methanex produced volume guidance?
A: We feel good about the 7 million tonnes range for the year, considering G3's current status and expectations, despite some ups and downs in Chile and New Zealand.
Q: Can you talk about the insurance settlement for the Egypt repair?
A: We expect to collect insurance proceeds in Q3, which is not included in our current guidance.
Q: What is the signpost for resuming stock buybacks?
A: Our first priority is debt repayment. Once we build up cash for the $300 million debt repayment, we can consider other uses of capital, including share repurchases.
Q: Has anything changed in the Chilean gas market that allowed you to secure more gas?
A: We have more gas available from Argentina outside the winter period than we need. The challenge remains during the winter period due to export restrictions, but we're in discussions to secure year-round gas.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
