Methanex Corp. (MX), the world’s largest methanol supplier, is forecast by analysts to climb beyond last month’s record price as demand rises for the chemical as a fuel source in countries such as China.
Methanol, used in paint, windshield-wiper fluid and plastics, is increasingly being blended into gasoline and other fuels. Investor optimism about Vancouver-based Methanex’s outlook helped drive the shares to an all-time closing price of C$44.09 ($43.69) in Toronto on April 25, a 53 percent increase in six months.
“This used to be a boring industrial chemical company -- people didn’t really care about methanol,” Steven Hansen, a Vancouver-based analyst at Raymond James Ltd. who has a price target of C$50.84, said last week in a telephone interview. “Now there’s this whole new group of demand silos that have emerged that are energy related.”
Ten analysts, including Hansen, have an average target price of C$47.95 a share, according to data compiled by Bloomberg, 13 percent more than the close yesterday. The shares rose 1.9 percent to close at C$43.20 in Toronto today. Analysts have six buy, one sell and three hold ratings on the stock.
Methanol as an energy source “is seen around the world as part of the solution to high gasoline prices,” Methanex Chief Executive Officer John Floren said in an April 25 interview in Vancouver. “It’s economic and it’s clean burning.”
Methanol is most commonly produced on an industrial scale using natural gas. Global demand for methanol for energy use is expanding at more than 10 percent a year, according to Methanex. It accounted for 37 percent of global methanol demand last year, up from 27 percent in 2007, Jim Jordan of Jim Jordan & Associates, a Houston-based chemical industry consultancy, said yesterday in a telephone interview.
Methanex, which manufactures methanol and trades the commodity for other producers, expects demand of about 53 million metric tons this year.
“We believe a variety of new methanol applications will support healthy supply-demand fundamentals,” Charles Neivert, a New York-based analyst at Cowen Securities LLC who rates Methanex a buy, said in an April 25 note to clients.
Demand for all uses is set to grow at a compound annual rate of 7.6 percent through 2016, according to a presentation on Methanex’s website.
“That’s quite robust,” Floren said. “It’s 4 million tons a year of new demand for methanol.”
To keep pace and exploit relatively low North American natural gas prices, Methanex is dismantling and moving two of its four methanol plants in southern Chile to Geismar, Louisiana. The company’s ability to produce methanol in Chile has been hurt by restrictions on exports of gas from neighboring Argentina.
In addition to being blended with gasoline, methanol’s other energy-related applications include replacing naptha in the production of plastics and use in the manufacture of methyl tertiary-butyl ether, an octane enhancer. Methanol, a clear, colorless liquid, also is being tested in Europe for ships facing more stringent emission standards.
“The energy applications are really what’s driving the industry and our goal to add 3 million tons of production capacity,” Floren said April 25 at the company’s annual meeting. That will increase Methanex’s annual production capacity to 8 million tons a year by the first quarter of 2016, he said.
While methanol isn’t currently used for gasoline blending in the U.S., use has surged in China, which is taking steps to reduce crude-oil imports. Methanol also appeals to policy makers in the Asian nation who would rather not encourage use of ethanol made from corn because they don’t want to put pressure on food prices, Floren said.
China is the largest consumer of methanol, accounting for about half of global demand, Hansen said.
A potential stumbling block for Methanex and its competitors would be a pronounced slowdown in global economic growth or a steep decline in crude oil prices, Hansen said.
“If oil went to $60 a barrel, it would seriously disincentivize fuel blending,” he said.
Methanex reported quarterly financial results last week that helped lift the company’s shares the most in four years.
The stock rose 10 percent on April 25, a day after the company reported first-quarter net income more than doubled to $60 million, or 63 cents a share, from $22 million, or 23 cents, a year earlier. Profit excluding accounting charges and other one-time items was 92 cents, topping the 73-cent average of nine analysts’ estimates compiled by Bloomberg.
Methanex said its average first-quarter methanol selling price was $412 a metric ton, 7.9 percent more than a year earlier, partly because of demand for use in the energy industry.
“In 2005, methanol used globally for gasoline blending was really just a rounding error -- less than half a million tons a year,” Hansen said. “Now it’s one of the most important drivers of methanol demand.”
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