Methanex Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q1 2021 earnings call. I would now like to turn the conference call over to Ms. Kim Campbell. Please go ahead.

Thank you. Good morning, everyone. Welcome to our first quarter 2021 results conference call. Our 2021 first quarter news release, management's discussion and analysis, and financial statements can be accessed from the reports tab of the investor relations page on our website. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections which are included in the forward-looking information. please refer to our first quarter 2021 MD&A and to our 2020 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters. clarification, any references to revenue, EBITDA, cash flow, or income made on today's remarks reflect our 63.1% economic interest in the Atlas facility and our 50% economic interest in the Egypt facility. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events. We report these non-GAAP measures in this way to make them a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. John Florence, for his comments and a question-and-answer period.

Good morning, everyone. We hope that you are continuing to stay safe and healthy. As we deliver our Q1 2021 results, it's hard to believe that we've operated through the pandemic for over 12 months. Our resilient business model and robust planning and execution have enabled us to navigate through this challenging period. We are incredibly proud of our team worldwide who have shown tremendous commitment and agility over this year. Our teams have continually adjusted how we work to keep each other safe while maintaining our operations and delivering reliable methanol supply to our customers. This morning, I'm pleased to discuss our strong first quarter 2021 financial results, which highlight the value of our business model. We will also share what we see in the methanol market today, review our operational results, and discuss our outlook entering the second quarter. Turning to our financial results, we posted higher methanol prices in the first quarter of 2021, increasing our average realized price to $363 per ton. up by $81 compared to the fourth quarter of 2020. Our adjusted EBITDA of $242 million increased by $106 million over the fourth quarter of 2020. These results demonstrate the leverage that our earnings have to higher ethanol prices. We also recorded higher adjusted net income of $82 million or $1.07 per share in the first quarter, an increase of $70 million 92 cents per share compared to the fourth quarter. Turning to the markets, methanol demand continues to recover, and at the current trajectory, we anticipate the global methanol demand will return to discrete pandemic levels later this year. Global methanol demand in the first quarter of 2021 increased by approximately 5% compared to the first quarter of 2020. The steady methanol demand recovery combined with ongoing industry supply challenges led to tight market conditions and higher methanol prices in the first quarter. We are pleased to see favorable industry conditions continue into the second quarter. We estimate the industry cost curve, which is set in China, remains at approximately $260 to $280 per ton. Spot prices in China are above this range today. Early in the second quarter, methanol market conditions remained tight, and global inventory levels remained low, and industry supply challenges persist, and methanol demand continues to recover. We recently posted our May North American price, which increased by $23 to $542 per ton, and our Asia Pacific price, which remained at $430 per ton. We set our European contract price quarterly, and our second quarter posted price is 410 euros or approximately $490 per ton. Now turning to our operational results, our first quarter of 2021 production of 1.6 million tons was similar to our fourth quarter results. Higher production of our Atlas and Medicine Hat facilities offset lower production at New Zealand and Geismar facilities in the first quarter. In New Zealand, our production was lower in the first quarter, 2021 compared to the fourth quarter of 2020 due to lower gas deliveries. As we mentioned last quarter, we consolidated production under two larger Montnui plants and idler Waite Valley plant indefinitely. We estimate production in New Zealand for 2021 of 1.5 million tons. The upstream gas sector will be completing several field development projects that are expected to improve gas availability over the coming years. In Geismar, our production in the first quarter was lower than the fourth quarter because we completed a planned turnaround at our Geismar 2 facility. Winter storm Yuri in February did not significantly impact the site. Following the turnaround, our Geismar facility has been running extremely well and we have achieved record production levels at this site. We completed the de-bottlenecking project work at Geismar 1 plant in 2020. and we expect the Geismar 2 debottle linking project to be complete in mid-2021. As a result, our operating capacity for our Geismar facilities will increase to 2.2 million tons from 2 million tons, an increase of 10%. In Trinidad, our production in the first quarter was higher than the fourth quarter as planned turnaround activities impacted production in the fourth quarter. Based on current gas deliveries, we estimate production in Trinidad for 2021 to be 1.1 million tons, reflecting Methanex's interest. In Chile, our production in the first quarter was higher than the fourth quarter as our Chile 1 plant ran nearly at full operating rates. Our Chile 4 plant remains idle due to gas supply constraints driven by upstream production declines in Argentina. We typically experience lower gas salaries in the southern hemisphere winter months, impacting our second and third quarters and it is uncertain how long these lower gas deliveries will persist our current gas supply is sufficient to run our chile one plant and we estimate production for chile for 2021 to be 800 to 900 000 tons in egypt our production in the first quarter was similar to the fourth quarter as our plant ran at nearly full operating rates in medicine hat our production in the first quarter was higher as planned turnaround activities impacted production in the fourth quarter. Turning to our balance sheet, we have a strong liquidity position with over $850 million in cash, a $300 million undrawn revolving credit facility with no debt maturities until the end of 2024. Our disciplined approach to capital allocation has not changed. Over the long term, We believe we're well-positioned to meet our financial commitments, execute on attractive growth opportunities that exceed our hurdle rate, and deliver on our commitment to return excess cash to shareholders through dividends and share repurchases. A key focus for us in 2021 is deciding on the next steps of our Guides for 3 project, a unique project with significant capital and operating cost advantages. We have a robust decision-making process for evaluating the project. Before deciding whether to restart construction, management and our board will carefully consider many factors, including the strength of the global economic recovery and the overall methanol industry outlook, our financial position, and our ability to execute on the project. We expect to decide on the next steps for the project later this year. We are encouraged by the favorable industry conditions that we have seen so far in 2021. We continue to monitor industry operating rates and new capacity scheduled to start up later this year, and the impact on the current global supply and demand balance. We are optimistic that the global economic recovery will accelerate as vaccines rolled out worldwide and as governments announce additional fiscal support measures. For now, we continue to prioritize liquidity and financial flexibility to best position ourselves to deliver long-term shareholder value. Now, turning to the outlook for the second quarter. We expect realized methanol prices in the second quarter of 2021 will be similar to the first quarter based on our posted prices so far. We forecast that our second quarter production will be similar to the first quarter. We anticipate similar adjusted EBITDA results in the second quarter compared to the first quarter. We continue to focus on operating our plants safely and reliably, delivering secure and reliable supply to our customers, and protecting our financial flexibility. We are well positioned to deliver long-term value to shareholders. We would now be happy to answer questions.