Methanex Corporation

Good morning, my name is Aaron and I will be your conference operator for today at this time, I would like to welcome everyone to the method next corporation 2024 second quarter results conference call. All lines have been placed on mute to prevent any background noise after the speakers remarks, there will be a question and answer session. And if you would like to ask a question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star followed by the number one again. Thank you. I would now like to turn our call over to the Director of Investor Relations at Methanex, Ms. Sarah Harriot. Please go ahead, Ms. Harriot.

Good morning, everyone. Welcome to our second quarter 2024 results conference call. Our 2024 second quarter news release, management's discussion and analysis, and financial statements can be accessed from the financial reports tab of the investor relations page on our website at methanx.com. 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 second quarter 2024 MD&A and to our 2023 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. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflects our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, and our 60% interest in waterfront shipping. In addition, we report 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. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be comparable to similar measures presented by other companies. We report these non-GAAP measures in this way because we believe they are 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. Rich Sumner, for his comments and a question and answer period.

Thank you, Sarah, and good morning, everyone. We appreciate you joining us today as we discuss our second quarter 2024 results. Our second quarter average realized price of $352 per ton and produced sales of approximately 1.6 million tons generated adjusted EBITDA of $164 million and adjusted net income of 62 cents per share. Adjusted EBITDA was higher compared to the first quarter of 2024, primarily due to a higher average realized price. Our second quarter was negatively impacted by $13 million of G3 delay costs recognized in adjusted EBITDA, which was comprised of costs associated with monthly utilities pay contracts and employee costs. Excluding these G3 costs, adjusted EBITDA would have been $177 million. The safe restart of G3 continues to be our company's top priority. During the quarter, the G3 team completed the repair to the autothermal former and implemented conditions to allow us to progress back into startup. I'm very pleased to report that yesterday we reached first methanol production from G3, and we expect the plant to ramp up to full rates in the coming weeks. The safety performance of our team and partners on the G3 project has been outstanding. this project safely. G3 significantly increases our cash flow generation capability and has one of the lowest emission intensity profiles in the industry. Now turning to the second quarter, methanol pricing and market dynamics. Our second quarter global average realized price of $352 per ton was $9 higher than the previous quarter. Through the first part of the quarter, methanol markets tightened, with increased demand outpacing supply, leading to a significant global inventory drawdown and increasing methanol prices. Markets remained tight in the Atlantic Basin and rebalanced in China in June when demand slowed down with several methanol-to-olefins, or MTO units, taking maintenance or lowering operating rates. We believe operating rates from MTO producers are increasingly becoming the balance on the global market, as supply struggles to keep pace with demand growth. Overall, global methanol demand was higher compared to the first quarter of 2024. Traditional chemical applications and energy-related demand grew above 3% compared to the prior quarter, driven by increased economic activity globally, seasonally high construction and transportation activities, and favorable energy pricing, which continues to support methanol demand into energy applications. MTO demand decreased in the quarter as plants took outages or lowered operating rates in line with methanol supply constraints and increasing methanol prices. MTO operating rates decreased from around 85% in the first quarter to operating rates between 50% and 60% through June and into July. With various improvements in methanol supply through the quarter, we've recently seen one large MTO unit restart, but three large-scale units are currently idle, representing approximately 4 to 5 million tons of annual demand. On the supply side, we saw various planned and unplanned outages and feedstock constraints restricting supply availability in the second quarter. This limited supply from various regions globally, and in particular, methanol production from Iran was slower to enter the market after seasonal gas restrictions. As a result, global inventory levels were under meaningful pressure, reaching 18-month low levels in China, and increasing prices drove lower operating rates from the MTO sector, which led to a more balanced market in China. Towards the end of the quarter, we've seen various improvements in methanol supply and inventories globally, although markets remain quite tight, and as I already noted, there remains considerable MTO demand available to restart. We are seeing methanol pricing around $290 per ton in China, and we continue to see premiums above these levels in all regional markets. We estimate the marginal cost of production based on coal pricing in China to be around $270 to $280 per ton. Looking ahead to the third quarter, we expect to see continued tight methanol markets. We're seeing healthy demand growth across all traditional and energy-related downstream sectors, with empty operating rates influenced by the availability of supply. We anticipate this increasing demand will be met by increased operating rates in the industry, as well as new supply from G3, which will be partially offset by our supply reduction in Trinidad in September when we shut down Atlas and restart Titan. Additionally, the 1.8 million ton plant in Malaysia has announced it will be on global methanol demand. Now turning to our production. Methanex production in the second quarter was lower compared to the first quarter due to gas constraints in Chile, Egypt, and New Zealand. In Chile, we're currently in the period of lower gas supplies available from Argentina, so we're operating one plant at less than full capacity. We continue to make progress on gas availability from Chile and Argentina, and based on production year to date, a successful turnaround at Chile 4 that will improve efficiency on restart, and progress we've made securing gas from Argentina for the non-winter period this year, we expect 2024 production will be slightly above the high end of our guidance of 1.2 million tons. In Egypt, the plant produced at high rates after the syngas compressor maintenance completed in mid-February. In early June, the plant was temporarily idled when significantly increased seasonal demand for power generation, due to elevated temperatures in the country, led to various measures by the government to manage gas balances, including curtailments to industrial plants. The plant restarted at reduced operating rates shortly thereafter and has operated at fluctuating rates based on gas availability, with current operating rates at approximately 80%. We've seen some stabilization of gas balances in the country, but we expect to see some continued limitations on supply as we progress through the third quarter. In New Zealand, we operated one plant through the second quarter due to both lower than expected gas deliveries from upstream suppliers, as well as from the redirection of some of our contractual gas for use in the broader energy sector. The country's overall energy balances are currently very tight, with demand seasonally high during the southern hemisphere winter, combined with low hydro levels and relatively lower gas As a result, we believe some of our contractual gas has been redirected to the electricity and other domestic energy markets. We're in continuing discussions with our gas suppliers to ensure our contractual entitlements are being respected, as well as engaging with our gas suppliers and government agencies in supporting efforts to improve energy balances in the country. Based on our production year-to-date and current gas delivery, of 1 million tons. Now turning to our current financial position and outlook, we ended the first quarter with approximately $390 million of cash. With the G3 plant now in the process of startup, the project is now complete. The total final capital cost is slightly less than $1.3 billion, excluding fixed costs related to the delay, and we do not currently have any further growth capital commitments. Our primary focus for capital for the remainder bond due in December. Turning to the third quarter, our European quarterly price was posted at 535 euros per metric ton, a 10 euro per ton increase. Our North America, Asia Pacific and China prices for August were posted at 695, 400 and 380 dollars per ton respectively. We estimate that based on these posted prices, our July and August average realized price range is between approximately $350 and $360 per metric ton. We expect adjusted EBITDA for the third quarter will be lower than the second quarter, due primarily to lower produced sales from Chile and New Zealand and G3's initial inventory build post-startup. We expect sales of produced product and earnings for the fourth quarter of 2024 to be more representative of the run rate of our company with G3 at full production. We'd now be happy to answer questions.