Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the My Synnex Corporation Q4, 2019 earnings call I would now like to turn the conference over to Mr., Kevin Campbell. Please go ahead and that's Campbell.
Thank you good morning, everyone welcome to our fourth quarter 2019 results Conference call I 2019 fourth quarter news release.
Sure. This discussion and analysis financial statements can be accessed from the reports tab of the Investor Relations page on our website and methanex Dot com.
I'd like to remind our listeners that our comments and answers to your questions. Today may contain forward looking information.
Information by its nature subject to risks and uncertainties that may cause a stated outcomes to differ materially from the actual outcomes.
Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projection, which are included in the forward looking information.
Please refer to our fourth quarter 2019, Mdna entering 2018 annual report for more information.
I would also like to caution listeners that any projections provided today regarding methanexs future financial performance, our effective as of today.
It is our policy not to comment on I think this guidance between quarters.
For clarification any references to revenue EBITDA cash flow or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility and our 50% economic interest in the Egypt facility.
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 about.
We reported these non-GAAP measures in this way to make than the 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 Methanexs, President and CEO Mr., John Florence for his comments kind of question then after a period. Thanks, Kim good morning, everybody.
As a result with the low cost investments we've made in our company over the past number of years to substantially increase or product.
Capability.
Next was able to produce a record 7.6 million Cogs.
Nothing at all and 29 team.
We also had a record quarter from ethanol sales in Q4.
However are excellent operational performance was overshadowed by lower average realized prices in 2019 compared to 28 team.
We recorded adjusted EBITDA of $566 million on adjusted net income of $71 million.
93 cents per share for 29 team.
In the fourth quarter, we recorded higher adjusted EBITDA of $136 billion.
Adjusted net income up $10 million or 13 cents per share compared to the third quarter, Despite a lower methanol price environment.
These results compared to adjusted EBITDA of $90 million and adjusted net loss of $21 million.
Were 21 cents per share that we recorded in the third quarter.
The higher adjusted EBITDA, we delivered in the fourth quarter was based on higher sales volumes of methanol produce stuff. The next produced methanol.
Supported by a record production results and improved cost, which were partially offset by lower average realized price and 68000 ton inventory build produced product.
Our flexible cost structure, we're over 60% or natural gas contracts are linked to methanol revenue allows our assets to be competitive across the price cycle.
Our average realized price for the fourth quarter was $256 per ton.
<unk> reflects a decline of $16 per ton from the $272 for time that we recorded and third quarter.
In addition, our fourth quarter adjusted EBITDA results include an insurance recovery associated with our Egypt outage from April to August 2019.
$25 million pending final settlement, which we forecast to be slightly higher than the $25 million.
This amount reflects our 50% share in Egypt facility. This insurance recovery recovery, partially offsets repair costs.
We recorded in the second and third quarters of 29 team and lost margins I'm ethanol sales to customers as a result, because the outage.
Overall methanol demand grew by 3% in 29 team traditional methanol demand was flat year over year as a result, Lori global economic growth, particularly in the automotive and construction markets various planned and unplanned downstream outages, and then nationwide safety and environment inspections in China.
Demand for energy related applications was robust and grew 7% supported by the startup to methanol to olefins or MTO plants.
Methanol industry supply was impacted by above average historical operating rates for most of the year, we've seen meaningful Iranian volume entered China and sold at a discount to methanol or originating from other geographic geographical locations, leading to additional price volatility in that market.
Late in the fourth quarter of 2019 and into the first quarter of 2020, there have been several unplanned outages in the middle East, including Iran, Southeast Asia and in the U.S.
In addition, the diversion of natural gas away from ethanol production residential heating in China.
I'd like to tighter market conditions and higher methanol pricing in February .
We estimate that the industry cost cost curve, which continues to be set in China is currently around $260 per ton and current prices in China or above this range.
We recently posted our February North American price, which increased by $54 to $396 per ton.
Our Asia Pacific price, which increased by $60 to $335 per ton.
Our European contract prices set quarterly and our first quarter posted prices 275.
Gross per ton.
Well methanol industry and price dynamics are hard to forecast in the short term we remain positive on the long term longer term supply demand fundamentals for our enough for them ethanol industry.
We estimate that the current methanol demand is approximately 84 million tons and forecasted demand growth is approximately 3% to 4% over the next few years based on a steady growth across traditional and energy energy related applications.
This pace of growth will require one to two worldscale plans to start up every year to keep up with the forecast as a matter.
There are a limited number of new capacity additions that are under construction and expected to start up in the medium term.
Historically, we've seen meaningful delays and the completion of new projects and we believe industry supply could be challenged to keep pace with demand growth.
Now turning to our operations, we focus on what we can control, which includes running our plants safely and reliably we're very pleased with our record production results for the quarter and for the year.
Our safety performance was excellent and the best we've achieved in many years.
Missoula, New Zealand, we produced 513000 tons during the fourth quarter compared to 469000 tons in the third quarter production was higher in the fourth quarter as we received higher gas deliveries.
We took our smaller what your valley plant offline in December to complete unplanned maintenance activities.
We expect the repairs will be completed in the middle of the first quarter of 2020.
Based on our current contracted gas position, we have revised our 2020 production guidance to New Zealand to approximately 1.9 million tons.
As a result, the way to valley outage has minimal impact on our overall forecast for methanol production in New Zealand in 2020.
In Geismar, we produced 480000 tons during the fourth quarter compared to 514000 tons in the third quarter.
Production was lower in the fourth quarter as we experienced a few short unplanned outages that are geismar two facility.
In Trinidad we produced 456000 equity tons in the fourth quarter compared to 474000 equity tons in the third quarter production was lower in the fourth quarter as we experienced a few short.
Unplanned outages during.
During the quarter, we announced we had reached an interim agreement with the National gas company of Trinidad and Tobago NGC for the supply of natural gas to our tightened methanol facilities.
We extended the term of the interim agreement to April one 2020 from January 31st 2020 to enable methanex to continue operations that are tight methanol facility will continue negotiations with NDC for a longer term national natural gas supply agreement.
We continue to guide to approximately 85% operating rates for our Trinidad operation in 2020 provided we're able to contract additional gas for Titan facility.
Until late we produced 373000 tons during the fourth quarter compared to 146000 tons in the third quarter.
Excellent production performance resulted in our highest quarterly production in Chile since the second quarter of 2007.
This is a significant milestone for our totally operation.
We're pleased to announce earlier in the quarter that we reached an agreement for natural gas supply from today that will underpin approximately 25% of a two plant operations through the end of 2025.
We expect at our current gas agreements will allow for a full two plant operation in Chile during the southern hemisphere, Southern summer months and up to a maximum of 75% of a two plant operation annually until the end of 2020.
We're optimistic that we can secure enough natural gas to underpin a full two plant operation you're around over the coming years.
Regarding the ongoing protests internally our people are safe and that's our number one priority.
Operations have not been impacted today.
We continue to closely monitor the situation to ensure that our people are safe and our operations continue to run smoothly.
In Egypt, we produced 151000 equity tons during the fourth quarter compared to 85000 equity tons in the third quarter.
We restarted the Egypt facility in August following a four month unplanned outage. We are pleased that are either facility has returned to high operating rigs.
Our medicine hat plant continues to operate well at full operating rates.
Turning to capital allocation.
Our approach to capital allocation remains unchanged.
We believe that well positioned to meet our financial commitments execute on our growth projects in Louisiana and deliver on our commitment to returning excess cash to shareholders through dividends and share repurchases.
In terms of our financial commitments are expected maintenance capital expenditures for 2020 are estimated to be approximately $150 million.
Expected maintenance capital, maybe higher or lower in a particular year, depending on the specific maintenance activity required to ensure each of our 11 plans can run safely and reliably reliably.
We continue to make progress on the de bottle AUC opportunity opportunities in Geismar, one and Geismar two facilities to increase production by approximately 10% for 200000 tons per year for a few tens of millions of dollars.
We are completing the construction of a pipeline to bring Seo two to the site and the necessary work at Geismar. Two play we expect that the into incremental production capacity from our guys. One geismar one facility will come online at the end of Q1 2020, and the incremental production from our Geismar two facility will come online sometime.
In 2021.
We started construction of Geismar three in August 2019, and advantage 1.8 million tied methanol plant located adjacent to our existing geismar one in Geismar two facilities.
This project will strengthen our global leadership position and significantly enhance our asset portfolio with additional low cost production.
We are in the early days a construction at our progress to date is in line with our previously committed communicated schedule and budget.
We are forecasting startup of GE three in mid 2022, with an estimated capital cost of $1.3 billion to $1.4 billion.
We're confident that this project will deliver outstanding returns based on its substantial capital and operating cost advantages. We are well positioned to complete. This project is plan as we have a rigorous and well defined execution plan and experienced team in place and a robust and flexible financing plan.
As we've communicated many times in the past our strong preference is to have a partner for the GE three project and we continue to aggressively aggressively pursue that option.
We've recently engaged in investment bank to assist us to reach a broader range of strategic or other potential partners.
We have built our company to be able to navigate the bottom of the cycle. We continue to focus on maintaining a strong balance sheet and having finance flexibility a low cost structure, which we have in place today.
We ended the quarter with $417 million of cash on the balance sheet.
We have a strong liquidity position with an 800 million dollar construction loan facility for the Geismar three project.
Remains undrawn and a 300 million dollar undrawn credit revolving credit facility to provide further financial flexibility in case, we encounter unforeseen business stress.
During the quarter, we returned $27 million to shareholders through our regular dividends. During 2019, we repurchased 1.1 million shares of the approximately 3.9 million shares approved under the current normal course issuer bid, we did not repurchase shares in the fourth quarter.
Now turning to our outlook for the first quarter of 2020.
We expect that our cost structure will slightly increase in the near term as a result of higher shipping costs, primarily due to the impact of the international Maritime organizations 2020 regulations on sulfur emissions, leading us to use higher cost fueled a power shipset cannot run on methanol.
Based on posted prices so far this quarter, we forecast average realized prices in Q1 2020 to be higher in Q4 2019.
Our forecasted production in the first quarter is similar to the fourth quarter, we forecast adjusted EBITDA in the first quarter to be similar to the fourth quarter of 2019.
Regarding the Corona virus outbreak, our people are safe and Thats our top priority.
Leadership team in China is closely monitoring the situation to ensure that our people are safer than our operations run smoothly.
We assume that the extended business closures announced by the Chinese government of approximately 10 days.
On the lunar new year holidays will have an impact on methanol demand.
However, it's too early to forecast how this rapidly evolving situation will impact the global methanol industry in 2020.
I would now be happy to answer any questions.
Thank you Mr. Floren. Please press star one at this time if you have a question. If you are using a speakerphone. Please announce your handset before making their selection. Please limit your inquiry to one question plus a follow up questions. After that if you have further questions. Please rejoin the queue. The first question is from Mike Leigh head.
Barclays. Please go ahead.
Thanks, Good morning, John .
Morning.
I guess first on methanol pricing you guys appeared I've gotten a nice up tick in February pricing. So can you maybe just talk about the demand environment, you've seen so far this year and just on the supply side you mentioned.
In the prepared released last night, a few new industry projects, you expect to ramp so I guess, how upbeat are you on further pricing momentum over the next couple of quarters here.
It really goes so the two issues you mentioned supply and demand.
Prior to the current run up there were four MTO plants in China that announced maintenance during the first quarter. So thats going to happen. Obviously, we'll have it a negative impact on demand in the short term. The other derivatives are performing okay. So there's nothing really to worry about.
There I'd say the Corona virus is a big.
Known.
We always expect China around lunar new year to take some downtime and that does impact demand, but thats a year over year issue. How long. This goes for its again so the demand for Q1 I think based on some unknowns.
Mike might be okay might be down a little bit it's really hard to say.
Supply is really what's driven the price increase.
Increase we had really good production results from the industry for most of 2019 and as we headed into 2020, we saw a number of unplanned outages and the big a known as Iran, and the gas being diverted in that country. So.
Thats certainly will impact the supply side in the queue in Q1, so like I mentioned in my remarks, we expect pricing to be a little higher in Q1, but it's really difficult to predict how much higher.
Got it that that's helpful color and then just a follow up on Geismar three if I'm interpreting correctly your prepared commentary about engaging with the bag. It sounds like you're expanding the scope of potential options beyond just looking at our strategic partner is that correct read there and I guess can you maybe just flesh out what.
The other options you would consider year, such as I guess, maybe a financial partner for the project.
Yes, we're considering all options, we're still talking to our strategic and the strategic people, we have been talking too. So those discussions are ongoing.
We just decided from a resource base.
At this point of view as we widened our scope that we're going to need a bit more resource. So it made sense to high higher and investment bank to help us.
Screen more potential partners and yes, it will broaden our scope here from just strategics to other potential partners they could be financial they could be other.
And he's interested in investing that maybe don't have the same strategic.
Principles is current ones, we're talking to but.
We thought from a report resource point of view, we needed to have a bit of additional help as we broaden our scope here.
That's helpful. Thank you.
Thank you. The next question is from Joel Jackson from BMO capital markets. Please go ahead.
Hi, good morning, John .
Just on your Q1 kind of soft guidance. There. So you talk about EBITDA being similar.
Sequentially, you talked about production being similar pricing being up.
What media can drive talk about some of the cost impacts that must be driving EBITDA down to be similar but do you think the price.
Pickup would be helpful. Thanks.
I said pricing will be up slightly right and I said production will be similar we had Egypt recovery in the quarter as well.
We are going to experience higher cost on fuel or for freight so thats the significant difference in the cost structure.
So that.
Ultra low sulfur diesel is quite a bit more expensive than heavy fuel oil. So that's driving our cost structure up on the freight side, so thats and guides around the same and it really depends on what market pricing ends up I'll remind you Q1 for Europe is lower.
In Q4, so were were owned into that price for the whole quarters. So that when you compare off or acute Q4 to Q1 experienced lower pricing in Europe . So on balance.
We expect pricing to be little higher.
Ends on what happens on the supply side as I've already mentioned and it's really difficult to predict what happens in around so.
And the MTO I mentioned is going to have four plants or that were in planned turnarounds. Prior to this fly up and pricing. So we expect those to go ahead and then the Corona virus, it's a bit of an unknown. So.
Based on all the balances at all.
Tanks, we expect it to be about the same.
That's helpful. And then following up I mean, you just outlined a lot of caution a lot of puts and takes a lot of unknowns. Like you said you talked before about for share buyback.
To continue or does it start again, you want to how to think about 300 million dollar cash Bob you want to have methanol prices at least $300 realized as you get into the second quarter. If these price levels pool, you should be there.
Could you be positioned could you share buybacks.
Even though you're starting to get into large spend the GE three.
If you're over 300 or with some of these unknowns weigh on you. Thanks.
Yes, whether we are building GE three or not in this current price environment, we wouldn't be buyback any shares. So I think thats, an important point to make what I've guided to in the past at a 300 plus environment.
There's there's room to complete the project on our own.
Have a meaningful sustainable growing dividends and to do a better share repurchases now how much above 300 level will impact that share repurchases. We have ways to go to get to that 300 million targets. So we've seen one one month tier of up tick in pricing. So the guidance remains the same I mean, we'll want to keep $300 million.
The balance sheet.
As we complete three and we have excess cash beyond that.
And we see pricing being sustainable above the 300, we'll consider.
Putting up another share repurchase orencia, but I think that's in the future and let's let's see how pricing in supply demand work out here in the next months and before we get apart for the horse here.
Thank you.
Thank you. My next question is from Steve Hansen from Raymond James. Please go ahead.
Yeah, Hey, John just wondering if you could give us some context or color around the key sticking points you might be ceasing on gas contracts at this juncture and just give us a flavor for whether you can continue to roll. These temporary agreements going forward or at what point do you have to draw the line.
In the sand with the government is trying to get some better color around the probability of tight running all year. Thanks.
Yes.
We're working hard to get this done.
We don't we want to run the plant the government wants us to run the plant.
Trying to find a solution that's a win win for the upstream the government and ourselves and thus we will continue to do I'm not going to negotiate in public.
Teams are working hard, but there does come a point, where you did you make a decision are these negotiations going to get to a place where it makes sense for all parties or does it not we're not there yet and we're happy to extend the the interim agreement we know what our cost structure is in Q1, So I I always said I would not enter into.
Running up flat not only Mike cost structure I do know what my cost structure is.
And it's acceptable under current methanol prices. So we'll continue to negotiate in good faith I would say all parties want to deal and that's always the good thing and we're optimistic we can get it done so and we will continue to negotiate with the government and the NGC.
Okay. That's helpful and just a follow up as they move on the study as a partner you alluded to cancel that broader.
Well to Cincinnati parties should we read into that means that this strategic discussions or discussions with the strategic partners has not gone as well as you'd hopes or is it just that you're seeing more comprehensive in the broader search and display understand why strategics are not still the priority.
Oh that they are the priority that was the misunderstanding what I said I think.
As you are getting into more discussions we only have limited resources internally to have multiple discussions we made the decision to widen.
The scope of what we're going to look forward to be a potential partner and three our preference and our strong preference is to have a partner for 30%.
So we looked at all of that we said it made sense to hire some additional resource. So we agreed with a banker to help us with.
With the screening process with the negotiations and.
As you open it up to more than two to three parties, we need a lot of quite a bit more resource so thats what weve done.
We're still talking to this is the same parties were making progress we have made progress.
During the last 90 days, but we want to.
Broaden our broaden our reach and talk to a number of different parties and that's just a matter of getting some additional resource.
Do you think you can get that got in the first half of this year the back half of this year, what's the timeline.
Well, we're working hard and we'd like to the next step would you need to have a heads of agreement with a potential partner and.
We'll see what the timing, where we get too, but we're it's a top priority we've got more resource on it now and we'll continue to broaden our view and.
See what makes sense.
Okay very good.
[music].
Thank you once again please limit your inquiries to one question first a follow up question. The next question is from Hassan Ahmed from Alembic Global. Please go ahead.
Good morning, John .
John quick question around Asian polyethylene margins you know they then I'm extremely negative over the course, the last couple of months and.
2020 globally is supposed to be a pretty big sort of ramp up here in terms of what he had seed supply so I'm just sort of.
Wondering you know how one should think about sort of the MTO side of things.
In a pretty strong supply growth in vitamin support he has been particularly in Asia.
Yes, I think we see currently the MTO guys a bit more affordable than NAFTA.
So we have seen ethylene propylene prices pretty at the low end of the historical cycle, we understand theres some more supply going on.
What I can comment on the behavior of the MTO players and all of the MTO players up to now run at very high rates unless they are doing maintenance or have had a technical issues. So we continue to watch it very closely.
It does impact ethanol pricing and the affordability, we look at that as well.
So this is a key issue for us that we're going to continue to watch and.
Right now we see high operating rates at the MTO, where prices have gone on olefins anybody's guess, what we know that there were at the low end of the cycle now and probably little bit better economics on the MTO than announces producers, but what is what happens in the prices now who knows.
Understood understood.
As a follow up you know decent pricing momentum over the last month or two.
But you know as I understand dividend.
And you sort of large industry outages I mean, you know.
Some outages out in Malaysia lives.
<unk> natural gas supply disruption related outages in Iran as well.
You know what day large contributing factors to some of this recent pricing momentum that we've seen and what do you guys hearing in terms of.
The Malaysian an Iranian capacity coming back online.
Yes, I mentioned that we will we saw really high operating rates in the industry for most 2019 as we got into 2020. The end of 2000 2090, so basically a month.
We've seen some unplanned outages once you've mentioned in the Iranian gas situation.
We it's impossible for us to predict what's going to happen in around with gas.
And what other unplanned outages there might be so we're seeing production.
Reduce in January does that carry through to February probably half of how much longer is difficult to predict I'd say inventories have been.
Lowered quite a bit as well if you look at the coastal China inventories they've come down substantially so.
As I mentioned earlier on the other side, we've got some MTO planned outages for maintenance. So there the demand will be impacted a little bit in February March. So again, it's really hard to predict right now with all these variables.
The net net impact on loan pricing.
Understood understood. Thanks, so much on.
Thanks.
Thank you. The next question is from John Roberts from UBI, Yes. Please go ahead.
Mr. Robert if you have a question your line is now open.
Hearing no response will remove we moved to the next question. The next question is from Eric Petri from Citi. Please go ahead.
Hi, good morning, John .
Good morning.
So Henry hub prices of cross below the $2 per annum beats you level. So how do you see that impacting the cost curve as well as future development projects in North America.
Yes, it doesn't impact cost curve at all.
Cost Corcept, China today, Thats, where most of the high cost production is a bit in Europe , it's really set in China.
Based on natural gas and coal in China, and there's quite a bit of material cost curve I mentioned 20 to 260 Bucks a ton give or take and there's quite a bit of production at that level, so really you'd have to see.
Tens of millions of more capacity being built in the United States with a price of $2.
Before you see the cost curve really impacted.
Okay helpful. And then longer term do you see any risks to MTO utilization due to the single use plastic spans announced in China.
Yes, again, it's early days and I think it's what's that going to impact demand and maybe impact the future growth of supply.
I think that stuff that we see running today and the MTO is a fraction of the overall olefins market, even though it's a huge impact on the demand them ethanol. It's a blip in the overall supply of olefins. So our view is is that these plants will continue to run.
And.
If there is a downturn in demand in olefins, which has grown quite nicely over the last 10 years, because a single use plastics than we would expect future supply to be less robust than maybe what's plan today.
Thank you.
Thank you next question is from Nelson Ng from RBC capital markets. Please go ahead.
Great. Thanks, So just in China have just thinking.
In terms of methanol demand have you seen any.
Early indications of any potential drop off and demand or supply due to the caught a virus and.
How long do you think you'll take before you notice.
Any of these impacts.
Yes, like I said, we're in Chinese lunar new year anyway. So every year, we see a downturn this time of year when the oil country basically goes away for weeks. So that has an impact each and every year and they stock up little bit ahead of that and then they start producing afterwards I said in my remarks, we think thats been extended and.
Some part or.
Great part of the country by 10 days, So give me a couple of weeks and we'll we'll see what the the impact is I I'd say all that much longer does it get delayed as it. Another if it's just 10 days I think the impact will be quite minimal, but if you remember Sars there was quite as an impact on global GDP for.
For that that period so.
I think it was if I recall around 1% so 1% of global GDP is not insignificant.
85%.
Traditional derivatives and then we've got the MTO and other energy in China. So I think it's how long and I'm not in a position to predict at all how long this.
The.
The expansion of the virus continues and the impact on the Chinese government decisions to run industry in the country.
Okay. Then my follow up question relates to you guys are one you mentioned that the debottlenecking and the improvement and.
Production.
I would be complete in first quarter.
I was just wondering do you have to take downtime.
To tie in that pipeline and.
Yes, I should we expect to turn around well, while you're taking downtime.
If you recall when we did the era. The first one turnaround which supply has been running for five years and I believe it or not produced a 5 million tons of product.
We did the necessary work at that time to be able to tie in the Seo too so what needs to be completed now as the actual pipe pipeline of the CEO to it into the plant there will be no downtime.
Associated with tying in the CEO to to the plant.
We're looking as timing at the end of Q Q1, So don't expect any real volumes in Q1 and as we tie in does it get let bled into Q2, a bit possibly current views into Q1, but probably we're talking to 100000 tons here is 25000 tonnes a quarter. So.
We had minimal impact based on our product flows through our FIFO layers in Q2. So I think just directionally. We're getting it done is another 100000 tonnes a low cost capacity that's the way we look at it.
As for really small small amounts of capital.
Okay, Thanks, Jeff I'll get back into queue.
Thank you. The next couple of question is from Jonas Oxgaard from Bernstein. Please go ahead.
Mr. Oxcart from Bernstein. Your line is now open.
Oh, sorry about that.
Good morning.
Good morning, So we've seen.
We've seen some reports that the your competitors have had some operational issues in the fall could you give us some update on the U.S. operational performance and how you expect 2020 to play out from a supply standpoint, especially because I.
Leave that a number one is still scheduled to come on line at some point of the year.
Yes, I don't sit around the depth of our competitors. So I can't really give you any.
Inside into how their plants are performing I'd say the the production issues that we saw.
You asked for.
In the in the fourth quarter.
Outside the U.S. and around and lays it really at the end of the year last year. So it's really impacted January .
So we've seen some issues in the us how theyre going to run in 2020, I don't have any special insight.
Okay.
Thank you.
Thank you. Your next question is from Matthew Blair from Tudor Pickering Holt. Please go ahead.
Hey, John Good morning.
News earlier this month that China was the spending it's 10% ethanol.
Blending mandates for 2020, and just wanted to get a reaction I mean do you view. This is a pretty positive announcement from mathematics, and do you see just taking a pretty big risk off the table.
Well I think when it was announced they were going forward with it we got a lot of questions about it in our view was they have to build quite a bit of ethanol capacity to use all that corn and I guess the decision ultimately became that didn't make sense.
Now they've they've said, they're not going to do it so I don't think its.
Negative, but it's probably I've said for a number of quarters now and maybe a couple of years that really the methanol use in China will be high level blends and thats, where they've always been focused methanol 100 engines that geely or our manufacturing the taxi fleets in a couple of cities that are now up to 20000 taxis running on methanol 100.
Consuming four to 500000 tons of methanol per year and those are trials. Those are trials. So those aren't even full loan program. So our focus and we think the focus of the Chinese government is on.
Hi, hi level blends for methanol it may open up room for ethanol imports from the United States as the free trade deal gets done in phase two then.
I think that could open up room for ethanol exports from China from the United States into China for low level ethanol blends as we've seen in the United States. So I think theres room for both we've always said that.
And the growth in the focus for methanol will be in the high level, but it doesnt mean, as they're not going to use low level blends of ethanol that we might see a bit of an uptick but I wouldn't really think is going to move the needle too much on the demand side in China.
Makes sense and then I heard the maintenance Capex number 150 for for this year did you provide a and estimate on the G. III spending and I guess, if not do you think I don't know maybe 400 million in 2020 would be pretty reasonable here.
Yes, that's the guidance we've provided before is about 400 million for 2020.
Sounds good thank you.
Thank you.
Thank you for next question comes from Cherilyn Radbourne from TD Securities. Please go ahead.
Thanks, very much and good morning.
One of the industry publications recently reported that the U.S. has imposed sanctions on several ran link.
Kim firms, including I guess at least one that was an exporter of methanol to China can you offer any insight there on what you think implications media for the flow of Iranian methanol into China going forward.
It depends if the Chinese.
Respect the sanctions I think we've seen the same information you've seen.
And that company does get involved and quite a bit of the exports and imports into China. We've seen the same sanction information out are they behave and how does China behave again on I don't have any special insight into that but it is interesting that the sanctions continues to grow.
Specialty around Iran and.
I think it's more and more difficult for them to sell product to get shipping to get spare parts to.
Run not only their methanol plants, but many of their industries. So I think that the attention is continuing to be ramped up and.
Where it ends I again, I really don't know.
How it's going to end, but I think the sanctions.
Hi, Moran are not positive.
And what about the flow of Iranian methanol in Q, India is that still free flowing or or might some issues crop up there as well.
We haven't seen anything similarly announce in India, I think India is a different obviously different market in China Theres a lot more players traders smaller players and it's been a real important market for four around so I haven't seen Andy as well as pretty public about using more methanol and et cetera.
The space, especially in and it's automobile fleet in truck fleets. So I think they're viewing methanol as chief strategic raw material going forward, so how that.
Pans out into sanctions are sanctions and whether they follow the sanctions and the relations with the U.S. et cetera again.
Not something I have any special information on.
Okay, and if I could sneak one last one very quick one.
When you say that you expect Q1 EBITDA to be similar to Q4, I assume that versus 136 million.
That's correct.
That's all for me thank you.
Thank you.
Thank you. The last question is from Steve Hansen from Raymond James. Please go ahead.
Oh, Hey, John Night, this might be better off line, but I just wanted to follow up again on the Trinidad gas discussion.
Can you give any context around again, what the issue might be easy I recently, they're looking for a higher price or some sort of certainty, but is the concept of floating the skills formulas still on the table.
Or is it the base prices that debate to try to get a sense for what the outcome might be here as we think about modeling going forward.
Why they were going to pay a higher price for gas in Trinidad.
Want to pay price that we can still are in EBITDA and and invest in the plant. So.
It's usually around price when you have these negotiations and.
That sliding scale relate to methanol wells, we're continuing to be in place and we just want to make a deal that we can make sure that we can survive in the low end of the cycle and and do while at the high end of the cycle. So.
Thank you should model at higher, but we're not going to sign a deal that doesn't make sense.
Where we can earn profits.
From that plant, we'd rather shut it down and then to run it for for.
No profit.
That's very helpful. Thanks appreciate it.
Thank you, yes, or no further questions registered at this time and now like turn the meeting back to Mr. Florence.
Well thank you.
Modesty cycles are to anticipate pitted part of our business, we have witnessed many cycles in the past and assume we will see more in the future. We remain focused on what we can control by further strengthening our global leadership position in the methanol industry through low cost growth opportunities and by operating our plants safely and reliably.
This enables us to consistently deliver quality reliable methanol supply maintain our competitive advantage and our preferred supplier status to customers around the world.
Our balanced approach to capital allocation remains unchanged. We believe we are well positioned to meet our financial commitments execute on our growth projects in Louisiana and deliver on our commitment to return excess cash to shareholders through dividends and share repurchases.
Thank you for the interest in our company.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
This conference is no.
Longer being recorded Nobody's promoted goofy host it does WP.
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