Q2 2021 Methanex Corp Earnings Call
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All participants please standby your meeting is ready to begin.
Ladies and gentlemen, thank you for standing by welcome to the Methanex Corp Q2.
<unk> 2021 earnings call I would now like to turn the conference over to MS. Kim Campbell. Please go ahead Ms Campbell.
Good morning, everyone welcome to our second quarter 'twenty 'twenty..1 result conference call. Our 2021 second 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 Methanex dotcom.
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 mature.
Cereal factors or assumptions were applied in drawing the conclusions or making the forecast or projections, which are included in the forward looking information. Please refer to our second quarter 2021, and DNA and from our 2020 annual reports from our information.
I would also like to caution our listeners that any projections provided today regarding.
Its future financial performance are effective as of todays 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 or income made in today's remarks reflect our 63, 1% economic interest in the Atlas facility and.
Masonite percent 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.
These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP and are therefore.
For unlikely to be comparable to similar measures presented by other companies. We reported 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 is president and CEO, Mr. John Floren for his comments and a question and answer.
Period.
Kim Good morning, everyone today I'm pleased to discuss our excellent second quarter 2021 financial results.
And we will share our view of the methanol markets.
To review, our operational results and discuss our outlook entering the third quarter.
We will also make a few remarks regarding our decision to restart.
We start construction on our Geismar 3 budget, our strategic shipping partnership and our priorities around capital allocation, including our recent announcement to increase the quarterly dividend.
I'll open up the call for your for your questions.
Turning to our financial results.
We increased our average realized price in the second.
Quarter to $376 per ton.
A $13 increase compared to the first quarter.
Adjusted EBITDA increased to $262 million in the second quarter.
An increase of $20 million compared to the first quarter.
We also recorded higher adjusted net income of 95 million.
Second a $1.24 per share in the second quarter, an increase of $13 million or <unk> 17 per share compared to the first quarter.
These results illustrate the significant leverage that our earnings have to methanol prices.
Now turning to the methanol market.
Over the last 12 months methanol price.
Have rebounded as the global economic recovery continues and vaccine rollout worldwide.
Current methanol industry dynamics are favorable supported by strong methanol demand low global inventory levels ongoing industry supply challenges and a constructive energy price environment.
We estimate that the global.
Demand methanol demand increased by approximately 3% in the second quarter compared to the first quarter.
We anticipate the global methanol demand will have surpassed pre pandemic levels later this year.
Strong methanol demand combined with ongoing industry supply challenges around the world and the delayed startup of new industry.
<unk> capacity additions supported higher prices in the second quarter with tight market conditions continuing into the third quarter.
We estimate that the industry cost curve in China has increased to approximately 300 to $320 per ton supported by rising coal and natural gas prices.
Instantly boasted our August prices, which remained at $542 per ton in North America, and $420 per ton for Asia Pacific.
We set our European contract price quarterly in our third quarter posted price is 410 euros or approximately $485 per ton.
Yes.
As we mentioned on our call in mid July over the last few months, we completed a comprehensive review of the medium to long term industry outlook.
We reviewed our expectations for demand growth the timing for new industry capacity additions and industry operating rates for new and existing methanol plants over the coming years.
We raised on that work, we believe that the methanol industry medium term outlook is positive net new industry supply will be needed to meet growing methanol demand over the next 5 years.
Now turning to our operational results our second quarter 2021 production of 1.5 million tonnes was lower than the first quarter, primarily due to.
Our gas availability in New Zealand and Chile.
In New Zealand, our production was lower in the second quarter compared to the first quarter due to ongoing lower gas deliveries.
In addition, we agreed to a short term commercial arrangement with Genesis energy to make natural gas available to support a type of Zealand electric electricity.
The Lord as.
As a result, we temporarily idled 1 of our new plants for approximately 3 months.
We expect the margin from the sale of gas will be offset the margin loss from a lower forecasted production volume of 85000 tons.
We estimate that production in New Zealand from 2021 of $1.4 million.
Marcus the upstream gas sector is completing several field development projects that could improve gas availability over the coming years.
In Geismar production in the second quarter was higher than the first quarter as we completed a planned turnaround at our Geismar 2 facility in the first quarter.
We finished the Debottlenecking project at our <unk>.
Geismar 2 plant in the second quarter of 2021, following the work completed at our Geismar 1 plant late in 2020.
As a result, our operating capacity for our Geismar facility is now $2.2 million tons on an annual basis, an increase of 10%.
Completed for a capital cost of approximately 1.
Todd <unk> $5 per ton just for the additional 200000 tons of capacity.
In Trinidad our production in the second quarter was higher than the first quarter as we received full gas deliveries.
Based on current gas deliveries, we estimate that production in Trinidad for 2021 to be $1.1 million tonnes, reflecting methanex has equity interest.
101 in Chile as expected our production in the second Florida was lower than the first quarter.
We typically experience lower gas deliveries in the southern hemisphere winter months in <unk>.
<unk>, our second and third quarters, we should receive higher gas deliveries in the fourth quarter and we estimate production in Chile for 2021 to be 8 to 900000 tonnes.
In Egypt, our production in the second quarter was slightly lower than first quarter due to minor technical issues that have been resolved in medicine hat our production in the second quarter was similar to the first quarter as the plant ran at nearly full operating rates now.
Now turning to our balance sheet.
We have a strong financial position with over 750 million.
And cash on our balance sheet at the end of the second quarter.
This amount reflects our strong adjusted EBITDA results in the second quarter and the repayment of $173 million drawn on our G. III construction facilities.
We previously announced the strategic partnership shipping partnership with Mitsui O S K limited or NOL.
The proceeds of a $145 million expected by the end of 2021.
This transaction will not have a material impact on our earnings.
Our waterfront shipping subsidiary generates revenue from shipping methanol to methanex customers and third party backhaul arrangements as a result of the partnership ml will be.
With Doctor a proportional share of waterfronts net earnings, which fluctuate based on ship volume in tanker market rates.
However in terms of our financial statements our ownership waterfront shipping now and after this transaction is complete.
Accounted for on a consolidated basis, resulting in a 100% of the revenue and expenses being included.
Entitled Financial statements.
We continue to generate meaningful cash flow across a wide range of methanol prices and have an undrawn backup liquidity, including our $600 million G. III construction facility and our $300 million revolving credit facility.
Now turning to our Geismar 3 project.
And we are.
We were pleased to announce that our board unanimously approved the restarted the construction of our Geismar 3 project a unique project with some significant capital and operating cost advantages that enhance the projects' returns.
Abundant low cost natural gas supply in the U S underpins production for this project.
In.
In addition, we estimate that <unk> will have 1 of the lowest <unk> emissions intensity profiles in the industry.
Similarly, geismar 3 will strengthen our asset portfolio and substantially improve our future cash generation capability, we believe that geismar 3 will deliver significant long term value to our shareholders.
Our.
Well cost estimate for the project at $1.25 to $1.35 billion, we expect that approximately $435 million will be committed to the project as we and as of the end of Q3.2021 through the care and maintenance period.
We expect approximately $9.800 million to $900 million remaining.
Capital cost after resuming construction in October 2021.
We are confident in our ability to complete this project on time and on budget.
We have substantially reduced the project execution risk profile over the last 24 months, we are well positioned from a labor perspective is as construction on our project.
Capital of other major capital projects in the region.
We have also secured prices from the majority of our bulk material costs are remaining budget includes allowances and contingencies for both escalation and the remaining risks on the project.
Lastly, turning to our capital allocation priorities.
As a capital allocation priorities remain the same.
Use of cash that we generate to maintain our business.
<unk> value accretive growth opportunities and continue our strong record of returning cash excess cash to shareholders.
Going forward, we will increase our emphasis on financial flexibility in 3 ways.
We plan to.
Our cash targeting and targeting a minimum of $300 million of cash on hand, plus our remaining G III capital cost strength construction.
We plan to target lower leverage and reduce our debt levels over time to a target of approximately 3 times debt to EBITDA at methanol prices between $2.75 to 3.
<unk> dollars per tonne and we will increase our waiting on flexible vehicles for distributions such as share buybacks combined with sustainable dividend to return capital to shareholders.
We recently announced that we reset our quarterly dividend to <unk> $12.5 per share we anticipate that we will have the ability to.
To further delever and increase shareholder distributions, such as share buybacks and a few quarters that methanol prices of approximately $325 a ton or higher.
Geismar 3 is the only significant growth capital in our plans over the next few years, we expect that <unk> will substantially increase our cash generation capable.
Capability and support a significant increase in our future shareholder shareholder distribution potential.
Now turning to the outlook for the third quarter, we expect realized methanol prices in the third quarter of 2021 will be similar to the second quarter based on our posted prices so far.
We forecast that our third quarter production.
Reduction will be similar to the second quarter, we anticipate our adjusted EBITDA results in the third quarter to be similar to the second quarter.
Finally, I want to mention that we recently published our annual sustainability report.
We have publicly reported on our sustainability performance since 1997 and continue to enhance our sustaining.
Staying ability and ESG related disclosures to align with evolving best practice and to support greater transparency and comparability.
This year, our disclosures alignment the sustainability accounting standards board or SaaS be reporting standards for the chemical and marine transportation sectors also our disclosures referencing.
Aspects of the task force on climate related financial disclosures or <unk>.
And some requirements of the global reporting initiative or <unk>.
We will continue to look at ways that we can prove our sustainability performance and reporting over the coming years I would now be happy to answer any questions.
Thank you.
Please press star 1 at this time, if you have a question there will be a brief pause while the participants register for questions. Thank you for your patience and the first question is from Steve Hansen from Raymond James Please.
Go ahead. Your line is now open.
Yeah. Good morning, guys, John just thinking about thinking about Chile, specifically for a minute.
You know in the past you've gone through the effort of refurbishing, Chile, 1 and then starting to look for and this is all pre COVID-19.
But just give us a sense for where the gas availability might lie there.
And right now and any plans you might have over time to think about 2 plant operations.
I understand that Covid required some reshuffling of the production asset profile, but just getting a sense for now that we're in a recovery mode here, where do you think about that that complex going forward.
Yeah, the gas profile in Argentina has improved a lot in the last 12 months.
In the readout, we're running our plant right now in Chile gas.
Our profile has also improved in the last 12 months. So our expectation Steve today is by the third late third quarter early fourth quarter that will be running both plants and chiller.
Okay, Great. That's very helpful and just just could you clarify I missed the number.
The metric that you cited on the cost per ton to complete the jumanji tooth debottlenecking.
And just now that those 2 projects are now complete.
Any other debottlenecking projects that you might be contemplating across the portfolio.
Yeah, we're always looking to get more methanol out of our existing kits.
But overall as you know have lots of ideas that we look at and execute if they make sense. So we are continuing to look for other debottlenecking opportunities, but nothing to report today, Steve the.
The cost for completing the 200000 additional debottleneck in Geismar was $125 per ton.
That's very helpful. Thanks, guys I'll jump in here.
Steve.
Thank you. The next question is from Ben Isaacson from Scotiabank. Please go ahead. Your line is now open.
Thank you very much a force.
Question is given the changing operating.
It's in your portfolio over the past year or so can you update us as to what percentage of your sales go into each of the 3 or 4 major methanol markets, depending on whether you break China out of Asia or not and based on the review that you conducted at the methanol market.
To restart G III.
Do you see.
C G III impacting your regional sales allocation in the future how do you see that changing.
Yes, so we've earmarked 100% of G. III to go to Asia in the modeling that we've done for the economics and the IRR calculations that we've shared.
That hasnt changed so if we're able to do better than that in place.
Some in the Atlantic Basin, obviously that makes the economics, even more attractive than what we've already published really attractive economics, we don't disclose battle, where our product goes around the world. It's a very fluid supply chain and we move product.
To optimize our net backs as well as 2.
Take advantage of certain spot situations that may arise in different parts of the world and to balance out our supply chain and inventory. So we don't really disclose what product goes where.
Thank you and my follow up is can you just talk about how the freight market is impacting the company and maybe discuss the magnitude.
Freight rates versus normal who's bearing the additional cost is it methanex or is that built into prices and I guess yeah.
<unk> being an active shipper and an owner of waterfront do you have an outlook in terms of how freight rates will evolve.
Well, we wish there were a lot higher I mean, despite what we're seeing and container markets in dry bulk.
Liquid tankers for chemicals are still.
Not that great, although what I'd call average prices, so we'd like to see higher prices.
Because obviously, we make more money with higher prices.
We think we have a competitive advantage on our shipping so.
There seems to be still a lots of tanker capacity in the world and we're not.
Seeing the same thing.
The world is seeing on drive dry bulk and containers.
Great. Thank you.
Yeah.
Thank you. The next question is from John Roberts from UBS. Please go ahead. Your line is now open.
Thank you Leigh.
<unk> Delta sell had an unfortunate incident yesterday with the receipt of gas plant.
Is that methanol unit running do you know when will that come into the merchant market here until they can get the acetic acid plant back up again.
Yes, I don't have any more information about sites than what's been reported.
Reported in the press and I haven't seen anything reported regarding operations my understanding based on what I've read they were planned turnaround for the acetic acid unit. So it was a plan.
We're just starting the turnaround is what I understand.
It's why the contractors were entering the unit I don't know anymore than that John.
Okay, Yeah, I agree with that.
Tragic event and I think it really illustrates all the attention that we put on safety and process process safety.
You can never take your eye off the ball because you know there was another event in Germany. This week as well as labor KUSA.
2 other people where were killed so really tragic events.
And then since you just updated your longer term industry outlook. What did you assume longer term for your gas constrained plants did you do assume an eventual restart at Titan or an eventual restart at what Taro Valley.
In the longer term outlook or how long do you wait before you think about other options for.
For the equipment that's there.
Yes, we're optimistic that over time, we will get those plants restarted we've put a little bit in our in our 5 year outlook, but certainly not flow rates for for those 2 sites.
Thank you.
Thank you the next.
Jim is from Joel Jackson from BMO capital markets. Please go ahead. Your line is now open hi.
Hi, Good morning, John how.
How are you doing a couple of a couple of questions I'll go 1 by 1.
John Thanks for giving the guidance for Q3, it looks like Youre guiding to a 19% discount rate again in the third quarter. So a third.
Quarter in a row, our back is it fair to say that based on your contracts from what's going on here that we should be modeling as a placeholder now 19% discount rate now 17 last quarter, you had said that the 19% discount rate a little bit higher in 2017 was because of some weak Chinese spot prices Chinese spot prices rose from.
Quiet quarter can you help us reconcile all day.
Yes, so I'm not changing my guidance Joel on the discount rate at this time, if we think it's a permanent structural change will certainly change the guidance so uncomfortable on 17.
Look at the overall.
Net net back price, that's what we look at $3.75 for the quarter.
An excellent quarter and generated.
$1 billion run rate. So we're very happy with the realized price in the quarter and we're expecting strong pricing to continue in the <unk>.
Second half of this year.
Thank you for that so my other question is obviously different than bachelor's want different things you know that being in this role for.
For a long time and you've laid out and thank you for the last couple of weeks ago. What your strategy is will be around buybacks now.
You want to make sure on your balance sheet you have your cash buffer I think you said $300 million and then you won't have enough cash on the balance sheet built up too.
To finish Q3 so.
1 other question for you is you know looking at what the share prices.
It was I mean, there is a clear valuation disconnect I think between the stock price and where your earnings and free cash flow power of our where commodity price levels are typically the finance books as you should be doing share buybacks that you should be going to market buying your stock and reducing that disconnect. You have <unk> 3 it makes sense why youre doing it.
Does this all make you think about maybe changing some of her thoughts that maybe you should take out a bit more risk and buy back stock a bit earlier before having all the cash for G. III on the balance sheet.
Yes, so our financial strategy has not changed I mean, we fine tuned it as you pointed out a couple of weeks ago.
But uses for cash that's generated from the business or to maintain the business grow the business with value accretive projects like <unk>, and then return excess cash to shareholders.
The slight tweak is to have a little bit less on a fixed return to shareholders. So we reset the dividend of 12, and a half and had more effectively.
Flexibility to return cash in a flexible way to shareholders, so that $325 per ton and higher methanol realized prices. We think in a few quarters as we delever, a little bit and increase a little bit of cash on the balance sheet for G. III that we'll be able to enter into a share buyback, but our policy of.
Borrowing money.
Is not to buy back shares so any cap money that we borrow.
As for the.
The project G suite and <unk>.
Mind, you, we did change our strategy there during COVID-19, where our plan was to use the construction loan and to draw on it as we.
Continued on a project.
With Covid, we decided and then replace that sort of your construction loan with bonds over time.
We decided to because the markets were opened last September to just go out and get all the bonds at that time. So that's why we have.
Quite a bit of cash on our balance sheet, but it's allocated for G. III and we're not going to use it to buy back shares.
Thank you.
Thank you. The next question is from Eric Petrie from Citi. Please go ahead. Your line is now open.
Hey, good morning, John.
Good morning, Mexican Methanex has posted methanol price spread between Asia, and North America is kind of at a record.
Roughly $100 a ton so how do you think about it is it sustainable and going forward, how do you see that level trending.
Yeah, we've said for a number of years, despite lots of analysts waiting to the contrary I would think the basin balances price differentials will continue.
And they are higher than we would have even been assumed and that's based on.
Production issues in the Atlantic Basin. So.
How long is this record I don't know if its a record but it is on the higher end of the of.
The differential goes it really depends on what we and our competitors do.
The product that we're producing in the Atlantic basin. So I can't predict what our competitors are going to do we know what we're going to do and we would expect that the basin differentials to continue maybe not at their current levels, but they will continue.
Okay helpful. And then my follow up question.
You mentioned the higher.
Within our coal prices and natural gas prices I think Colin was training around a thousand RMB per metric ton.
You know double that from from recent lows. So how do you see prices of coal going forward and the cost curve evolving into 2022.
Yeah. There is coal remains quite we understand not not readily available in China in there.
Assuming a lot for power generation so.
If economic activity continues we would expect <unk> to continue to be.
Price.
Here than what we were thinking Theres 2 markets in China for Colas remember.
You know there's a day.
Power generation market, which is really set by the government and that's not anywhere near a thousand RMB per ton and then there is the spot market or are they the other traded market, which were chemicals and others get their coal.
And the reason is that the houses because of the supply demand fundamentals.
You're right to point out gas is.
Has really shot up not only in North America, it's almost close to $4 and MMP to you now but in Europe, it's at $12 and nobody was predicting not a.
A year ago, and that's really impacted methanol methanol production.
And in Europe.
2.2 plants in Holland.
Wanted to shut down and the other 1 is operating at minimal rates because of the high gas prices.
It's hard it's hard to see at this point those gas prices coming down in the near future based on the on the inventories that we see in the United States, but these things have a way of changing quickly.
Nobody predicted.
Well dollar guests, but I think it's a function of you know.
A couple of years of $1.50 gas with no investments so.
I always say the cure for high prices is high prices and the cure for low prices is low prices and that's what we see in commodities.
Great. Thank you.
Thank you. The next question is from Hassan Ahmad from Alembic Global Advisors. Please go ahead. Your line is now open.
Good morning, John.
John a question on demand you know you mentioned sequentially global demand was up according to your estimates by I believe 3%.
And if I remember correctly sequentially in Q1.
Demand was.
Was it down.
So the question is what are you guys seeing or what are you forecasting in guns of demand growth for the remainder of day, yet and I guess, where I'm going with this question is that.
No.
Again, and again you mentioned it a bunch of other chemical company has mentioned it you know about obviously.
Supply chain disruptions that have happened over the last couple of months.
You know inventories being lean.
People sort of back filling sort of orders you know probably.
No winter storm urea as well so just trying to get a sense of you know.
Where do you feel the underlying demand is and could we even expect a further bump up from this 3% that we saw in Q2.
Like I said in my remarks, we expect to get back to pre pandemic levels later this year.
So that has increased demand in Q3, there are some MTO plants that are taking some planned maintenance. The MTO industry has been operating at really high rates for a couple of years.
And in Q2, they operated at 92%, which is above or even estimate so we expect to have.
I am to have some.
On maintenance, which could impact demand, but we expect demand to continue to grow through the second half of this year. A couple of applications that are still lagging or the fuels applications MTBE biodiesel those kinds of applications, because we're still not seeing.
Globally, our returned to normal driving habits because of the pandemic.
But we expect those to improve.
As we get back to more normal habits as people are vaccinated in the pandemic has brought under somewhat of a control.
Understood and the other side of the equation on the supply side, obviously, a healthy pricing environment.
And pricing continues to take.
You know, obviously you guys announced.
The restart all 4 or work when Geismar 3 back what are you guys seeing broadly speaking in terms of the broader industry supply response and.
Are you seeing any sort of.
Project delays or maybe even.
And you know people sort of ratcheting up their plans in terms of bringing on line on your supply.
I think having the price environment that we just come through for almost 2 years and a lot of projects that were being thought about were shelved or canceled altogether.
We expect the Coke plant to run at some point.
We understand they ran for a bit in July.
But they will they'll get lined out run at some point during this year is our current expectation.
Beyond that we haven't been a supply coming on in Iran. How it runs is anybody's guess certainly the track record has not been great.
And then China will add a bit of capacity.
In the inner Mongolia backward integrate a coupla.
MTO plants and some other plants will come out as you know more and more restrictions on on on the East coast of China. So net net we're not expecting.
How much new supply beyond what's coming in from Coke in Iran over the over the coming 3 to 5.
Years.
Very helpful. John Thanks, so much.
Thank you.
Thank you. The next question is from Nelson <unk> from RBC capital markets. Please go ahead. Your line is now open.
Great. Thanks, Good morning, John.
Good morning to flow.
Just a quick question for you So you mentioned.
And earlier that you were optimistic on gas availability in the various regions going forward.
In New Zealand in particular, I think gas production has been pretty low this year.
Do you have any color on production levels going forward in terms of like production issues drilling activity.
<unk> and whether current prices are like incentivizing more exploration.
Yeah, I'll remind you of the gas in New Zealand. It was very wet gas. So there are lots of barrels of liquids.
Oil prices have any that really helps the economics.
Going after the liquids so.
Higher energy complex.
In general is positive for our business and that's 1 of the reasons that incentivize us more.
Exploration and development situations in New Zealand really was.
The coherent field failed and that lost 30% of its production late last year and nobody is expecting that and that's caused the gas markets.
Market to tighten up quite substantially.
The current situation in their winter bodes well they had a lack of rainfall which is leading to lower than expected hydro power.
And again in New Zealand, so that situation is behind us now.
And there is drilling going on and I think that's the positive thing for us is that.
The upstream.
Owners of the field Maui is poker or our drilling and planning to drill more so we'll know a little bit more in the next 12 months the results from both drilling and.
Like I said, we're we're certainly contracted for 2 plants early into the end of the decade and we're optimistic.
The drilling will be successful and we will.
You will see the third plant have a reasonable opportunity to start up as well.
This is not new in New Zealand and we've seen this before and.
Pretty well develop the reserves it is.
The country needs them. So yeah, we're optimistic but really I think we'd be modeling a 2 plant operation.
At this point until we see the results of what's happening in the upstream.
Yeah.
Great. Thanks for that additional color I'll leave it there.
Thanks.
Thank you. The next question is from Laurence Alexander from Jefferies. Please go ahead. Your line is now open.
Hi, there could you.
Operations update on what line of sight, you have to the amount of.
Global shipping capacity that is ordered or under construction that would use methanol as a flex fuel and what that could mean from ethanol demand over the next 4 or 5 years.
And similarly, what youre seeing in the Chinese.
Industrial boiler market development.
Yes, so we have 8 of our own ships on order Pro man, our competitor out of 206 EMEA errors because 1 that's what's on order at this time, but lots of other interest. So it takes about 2 years to build a ship.
Laurence So you know I don't know how many more orders are going to be placed in the next few years, but we would expect more.
Each ship around 50000 deadweight vessel.
Running on methanol, 100% of the time would consume between 10 and 12000 tons.
Could you do the math there as far as boilers yeah. We.
Continue to see that market.
Placing coal, but theres other potential natural gas as well and diesel so that market continues to be.
Couple of million to 3 million tonnes of methanol demand and we would expect it to grow.
And do you have a sense.
And <unk>.
Israel worth formaldehyde applications, and so forth, what's the kind of level of pent up demand is.
I mean downstream companies are talking about having lost 1% to 2% of volume because of supply chain issues, but there is probably some kind of multiplier effect when we get back up to the commodity that you supply.
Yeah, I'd be guessing orange and I, probably don't have a good guess, but I would agree with the assumptions, there's pent up demand.
Thanks.
Thank you. The next question is from Matthew Blair from Tudor Pickering Holt. Please go ahead. Your line is now open.
Yeah.
And John It looks like Trinidad natural gas production was down about 21%.
Year to date versus same period last year.
You raised your Trinidad volume guidance pretty meaningfully.
So is that just could work from your procurement team or is there anything else going on there.
Well, we did ink.
Good morning, 100% of our gas allocation for Atlas.
For most of the year and that's what we've been told to expect for the balance of the year and that's the guidance we provided.
Great sounds good and then on there.
Our modeling and your implied cost seemed to drift up a little bit in Q2.
Supply agree and were there any factors that you can point to and then as we look at Q3 and just thinking about the the higher net gas environment in the U S. I know you're hedged, but could you talk about.
Now whether this would be something we should be thinking about for Q3 modeling.
Yes, nothing abnormal in our cost structure.
Quarter to quarter.
A few things here or there, but nothing really our cost structure is actually quite a bit lower than it was last year as we've taken a lot of steps to reduce it and.
And as far as yes, youre right, we hedged about 70% of our requirements for <unk>. So we're exposed to about 30% from.
What's your market so depending on what price youre using for Q3 versus what you were having your model it would impact us by about 30% of our gas requirements.
Great. Thanks for the color.
Youre welcome.
Thank.
Thank you. The next question is from Merlin Rush from Crown extra investments. Please go ahead. Your line is now open.
Yeah.
Hey, good morning, John how are you.
Good thanks.
Well congratulations on a good quarter.
I would like to ask a 2 part question around liquidity.
And capital returns also coming back to 1 of your cash.
Comments previously around there was quite a bit of cash on your balance sheet.
So it's all around the updated numbers, you'll see that the company has paid down to net debt. So far this year.
She tend to over $750 million in cash except pro forma the shipping.
Transaction.
Around 900 million in cash clusters of $900 million in line of credits.
With the 300 million Undrawn RCI from the 600 million Underutilize construction Don.
True to a total of $1.8 billion of liquidity.
And then he just got it for another Q3 are in line. So.
I assume we are looking at 2 billion in cash and lines of credits by the end of September versus a total G suite, it's only kicking in next year of 8 to 900.
So why do you and your board do not think the shareholders deserve a larger dividend.
Or a clear share buyback program.
And I want to come back to 1 comment you made on your recent announcement on the call were.
You know what prices you would stop buyback the shares.
We're on a year to date lows. So do you consider the current share price level as attractive to buy back shares. Thank you.
Yeah, it's attractive to buy back shares the current price level.
Agree with that.
We stayed pretty clearly our financial strategy around what we want to do with our balance sheet and returning cash to.
To shareholders that hasn't changed.
So we wanted to maintain $300 million of cash plus the.
Additional whatever G. III spend is left on the balance sheet. Once we achieve that we will start to return more cash to shareholders flexibly like we've described and that could include buybacks, we reset the dividend.
Fixed dividend of 12.5 cents.
Our plan hasn't changed we will.
As a company and you know over the last 10 years growing the company and dull spending about $3 billion and returned over $2 billion to shareholders in the same period through dividends and buybacks. Our balanced approach is the same right.
Now we're having.
Having cash generation going towards the <unk> III project.
Growth in addition to what's on our balance sheet.
And once that is achieved then we will look to return cash to shareholders. So nothing's really changed.
Okay.
Thank you. The next question is from Cherilyn Radbourne from TD Securities.
<unk>. Please go ahead. Your line is now open.
Okay.
Thanks, very much and good morning.
In terms of the outlook for methanol supply I was hoping you could give some perspective.
What you think the current environment is like to contemplate a new methanol plant as far as being able to lock in a fixed cost within E&P.
Partner in light of inflationary pressure.
And what sort of price deck financial institutions might be prepared to lend on.
Yes, it's a good it's a good question, obviously, that's going to impact us as well as post <unk> 3 so it's something we look at all the time.
We may have some other brownfield opportunities.
We're assuming greenfield there's 2 projects that have been recently completed their public information around and Thats. The Coke methanol plant that's in the process of starting up and the OCI not gasoline plant.
Both of them are around 1.7 to $1.8 million tons give or take and they were well north.
A $2 billion to complete based on public information that we saw so if you use those numbers that's public that's over $1100, a ton and assuming gas pricing in the 3 to $3.50 range.
<unk> digit return of around 10% to 11% you would need $400 methanol to get.
Or higher to get that return so.
We'd certainly like we lost 4.
<unk> hundred dollars methanol for 20 years to get a payback on a project like that but we've seen quite a bit of volatility in the last 12 years and our commodity and.
Think that if I'm a bank looking to lend money.
To a potential project with those kinds of returns.
What you're doing on methanol price it seems in the hard to do category, but.
Having said that there's lots of them seems to be lots of money out there trying to find a home. So we'll see what happens, but those are the kind of the number of Sheryl.
And then second 1 is just could you speak to the company's confidence in it.
MTO demand from ethanol will be stable over the coming 5 years.
Yes.
Well I guess, we can only look at what has happened in that industry and what's been going on in a high price and low price environment. So.
The industry started up.
5 years ago that was what we called the first wave, which is just about being completed now theres a couple more plants that 1 is close to completion and 1 well probably get completed in the next couple of years and that's what we call. The first wave and as the first way was being.
Commission there was a second wave and certainly with oil prices in the $40 range and that's in the $400 range.
It made more sense to look to naphtha crackers, then to MTO plants. So.
We never expected the second wave and you know we're not we're not anticipating so what we think will happen is once there.
We have 85% to 90% operating rates and I think we can only go on the history.
When we had 400 plus methanol pricing in 2018, they all ran at high rates when we had a.
Lower olefin cycle last year because of Covid. They ran at high rates and they continue to run at high.
High rates. So it's something we watch very closely because it is a big demand driver for methanol and.
Like most things, it's hard to predict the future, but based on what we've seen today, we would expect that 85% to 90% operating rate.
That's my 2.
We will rock. Thank you. The next question is from Chris Shaw from <unk> Crespi. Please go ahead. Your line is now open.
Good morning, John Hi, John.
Good morning.
If 1 were to take a really pessimistic view on I guess global gas availability going forward.
Outside of say.
Your medicine hat Geismar, what can you remind me what.
Both the.
Potential for moving any of your other plants are all of the first 2 geismar plants or.
To.
Another site and it doesn't have to be I guess, geismar, specifically, but you know not only the potential but I guess the economics.
I mean is that a possibility at all on any of those plants in the future.
I would say very unlikely.
When we looked at the kit that.
And that we have in the other locations the way it was.
<unk> built the way, it's our installed pretty expensive to move we have a unique opportunity. We had 2 twin plants in Chile, and the way. They were built we could lift them up and move them, but I think that was unique to Chile, 1 sorry to Chile, 2 and 3 which are now geismar 1 and 2.
But.
We look at things all the time, but right now our focus.
Just to get those plants running and where they are and we're not given up any hope yet that we won't be able to achieve.
Gas contracts to allow us to run all of our kit.
Over time, so we've seen this in the history of our company I mean, we didn't have any production in North America are the longest time and we're going to have.
$4.5 million here pretty soon for 7 I guess with the Debottlenecking. So.
Yeah. So our focus is trying to get those plants running based on gas there and not moving them at this time.
Thanks, and then just.
A reminder, do you know.
I could probably.
Done the math, but not off the top my head.
Your cost per ton for Geismar, 3 relative to what it would be for the when you say geismar 2.
You can move that.
The similar 1 lower.
No about the same we've got it to a bit lower but you know not not significantly.
I mean, its bottling line.
Information.
That does it.
The gas efficiency on the Geismar 3 spot is much superior to Geismar, 1 and 2.
Okay got it thanks a lot.
Yes.
Thank you.
Last question is from Steve Hansen from Raymond James. Please go ahead. Your line is now open.
Hey, John just 1 quick follow up if I may how do you feel about your human resources capabilities across the existing operating complex today. It strikes me that everywhere, where look we're hearing about screened labor resources, both skilled and unskilled I'm not too focused on the G..3 but just on your existing operating complex a day or you are you well.
Right now are you looking for people, how should we think about that and whether you're well positioned going forward here.
Yes, 1 of the benefits that we've enjoyed in our company as a low turnover rate I mean, if you compare our turnover rate on average to the.
Industry, not just methanol about chemicals and other industries.
Industry applications like that.
Low so.
It doesn't mean, we don't have turnover and retirements are becoming a bigger and bigger issue is.
Especially in the western countries as.
As we tend to see aging to retirement age.
So.
I don't have any concern today that were.
But just at.
At risk of not being able to run our plants efficiently because of labor, but it's something we talk about all the time.
So things like diversity inclusion are really important to our company and to really expand our labor potential where we can look for new team members is really really important.
And in each region is a little unique.
In Trinidad we have all kinds of labor today, because of what's happened on that island, and Egypt, where an employer of choice.
Certainly.
Not concerned in the short term, but it's something we think about all the time and we want to make sure that we're a great place to work.
Hey, good wages that we have.
Have people stay for a long long time and we're.
We're not planning on changing that strategy and philosophy.
Okay, Great. That's helpful. Thank you.
Thanks, Steve.
Okay, well. Thanks, we're very pleased to share our excellent financial results with you today, we continue to generate meaningful cash flow across a wide range of methanol price.
Prices.
Our capital allocation priorities remain the same we use the cash that we generate to maintain our business pursue value accretive growth opportunities and continue our strong track record of returning excess cash to shareholders. Thank.
Thank you for joining us today, and we will speak with you again in October and thank you.
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.
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