Q2 2021 Methanex Corp Earnings Call
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This conference is being recorded.
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Please standby your meeting is ready to begin.
Ladies and gentlemen, thank you for standing by welcome to the Methanex Corporation Q2, 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.
For us for 'twenty, 1 results 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 at Methanex Dot Com I.
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 of the conclusion or making the forecast or projections, which are included in the forward looking information.
Please refer to our second quarter 2021 M D.
And for our 2020 annual report for more information.
I would also like to caution our listeners that any projections provided today regarding methanex of future financial performance are effective as of todays date. It is our policy not to comment on or update this guidance between quarters for.
For clarification any references to revenue.
With the adjusted 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.
In addition, we report our adjusted EBITDA and adjusted net income of 2 exclude the mark to market impact on share based compensation and the impact.
Even the items associated with specific identified a bad day.
The items the non-GAAP measures that do not have any standardized meaning prescribed by GAAP and are therefore 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.
A search of 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.
Thanks, Kim good morning, everyone today I'm pleased to discuss our excellent second quarter 2021 for the us results.
Additionally, we will share our view of the methanol markets.
Its review of our operational results and discuss our outlook entering the third quarter.
We will also make a few remarks regarding our decision to restart construction on our Geismar 3 project, our strategic shipping partnership and our priorities around capital allocation, including the recent announcement to increase the quarterly dividend then we will open.
Open up the call for your for your questions. The.
Turning to our financial results.
We increased our average realized price in the second quarter to $376 per ton of <unk>.
$13 increased compared to the first quarter.
Adjusted EBITDA increased to $262 million in the second quarter.
The increase of $20 million compared to the first quarter.
We also recorded higher adjusted net income of $95 million or $1.24 per share in the second quarter, an increase of $13 million or <unk> 17 per share compared to the first quarter.
The results illustrate the significant leverage that our.
2 methanol prices.
Now turning to the methanol market.
Over the last 12 months methanol prices have rebounded as the global economic recovery continues and vaccine rollout of worldwide.
Current methanol industry dynamics are favorable supported by strong methanol demand low global inventory.
Earning tools ongoing industry supply challenges and a constructive energy price environment.
We estimate of the global demand methanol demand increased by approximately 3% in the second quarter compared to the first quarter we.
We anticipate the global methanol demand will of surpassed pre pandemic levels later this year.
The strong methanol demand combined with ongoing industry supply challenges around the world and the delay of startup of new industry 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.
We recently posted 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.
<unk> and our third quarter posted price is 410 euros or approximately $485 per ton.
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.
Similarly capacity additions and industry operating rates for new and existing methanol plants over the coming years.
Based on that work, we believe that the methanol industry medium term outlook is positive.
New industry supply will be needed to meet growing methanol demand over the next 5 years.
Now turning to our operational results.
<unk>, our second quarter 2021 production of 1.5 million tonnes was lower than the first quarter, primarily due to the lower gas availability in New Zealand and Chile.
The 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.
For commercial arrangement with Genesis energy to make natural gas available to support the type of the Zealand electric electricity market.
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 the lower forecasted production volume.
<unk> 5000 tons.
We estimate the production in New Zealand for 2021 of $1.4 million tonnes the ups.
Extreme 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 complete.
Of planned turnaround at our Geismar 2 facility in the first quarter.
We finished the Debottlenecking project at our Geismar 2 plant in the second quarter of 2021. Following the work completed at our Geismar 1 plant late in 2020.
And as a result of our operating capacity for our Geismar facility is now 2.
$2.2 million tons on an annual basis, an increase of 10%.
Completed for a capital cost of approximately $125 per tons of for the additional 200000 tons of capacity.
In Trinidad our production in the second quarter was higher than the first quarter of we received full gas deliveries.
Just on current gas deliveries.
We estimate that the production in Trinidad for 2021 to the $1.1 billion tonnes, reflecting methanex has equity interest.
In Chile as expected our production in the second quarter was lower than the first quarter.
We typically experience lower gas deliveries in the southern hemisphere winter months impacting our second and third quarter.
We should receive higher gas deliveries in the fourth quarter and we estimate of production in Chile for 2021 to be 8 to 900000 tonnes.
In Egypt, our production in the second quarter was slightly lower than the first quarter due to minor technical issues that have been resolved.
On medicine hat, our production in the second quarter was similar to the first quarter.
As the plant ran at nearly full operating rates.
Now turning to our balance sheet.
We are of a strong financial position with over $750 million from cash on our balance sheet at the end of the second quarter.
This amount reflects our strong adjusted EBITDA results from the second quarter of the repayment of $173 million drawn.
For G III construction of facilities.
We previously announced the strategic partnership shipping partnership with Mitsui O S. K limited or NOL with the proceeds of a $145 million expected by the end of 2021.
This transaction will not have a material impact on our earnings.
Our.
Our waterfront shipping subsidiary generates revenue from shipping methanol to methanex customers in the third party backhaul arrangements as a result of the partnership the ml will be entitled to a proportional share of waterfront net earnings, which fluctuate based on ship volume in tanker market rates.
However in terms of of our financial statements our ownership of waterfront.
On our shipping now and after this transaction is complete.
Out of Florida consolidated basis, resulting in 100 per cent of the revenues and expenses being included in our financial statements.
We continue to generate meaningful cash flow across the wide range of methanol prices and have an undrawn backup liquidity, including our 600.
G III construction facility and our $300 million.
Revolving credit facility.
Now turning to our Geismar 3 project.
We are we were pleased to announce that our board unanimously approved the restart of the construction of our Geismar 3 project of unique project with significant capital and operating cost.
Advantages that enhance the projects' returns on it.
<unk> low cost natural gas blocks of supply on the U S. Underpins production for this project.
In addition, we estimate the G. III will have 1 of the lowest <unk> emissions intensity profiles in the industry.
Ultimately geismar 3 will strengthen our asset portfolio and substantially improve our.
Cash generation capability, we believe that Geismar 3 will deliver significant long term value to our shareholders.
Our capital cost estimate for the project of 125 to $1.35 billion, we expect that approximately $435 million will be committed to the project as we earn.
Future.
At the end of Q3.2020, we on through the care and maintenance period we.
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.
Substantially reduce.
The project execution risk profile over the last 24 months, we are well positioned from a labor perspective is as construction on our project is ahead of other major capital projects in the region.
We have also secured prices for the majority of our bulk material costs are remaining budget includes allowances of contingencies.
For both escalation and the remaining risks on the project.
Lastly, turning to our capital allocation priorities.
Our capital allocation priorities remain the same.
Use of cash that we generate to maintain our business pursue value accretive growth opportunities and continue our strong record of returning cash excess.
The shareholders.
Going forward, we will.
We'll increase our emphasis on financial flexibility in 3 ways.
We plan to hold more cash targeting of targeting a minimum of $300 million of cash on hand, plus the remaining G III capital cost strength construction.
We plan to target lower leverage and reduce our.
Our debt levels over time to a target of approximately 3 <unk>.
On debt to EBITDA at methanol prices between $2.75 to $300 per ton and will increase our waiting on flexible vehicles for of distributions such as share buybacks combined with sustainable dividends to return capital to shareholders.
Net cash, we recently announced that we reset our quarterly dividend to <unk> $12.5 per share.
We anticipate that we will have the ability to further delever and increase shareholder distributions such as share buybacks and a few quarters that methanol prices of approximately $325 per ton or higher.
Geismar 3.
<unk> is the only significant growth capital in our plans over the next few years, we expect that G. III will substantially increase our cash generation capability in support of 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.
So 2021 will be similar to the second quarter based on our posted prices so far.
We forecast third quarter production 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.
Ability report.
We have publicly reported on our sustainability performance in 1997 and continue to enhance our sustainability in ESG related disclosures to align with evolving best practice and the support greater transparency and comparability.
This year, our disclosures alignment of the sustainability accounting.
Counting standards board or SaaS b.
Reporting standards for the chemical and Marine transportation sectors also our disclosures referenced some aspects of the task force on the climate related financial disclosures of Tcf, the 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.
Wed 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.
For all the participants register for questions. Thank you for your patience and the for.
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.
In the past you've gone through the effort.
For being 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 in the region right now and any plans you might have over time to think about 2 plant operations.
I understand the Covid the required some reshuffling of the production asset profile, but just getting it.
For now the way the recovery mode here, where you really think about that that complex going forward.
Yes on the gas profile in Argentina has improved a lot of the last 12 months, we're running our plant right now on Chile gas in the profile has also improved in the last 12 months. So our expectation Steve today is by the third late third.
For really fourth quarter that will be running both plants in Chile.
Okay, great that's the trick.
Just could you clarify I missed the number but the the metric that you cited on the cost per ton.
The Q on Q2 Debottlenecking.
And just now that those 2 projects are now complete.
Any other.
The debottlenecking projects that you might be contemplating across the portfolio of thanks.
Yes, we're always looking to get more methanol out of our existing kits. So we're always 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 call.
<unk> for completing the 200000 additional debottleneck in Geismar was of $125 per ton.
Very helpful. Thanks, guys I'll jump in the queue. Thanks.
Thanks, Steve.
Okay.
Thank you. The next question is from.
Isaacson from Scotiabank. Please go ahead. Your line is now open.
Thank you very much. Our first question is given the changing operating rates 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.
Great China out of Asia or not.
And based on the review that you conducted of the methanol market.
To restart G III.
Do you see 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.
Addling that we've done for the economics of the IRR calculations that we've shared.
So that hasnt changed so if we're able to do better than that in place. Some in the Atlanta based on obviously that makes the economics EBIT more attractive than what we've already published really attractive economics, we don't disclose Ben where our product goes around.
It's a very fluid supply chain and we move product.
To optimize our net backs as well as to you.
Take advantage of certain spot situations that may arise in different parts of the world and the balance out our supply chain and inventory. So we don't really disclose.
The we're on it goes where.
Thank you on my follow up is can you just talk about how the freight market is impacting the company and maybe discuss the magnitude of freight rates versus normal who's bearing the additional cost is of methanex or is it built into the prices and I guess.
<unk> being an active shipper and in the owner of waterfront do you have on outlook.
Look in terms of how freight rates will evolve.
We wish there were a lot higher I mean, despite what we're seeing and container markets of dry bulk.
Liquid tankers for chemical Theres 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.
The 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.
All of the World is seeing on drive dry bulk and containers.
Great. Thank you.
Thank you. The next question is from John Roberts from UBS. Please go ahead. Your line is now open.
Thank you.
<unk> had an unfortunate incident yesterday with the receipt of cash plan.
Is that methanol unit running do you know when will that come into the merchant market here.
Here until they can get the acetic acid plant back up again.
Yes, I don't have any more information about the sites than what's been reported in the press and I haven't seen anything reported regarding the operations my understanding based on what Ive read the.
They were in the planned turnaround for the acetic acid unit. So what's the plan on it.
They were just starting the turnaround is what I understand.
That's why the contractors for entering the unit I don't know any more than that John.
Yeah I agree.
Tragic event and I think it really illustrates all of the attention that we put on safety of posted process safety and you can never take your eye off the ball because.
Another event in Germany, this week as well the labor cruises.
2 of them to other people who 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 do you assume an eventual restart at Titan.
There was an order to eventual restart what Taro valley.
In the in the longer term outlook or how long do you wait before you think about other options 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.
Okay.
Thank you. The next question is from Joel Jackson from BMO Capital markets. Please go ahead. Your line is now open.
Hi, good morning, John.
A couple of a couple of questions I'll go 1 by 1.
Right.
John Thanks for giving the guidance for Q3, it looks like Youre guiding to a 19% discount rate again in the third quarter. So the third quarter in a row of back is it fair to say that based on your contracts on what's going on here that we should be modeling of the placeholder now 19% discount rate of 17 last quarter you.
The the 19% discount rate of all of the heightened 17 was because of sort of weak.
The weak Chinese spot prices, the Chinese spot prices rose the carpet in the third quarter can you help us reconcile all of it.
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 on.
For a table on.
On 17 on.
Look at the overall.
The net back price that's what we look at $3.75 for the quarter was an excellent quarter and generated over $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 second half of this year.
Thank you for that so my other question is obviously different ambassadors want different things you know that being in this for all for a long time and you've laid out and thank you for the last couple of weeks ago on what your strategy is will be around buybacks and how you want to make sure on your balance sheet you have the cash buffer I think you said $300 million and then you won't.
Income from cash on the balance sheet sales up to it.
The finished jewelry.
<unk>.
My other question for you is you know looking what the share price is doing 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 book says you.
Should be doing share buybacks that you should be going the market buying your stock and reducing that disconnect. Perhaps Q3. It makes sense why you're doing it but does this all make you think about maybe changing some of the thoughts that maybe you should take on a bit more risk and buyback stock of it earlier before having all of 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 slide.
Slight tweak is to have a little bit less on a fixed return to shareholders. So we reset the dividend of 12 on the App and have more flexibility to return cash in of flexible way to shareholders, so that $325 per ton and higher of methanol realized prices. We think in a few quarters as we de lever a little.
The increase a little bit of cash on the balance sheet for a G. III that we'll be able to enter into a share buyback, but our policy of.
Borrowing money.
It is not to buy back shares so any cap money that we borrow.
As for the.
The project G suite and I'll remind you we did change.
Out of there during the Covid, where our plan was to use the construction of alone and to draw on it is as we are.
Continued on the project.
With Covid, we decided to and then replace that sort of the construction of on with bonds over time.
We decided to because of the markets were opened last September to just go out and get all of the bonds.
Our strong volume 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 at the buy back shares.
Thank you.
Thank you. The next question is from Eric Petrie from Citi. Please go ahead. Your line is now open.
Thanks, Good morning, John.
Good morning, Mexican the methanex posted methanol price spread between the Asia and North America is kind of at a record of roughly a $100 a ton. So how do you think about it is it sustainable and you know going forward you know how do you see that level of trending.
We've said for a number of years, despite lots of analysts waiting to the contrary that we think the basin balances on the price differentials will continue and they are higher than we would have even been assumed in the based on <unk>.
Production issues in the Atlantic Basin. So.
How long is this.
The 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 with 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.
On at the current levels, but they will continue.
Okay helpful and then.
The follow up question.
You mentioned the hire of China coal prices of natural gas prices I think you know color was trading around the thousand RMB per metric ton Delta.
Double of that from from.
From recent low so how do you see prices of coal going for the in the cost curve evolving into 2022.
The other is coal remains quite we understand not readily available in China, and they're consuming a lot for our generation. So if the economic activity.
Maybe non use where you would expect <unk> to continue to be.
The price.
Higher than what we were thinking Theres 2 markets in China for Colas remember.
There's the power generation market, which is really set by the government and that's not anywhere near the Hudson RMB per ton and then there is the spot market or the the other traded market which were chemicals.
Can choose on others get their coal.
The reason of this 1000 is because of the supply demand fundamentals, you're right to point out of gas has really shot up not only in North America, it's almost close to $4 of M. N V to you now but.
In Europe, it's at $12 and nobody was predicting that.
On a year ago, and that's really impacted methanol method.
Methanol production in Europe.
Now to 2 plants in Holland.
Wanted to shut down and the other 1 is operating at minimal rates because of the high gas prices in <unk>.
It's hard it's hard to see at this point of those gas prices coming down in the New York.
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 $12 guest but I think it's a function of you know.
A couple of years of $1.50 gas.
With no investment so.
I always say of the cure for high prices is high.
The prices and the cure for low prices of low prices and that's what we see on 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 The question on demand you know you mentioned sequentially global demand was up according to your estimates by of I believe 3 per cent and if I remember correctly sequentially in Q1.
Demand was.
It was down.
So the question is you know.
What are you guys seeing or what are you forecasting in terms of demand growth for the remainder of the year and I guess, where I'm going with this question is that you.
You know again and again you mentioned it a bunch of other chemical companies mentioned that you know about the obviously.
The supply chain disruptions that have had.
On the last couple of months.
Inventory has been.
<unk>.
The people sort of back filling sort of afford us.
The of function of winter storm urea as well, so just trying to get a sense of.
Where do you feel the underlying underlying demand is and could we even expect the further bump.
Bump up from the 3% that we saw in Q2.
Yeah like I said on my remarks, we expect to get back to pre pandemic levels. Later this year. So that is increase the men and <unk>.
Q3, there are some MTO plants that are taking some planned maintenance of the MTO industry has been operating at really high rates for a couple of years.
And in Q2, the operated at 92%, which is above or even estimate so we expect to have.
To have some maintenance, which could impact demand, but we expect demand to continue to grow through the second half of this year of couple of applications that are still lagging or the fuels applications MTBE.
EBITDA biodiesel those kinds of applications, because we're still not seeing.
Globally, our returned to normal driving habits because of the pandemic. So the.
We expect those to improve.
As we get back to more normal habits of people are vaccinated of the pandemic has brought under.
For somewhat of a control on.
Understood and.
And the other sides of the equation on the supply side, obviously, the healthy pricing environment.
On pricing continues to tick up.
Obviously, you guys announced.
Of the restart or for or work on Geismar 3 back what are you guys seeing broadly speaking income.
Of the broader industry supply response and are you know.
Are you seeing any sort of.
The project delays or maybe even 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.
2 years of lot of projects that were being thought about were shelved or canceled altogether.
We expect the Coke plant to run at some point.
I understand that they ran for a bit in July.
But they will they'll get lined up and run at some point during this year is our current expectation.
Beyond.
On that we haven't been of supply coming on or on how it runs is anybody's guess certainly of the track record has not been great.
And then China will add a bit of capacity in the inner Mongolia backward integrate a couple of.
MTO plants and some other plants will come out as more and more.
Restrictions on on on.
On the East coast of China, So net net we're not expecting.
How much new supply beyond what's coming from Coke on Iran over the over the coming 3 to 5 years.
Understood very helpful. Thanks, so much.
Yes.
Yes.
Thank you. The next question is from Nelson <unk> from <unk>.
RBC capital markets. Please go ahead. Your line is now open great.
Great. Thanks, Good morning, John.
Morning.
Just a quick question for you. So you mentioned earlier that you were optimistic on gas for daily ability in the various regions going forward.
In New Zealand in particular, I think gas production has been.
So low this year.
Do you have any color on production levels going forward in terms of like production issues drilling activity and whether the 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 on oil prices have any of that really helps the economics and the.
We're really going after the liquids so.
The higher energy complex in general is positive for our business and that's 1 of the reasons that incentivize us more.
The exploration and development situation of New Zealand really was 1 of them.
The bulk.
Per field failed in the last 30% of its production late last year and nobody is expecting that and that's caused the gas market to tighten up quite substantially.
The current situation in their winter, while they had a lack of rainfall which is leading to lower than expected hydro power.
Range again in.
So that situation is behind us now.
And there is drilling going on I think that's the positive thing for us is that the.
On the upstream owners of the field Maui is the bulk of our our drilling and planning to drill more so low.
No a little bit more in the next 12 months the results of those drilling.
And the.
Like I said, we're we're certainly contracted for 2 plants for the into the end of the decade and we're optimistic.
On the drilling will be successful and we'll see the <unk>.
Third plant and have a reasonable opportunity to start up as well.
This is not new in New Zealand, we've seen this before end of.
The pretty well develop the reserves at the as the country needs of them. So yes, we're optimistic but really I think we'd be modeling of 2 plant operations at this point until we see the results of what's happening in the upstream.
Great. Thanks for the additional color I'll leave it there thanks.
Yeah.
Thank you. The next question is from Laurence Alexander from Jefferies. Please go ahead. Your line is now open.
Hi, there could you give the update on what line of sight you have to the amount of.
Global shipping capacity that is ordered for under construction that would use methanol of.
The second of all with 1 of the that could mean for methanol demand over the next 4 of 5 years.
And similarly, what you're seeing in the Chinese.
Industrial boiler market development.
Yeah. So we have 8 of our own ships on order Pearlman.
Better out of 206.
Mayors because 1 that's what's on the order at this time of lots of other interest. So it takes about 2 years to build the ship Laurence So 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 the 50000 deadweight vessel running.
Running on methanol 100 per cent of the time would consume between 10 and 12000 tons of sleep.
Could you do the math there as far as boilers, yeah, we continue to see that market.
Placing coal.
But there's other potential of natural gas as well and diesel so that market continues to be a.
A couple of millions of free.
Let me tons of methanol demand and we would expect it to grow.
And the same.
In your more industrial north from aldehyde applications, and so forth what 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 <unk>.
Supply chain issues. So there's probably some kind of multiplier effect when we get back up to the commodity that used to fly.
Yeah, I'd be guessing the 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. Good morning, John It looks like the Trinidad natural gas production is down about 21% a year.
Year to date versus the 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.
The OE business being supplied 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 Thats the guidance we provided.
Great sounds good and then.
On our modeling and your implied cost seemed to drift up a little bit in Q2 could you would you agree and were there any factors that you can point to and then if 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.
Whether.
Whether this would be something we should be thinking about for Q3 modeling.
Yes, nothing abnormal in our cost structure.
The 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 as far as yes youre right.
We hedged about 70% of our requirements for <unk>. So we're exposed of about 30% of the spot market. So depending on what price youre using for Q3 versus what you were having your model the impact us by about 30% of our guests' requires.
Yeah.
Okay.
Great. Thanks for the color.
Youre welcome.
Thank you. The next question is from Rolling Rosh from Crown. The extra investments. Please go ahead. Your line is now open.
Hey, good morning, John how are you.
Good morning, good thanks.
Well congratulations on a good quarter.
I would like to ask the coupon question around liquidity.
On the capital returns are also coming back to 1 of your car.
Comments previously around there is quite of bit of cash on your balance sheet. So far around the updated numbers. The C that the company has paid down to.
Requirements of debt so far this year.
On the over $750 million of cash except a form of the shipping transaction, that's around $900 million of cash clusters of $900 million in lines of credits with the 300 million Undrawn ICF in the $600 million Unutilized construction on so that gets into the total of 1.
$1.8 billion of liquidity.
And then you just guided for an out of Q3 in line. So I assume we are looking at $2 billion in cash and lines of credits by the end of September.
Or is this a total G suite, it's the only kicking in next year of 8 to 900.
So why do you in your book.
Do not seem to shareholders the serious of large of dividends or.
For a clear share buyback program and I want to come back to 1 comment you made on your reason the announcement on the call with.
You know what price that he would stop buyback the shares.
What was the wear on you.
Year to date low.
What do you consider the current share price level as attractive to buy back shares.
Yes, it's attractive to buy back shares of the current price level I would agree with that.
We stated pretty clearly our financial strategy around what we want to do with our balance sheet and returning cash to the shareholders.
<unk> changed so.
So we wanted to maintain $300 million of cash plus the.
The additional whatever G. III spend is left on the balance sheet. The once we've achieved that we will start to return more cash to shareholders flexibly like we've described and that could include buybacks we re.
It hasnt the dividend and the fixed dividend of 12.5 cents in our plan hasn't changed we will grow the company and we've you know over the last 10 years growing the company and dull spending about $3 billion and we've returned over $2 billion to shareholders on the same period through dividends and buybacks. Our balanced approach is the same.
Same right.
Right now were spent.
But you know having cash generation going towards the G..3 project. 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.
Next question is from Cherilyn Radbourne from TD Securities. Please go ahead. Your line is now open.
Thanks, very much on good morning.
In terms of the outlook for methanol supply I was hoping you could give some perspective on what you think the current environment is like the.
Plenty of new methanol plants as far as being able to walk in the fixed cost within E&P partner in light of inflationary pressure.
And what sort of price that the financial institutions might be prepared to lend on.
Yes, it's a good it's a good question, obviously, that's kind of impact us as well as post G. III. So it's something we look.
All the time.
We may have some other brownfield opportunities, but if we are assuming greenfield. There's 2 projects that will be the recently completed public information around and Thats. The <unk> methanol plant that's in the process of starting up.
On the OCI Nat gasoline plant.
Both of them are.
Content of 1.7% of 1.8 million tons give or take and they were well north of $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 and a double digit.
Each of return of around 10% of 11% you would need $400 methanol to get or higher to get that return so.
We certainly life and we love the 400 dollar of methanol for 20 years to get a payback on a project like that but.
We've seen quite of bit of volatility in the last 12 years.
In our commodity and.
I think that would climb of bank looking to lend money to a potential project with those kinds of returns and what you're doing on methanol price. It seems in the hard to do category, but.
Having said that there is lots of seems to be lots of money out there trying to find the homes. So.
And we'll see what happens, but those of the kind of the number of Sheryl.
And then second 1 is just could you speak of the company's confidence in the evening.
The demand for methanol 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 for.
5 years ago when all.
It was what we called the first wave, which is just about being completed now theres a couple of more plants that 1 is close to completion on 1 front.
On a get completed in the next couple of years.
And that is what we call the first wave and as the first way was being.
Commission there was the second wave and certainly with oil prices in the $40 range of naphtha in the $400 range.
It made more sense to look to naphtha crackers and the MTO plants. So we.
We never expected the second wave in.
We're not we're not anticipating so what we think will happen is what's there will run.
We have 85% to 90% operating rates.
I think we can only go on the history.
When we had 400 plus methanol pricing in 2018, the all ran at high rates when we had a book.
Low olefins.
Cycle of last year because of Covid. They ran at high rates and they continue to run at high rates. So it's something we watch very closely because it is the big demand driver for methanol.
Like 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 thank you.
Thank you. The next question is from Chris Shaw from <unk> Crespi. Please go ahead. Your line is now open.
Good morning, Josh.
Good morning.
If 1 were to take a really pessimistic view on I guess the global.
Gas availability of going forward outside of say.
Medicine hat Geismar, what can you remind me what are the.
Potential for moving any of your other plants are all of the first 2 geismar plant.
Mobile or.
To another site and buy doesn't have the biggest guide for specifically, but.
Not only of the potential that I guess.
Economics.
I mean is that the possibility at all on any of those plants on the future.
I would say very unlikely.
When we looked at the.
Kit that.
We have in the other locations the way it was built the way it's the install pretty expensive to move we had 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, the Chilean 2 and 3 of which are now geismar 1 and 2.
But.
We look at things all the time, but right now our focus is 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.
Have any production in North America on the longest time and we're going to have for 5 million here pretty soon for 7 I guess of 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.
As a reminder, do you know.
I could probably.
That's on the map of Carter.
The.
The cost per ton for Geismar, 3 relative to what it would be for the.
You say geismar 2.
Of that.
The similar 1 lower.
No about the same we've got it to a bit lower but not.
Not significantly.
And that's the problem.
On titration regimen because of the gas efficiency on the Geismar 3 spot is much superior to the Geismar, 1 and 2.
Okay got it thanks a lot.
Yes.
Thank you and the.
The last question is from Steve Hansen from Raymond James.
Please go ahead. Your line is now open.
Yeah, Hey, John just 1 quick follow up on I mean, how do you feel about your human resources capabilities across the existing operating complex today. It strikes me that everywhere. We're look we're hearing about screened labor resources for skilled and unskilled I'm not so focused on the G. III.
On your existing operating complex today are you are you well positioned right now or are you looking for people on how should we think about that and whether you are well positioned going forward here.
Yeah on 1 of the benefits that we've enjoyed in our company of the low turnover rate I mean, if you compare our turnover rate on average to the <unk>.
Industry.
Not just first of all about chemicals and other industry the 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 we tend to the aging to retirement age.
So.
But I don't have any concern today.
Sure.
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 of really important to our company and to really expand our labor potential where we.
Look for new team members is really really important in each region is a little unique.
The Trinidad we have all kinds of labor today, because of what's happened on that island, and Egypt, where an employer of choice.
Certainly.
Concerns of 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.
No.
Hey, good wages on that we 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.
The work of meaningful cash flow across the 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.
You you for.
Generate us today, and we will speak with you again in October and thank you for the interest in our company.
Yeah.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Okay.
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