Q1 2023 Methanex Corporation Earnings Call
Good morning, My name is Brent and I will be your conference operator today at.
At this time I would like to welcome everyone to the Metro Next Corporation 2023 first quarter results Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
We'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one thank you.
I would now like to turn the conference call over to the director of Investor Relations at <unk>.
MS. Sara Harry Please go ahead Ms Harriet.
Good morning, everyone welcome to our first quarter 'twenty to 'twenty. Three result conference call. Our 2023 first quarter news release management's discussion and analysis and financial statements can be accessed from the reports tab of the Investor Relations page on our website I bet. The next dot com I'd like to remind our listeners that are common.
The answers to your questions today may contain forward looking information is information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections, which are included in the forward looking.
Information.
Please refer to our first quarter 2023, MD&A and to our 2022 annual report for more information.
I'd also like to caution our listeners that any projections provided today regarding <unk> future financial performance.
As of today's date it is our policy not to comment on or update guidance between quarters.
For clarification any references to revenue average realized price EBITDA adjusted EBITDA cash flow adjusted income adjusted earnings per share made in today's remarks reflect our 63, 1% economic interest in the Atlas facility, our 50% economic interest in Egypt facility, and our 60% interest in the waterfront.
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 and ratios, but do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other companies.
We report these non-GAAP measures in this way because we believe they are a better measure of underlying operating performance and we encourage analysts covering the company to report their estimates in this manner.
And now I'd like to turn the call over to <unk>, President and CEO , Mr. Rich Sumner for his comments and a question and answer period.
Thank you Sarah and good morning, everyone. We appreciate you joining us today as we discuss our first quarter 2020 results.
For the first quarter, our average realized price of $371 per ton and produce sales of approximately 165 million tonnes generate adjusted EBITDA of $209 million and adjusted net income $1 11 per share adjusted EBITDA was higher in the first quarter compared to the fourth quarter, primarily due to higher sales.
That's an expert methanol produced ethanol driven by higher production in Egypt Atlas in Chile.
Throughout the first quarter, we saw relatively balanced both mark which continues to be underpinned by high energy prices.
Global methanol demand in the first quarter was flat compared to the fourth quarter 2022.
Demand for traditional chemical applications decreased slightly due to the seasonal slowdown in manufacturing activity.
<unk> the slowdown in China during the lunar new year demand for methanol to olefins or MTO increased slightly in the first quarter with some improved operating rates through the quarter as several production units increased production on improving margins and increased methanol availability.
Demand for energy applications, including MTBE, and biodiesel and various fuel applications in China increased slightly driven mainly by levels of economic activity as well as continued cost competitiveness in today's high energy price environment.
During the first part of the quarter industry operating rates in China, and I've read were negatively impacted by the seasonal diversion of natural gas to meet power demand and Atlantic operating rates were lower due to planned and unplanned outages star.
Starting near the end of the first quarter, we saw strong and operating rates in the U S call easing of gas curtailments in China, Iran, leaving it leading to increased production, which led to lower methanol prices globally.
Our average realized price for the first quarter was 371.
Dollars per metric ton compared to $373 per metric ton for the fourth quarter.
Our first quarter discount rate was in line with our guidance for 2023 at approximately 21% coal pricing in China continues to remain strong at a level above 1000, RMB per ton and we estimate the industry cost curve based on a marginal producer cost in China to be approximately 320 to 340.
Per ton or May posted prices in North America, Asia Pacific and China <unk>.
Greece by 2010, and $15 per metric ton, respectively, and our Q2 European price was supposed to 10 euros per metric ton higher than Q1 2023.
We continue to closely monitor the macroeconomic and energy price environment with inflationary pressures and resulting tight monetary policies presenting headwinds from the global economic growth. Notwithstanding these risk we expect demand for traditional chemical applications to increase as we move into the housing and construction season.
And from continued growth in the Chinese economy after their COVID-19 reopening and Chinese lunar new year holiday in the first quarter.
In addition, MTO operating rates have continued to improve and to MTO units, representing approximately one 5 million tons of annual demand or in the process of restarting production.
We also continue to see a high global energy price environment, which enhances methanol cost competitiveness against alternative fuels supporting tobacco.
In the short term, we expect the recent methanol operating rate increases, mainly from Iran, and China to support increasing demand for the remainder of 2023, we do not anticipate capacity additions. Besides one plants in China, and our Geismar three project with expected production in the fourth quarter.
Guarding the emerging emerging marine market interest from the marine industry and orders for dual fuel vessels able to run on methanol continues to grow.
During the first quarter approximately 35 additional vessel orders were placed bringing the total number of dual fuel vessels on order to over 135.
We estimate the demand potential will grow from approximately 300000 tons today.
4 million tons over the next for the next few years.
In February we completed the first ever net zero voyage fueled by bio methanol crews produced from our Geismar plant in partnership with Mitsui O S. K lines, our M O L. Our collaboration with <unk> demonstrates the versatility of methanol as a greenfield with a pathway to net zero emissions.
Turning to operations, our production levels were higher in the first quarter compared to the fourth quarter with limited unplanned outages. The team safely and successfully completed the planned turnaround at G. One with the plant restarting production in February .
We ended the first quarter in a strong financial position with approximately $709 million cash excluding noncontrolling interests include and including our share in the outlets joint venture and with $300 million of Undrawn backup liquidity.
We remain committed to return excess cash to shareholders through our ongoing 5% normal course issuer bid that expires in September and we announced that our board approved an increase of our quarterly dividend by 6% to $18 <unk> per share. This great increases in line with our 5% share repurchase program and maintains our cash.
Late for dividend payments at approximately $50 million per annum.
Construction on our <unk> III project is progressing safely on time and on budget with production expected in the fourth quarter of this year overall the G. III project is over 80% complete and the team is starting to shift from mechanical construction activities to commissioning activities. The expected G III capital remains unchanged.
At 1.25 to $1 3 billion and we have spent approximately $995 million before capitalized interest at the end of the first quarter, the remaining $330 million to $380 million of cash expenditures, including approximately $75 million an account.
Payable is fully funded with cash on hand.
Looking ahead to the second quarter of 2023, we expect a lower methanol price environment and as a result, we are expecting a lower adjusted EBITDA in the second quarter of 2023 compared with the first quarter. Our overall production guidance for the year of $6 5 million metric tons of equity production, excluding G. III remains unchanged.
In the medium term the methanol market outlook is positive and we will have growing cash flow generation capability with G. III production expected in the fourth quarter of this year.
At a 375 dollar.
Per ton realized price and $4 per annum Btu gas price, we expect <unk> to generate approximately $250 million of adjusted EBITDA per year.
With our G III project being fully funded with cash on hand, and our ability to generate meaningful cash flows across a wide range of methanol prices. We are well positioned during this period of economic uncertainty to maintain a strong balance sheet pursue economic value.
I think growth opportunities and continue returning excess cash to shareholders. We would now be happy to answer questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Your first question is from the line of Joel Jackson with BMO capital markets. Your line is open.
Hi, good morning.
Hi, Joe.
One.
Trend that we've been watching and ethanol has been that the your posted price.
For North America versus U S Gulf spot to the premiums.
I've been North American posted price versus U S. Gulf spot have been quite high touching reached.
Reaching some of the peaks that you've had in the last seven years group talk about that and typically that's not been a bad time don't methanex stock when the premium has actually been higher than normal.
Yeah, So maybe I'll just start a little history that over time, there has been new capacity added in the U S.
The U S is a heavily contracted market.
We believe a lot of the new U S producers they've under contracted there their overall production positions and so in the fourth and the first quarter, we saw U S. Gulf production quite relatively low and then as we moved through the quarter. It all came back operating at relatively high high levels.
A lot of those producers are relying on exports at a at a very small spot market in the U S, which is I think the spot market, probably trades overall less than 5% of overall methanol business in the U S. So so at those times when there's a lot of volume we see distressed pricing.
And certainly the pricing we saw in the spot market went to I think at one point when all the way down to the $250 per ton. It's now closer to I think back closer to $300 per ton. So so I think theres there are points in time, Joel where that I guess.
Yes, pretty pretty low based on a small level of cargoes trading.
Doesn't have a home, especially when everyone's running at high rates at the same time, so certainly don't see that as an indicative overall methanol price globally, but there has been a supply new supply on the market with Iran, China as well as U S. Gulf producers and that's that's why we've lowered our contract pricing for a couple of months in a row.
My second question I, just wanted to get a clarification did you say that Q2 earnings would be lower than Q1 of 'twenty, three or lower than Q2 of 'twenty two.
Lower than Q1 of 2023, just based on our on our R. A decrease methanol prices that we've had.
Over the last few months.
And then my question would be then.
So youre commissioning phases of G. III, that's great and still targeting first production for Q4.
Is there a path if things go right you could have first production in Q3 like what would have to happen to have first production in Q3 or is that not possible.
Yes, maybe just I'll speak to G. III so during the quarter, we completed our 60% plus.
Construction completion revenue.
This is the kind of last real deep dive on both cost and schedule and and that confirms confirmed both our cost estimates of one five to one three as well as our expected startup timing in the fourth quarter. We we are really concentrated first and foremost on safety.
For this project.
And then of course quality as well and so we're not.
We feel really good about the progress that we're making there and the timelines we have is to deliver a high quality projects.
Safely on time on budget.
Okay.
Okay. Thank you.
Okay.
Okay.
Your next question is from Ben Isaacson with Scotiabank. Your line is open.
Thank you very much and good morning, everyone. Two questions for me one long term in one short term.
On the long term.
Rich when you think out five 710 years into the future can you talk about that.
Possibility of a new project for Methanex is that something youre thinking about and if so what would the timeline be in what locations would you be thinking about.
Yes, Thanks Ben.
When we look out we are seeing favorable when we look out we see favorable demand and supply.
Outlook certainly in the medium and longer term, we are watching current economic headwinds for the pace of demand growth, obviously, but when we when we can take even modest growth rates without considering a lot of the potential demand for marine fuels, we don't see a lot of capacity additions out G III position us really well in the medium term.
But to deliver a project even today.
With the work that has to be done.
Youre starting today it would be wouldn't be until the end of the decade before you kind of add a project.
So we are going to be what we're looking at right. Now is just advancing a portfolio of options that we have.
This wouldn't be any meaningful capital in the next few years, but.
Really just creating options for the company about deciding which which is the next best growth opportunities are out there and which is the one that we would want to focus on that doesn't mean, we we are going to commit to obviously, we would take our time to assess where the market's at and where we want to be from a growth perspective, but but the <unk>.
Lights RFP start today, even if you are an option for select that will take a few years and then you get into pre.
Grief feed activities and then.
And into construction and startup you're already at the end of the decade before.
A new project.
And just as a follow up to that excuse me, how do you balance some of the idle plant such as well.
<unk> valley or tighten or even in Chile, It doesn't run through the summer.
Would it be something that you would consider possibly.
We locating one of those plants or is there something that would be greenfield or is it just way too early right now.
I think that the.
A few options. We have we are looking both at brownfield as well as so we have brownfield opportunities within our within our portfolio, obviously Geismar medicine hat.
We have land in Egypt.
We also look at Greenfield sites.
Other regions as well in terms of relocation.
It's it's it's an option, but probably.
Not the focus I think when we look at moving moving plants, the economic advantages aren't necessarily there.
But it's not it's not something we're totally closed off to I mean right now our main focus is getting enough gas to bring those plants online and our focus would be to try to show to half half.
<unk> to utilize that capacity, where it's in place.
But yes, we're looking at both brownfield as well as Greenfield Greenfield operator.
Yes.
Thank you and then just my quick short term question you talked about the cost curve, you talked about supply and demand.
And a little bit about create book can you just talk about inventories, where our inventories through the channel is it.
Are they elevated in terms of what you have.
Visibility towards.
I think it's probably a bit of a tail of it depends on.
Which market you're looking in.
We've had very very low inventories in the Asian markets in China, and I think even when you look today, we're probably not back to where average inventories would be that there is product.
We would expect that that might be.
Partially solved with some more product coming on from Iran, but still below average there and then when you look at the Atlantic markets with reached recent operating rates certainly that that's why you saw some of the pricing you did in the U S was because.
We had to get.
Volume that needs to be export for that market.
Europe is probably in that balanced.
Balanced inventory.
Inventory levels and then in the U S was getting high and having to export. So it depends on overall, where you are in the world, but I'd say right now we're in a cut about overall balanced market today.
Good day.
Great. Thanks, so much appreciate it.
Your next question comes from the line of Hassan Ahmed with Alembic Global Your line is open.
Good morning Rich.
Just wanted to revisit near term supply demand fundamentals.
In the commentary.
A bunch of puts and takes around supply I mean, obviously you guys mentioned.
That gas being re directed in Q1 in Iran, and China, and obviously now operating rates sort of stopped picking up over there.
Obviously, a new facility expected to come online in China. This year.
G III as well, but.
Some some sort of positive commentary on the demand side with China reopening and the like so I guess.
The question is that with all of these puts and takes both on the supply and the demand side of it do you still expect 'twenty to 'twenty three to be a year, where demand growth outstripped supply growth also keeping in mind how sequentially obviously in Q1.
Demand growth was relatively flat.
Yes.
Good question, Matt. So we're obviously looking at that really closely right now we saw demand sort of when we look at what happened coming into Q1 demand demand came down quite meaningfully in Q4, and then that was our base heading into Q1, what we would say is that it started so it's starting to look.
Better at the tail end of Q1, but overall, we saw flat flat demand in Q4 to Q1, what we see in the different segments as that.
We look at we look at the traditional demand segment.
It's a seasonally slow period in the first quarter, so we'll be going into the housing and construction season, which should help demand.
In China, certainly the post Chinese lunar new year, and the opening up impact we are expecting some positivity or we haven't seen it.
It's been a little slower than what we would've anticipated for traditional demand.
And then on the MTO side.
We saw steadily increasing rates through Q1, and then we have two plants in the process of starting up which is $1 5 million tons of demand. So overall, we still need to see more demand growth.
From where we are today I think to balance off some of the supply that's coming into the market.
And when we look overall I think when we look at Q1 annualized Q1 annualized is certainly not back to where.
2022 full year was so we'd need to see continued demand growth see overall growth in the industry, which would mean a balanced market with with new supply there.
It really G. G. G. III is starting up in the fourth quarter, so isn't going to impact really the market until we get into the first quarter of 2024 really so so not a lot of new capacity being added we arent really closely watching demand and saying are we going to be an overall growth for the year.
We do expect that today, but we're watching very closely.
Understood very helpful and as a follow up you know kind of something you alluded to towards the end of your answer just the <unk> ramp up.
Obviously, you talked about.
First production in Q4, but you know obviously you guys, particularly in Geismar have had.
Relatively recent.
Startup experiences so how should we expect to see that ramp up through the course of Q4 and when do you think we will be at sort of full production with regards to G. III.
Yes.
I wouldn't get too specific here with this I mean, we have our schedule and Theres a lot of puts and takes to that but maybe just give you a sense of where we're at on the actual projects and how that startup phase happens.
Today, where we're at we were in mechanical mechanical construction has been the focus we've been working on a lot of the piping piping installation the welding that all of that.
It takes to build a plant we have now shifted into electrical installation fireproofing painting, and where we're at where we're working on system turnover. So that means pending the systems over to the different different parts of the plant. We're also getting into activities like steam blowing in height.
Testing of the piping system so.
All of those things have to take place and we've got it all scheduled in for a for a startup so that once we actually go to start up the plant.
As a period of weeks not months. So we're very confident in the startup schedule in the fourth quarter and I wouldn't get too precise.
Actual timing there.
Oh, thanks, so much for its very helpful.
Your next question comes from Steve Hansen with Raymond James Your line is open.
Yes, good morning, guys.
Just a quick follow up rich to <unk> remarks earlier on Joel's question I believe can you remind us as to how the G. III contract structures work in terms of the sales where you're targeting geography wise how much of the volume is already contracted just we can get a sense for how the volumes are going to flow here. Once we go live.
Sure.
No.
Maybe the way to think of we grew our sales position last year.
And we probably grew our sales position field level I think I think youll see that were kind of trending at $11 5 million ton sales range.
When we think to next year, we don't need a lot of sales growth.
Two to position and G. III. So we've already really pre marketed at least half of that plant today.
Yes.
What we did last year as we grew and I think.
We grew.
Pretty balanced with a more of a heavily waiting too.
Two to the Atlantic markets.
And.
As we think this year will.
We'll probably see a modest increase in our sales position, but we aren't looking to we don't need to be in the market too in a heavy way for re contracting or more contracting for G. III, what you'll likely see is a lower level of purchasing in our system. Once <unk> starts up so it will be a balance between lower purchasing.
And some increased sales for next year.
Okay. That's it thank you.
So that's that's really good perspective.
I guess I'm trying to think about it in the context to some degree of where the price points will be hit there is quite a delta between Asian contracted prices in North America.
I know you talked about underwriting the economics of the plant as an export facility to Asia.
I did not know avoid what's going to flow necessarily.
Yes, I think last year, we were we did increase a fair amount in the Atlantic markets and that was on the basis of a lot of with the Russian sanctions and a lot of Russian material.
Flowing to different needing to flow to different markets. So I think we're successful there we'll be looking at.
Where where we will be marketing, we don't have a huge.
Need for sales growth for next year. So I think we're in a really good position to be selective on what markets will be selling into.
Okay helpful. And then just one quick follow up on the capital allocation.
Dividend going up in line roughly with the buyback is that a good way to think about future allocation going forward, you're going to have a lot of cash flow of course.
Next year and beyond I presume the buyback will continue but should we expect a dividend increase with the same pace of the share buyback goes out.
Yeah, I think what we want.
The dividend is we have we want it to be sustainable and I think part of that will be when we see improvements in the dividend.
Or sorry improvements in the business I think we will look at the dividend.
We have had a preference for flexible distributions.
With share repurchases, but with G III coming online its chest to look at the dividend as well. So I don't want to say that that's just that's the only way to think about it going forward.
Very helpful. Thank you.
Your next question is from the line of Laurence Alexander with Jefferies. Your line is open.
Good morning, I guess first of all was China Reopens, where do you see the combination of MTO do you me and industrial.
Industrial boiler demand going into the next couple of years, how much flex should we be thinking about from a supply demand balance.
Sure.
Maybe starting from today Laurence.
It maybe Q1, when we look at MTO today.
So I think MTO operating rates in the first quarter around 65% or so is the number we have that represents a round.
2014 to $14 5 million tonnes, there's about 21 million tons of capacity. So a 10% increase in that operating rate is about 2 million tons of demand and typically we've seen 80% to 90% operating rates and so I think if.
If olefins is in a healthier and a healthier position.
Position and is operating at what we've seen in historical rates Theres, probably three 3 million tons of structural demand there.
When we think about China reopening on other derivatives, obviously traditional derivatives.
<unk> will.
Those will will will.
Ron with GDP and economic growth and there is a considerable amount of traditional derivative demand in China.
And then on the other energy applications Similarly, with more movement around the country and the economy growing youre going to have higher demand for transportation fuels heating and cooking. So so that will also impact on that I think that the numbers for traditional demand in China and the equivalent above.
20 million tons per year, and then the energy demand in China is about 15 to 20 million tonnes. So obviously, we think China reopening has a meaningful impact we havent seen it really translate yet today, but you can kind of apply those.
Those growth rates to those those volumes too.
Hopefully that's helpful.
No very helpful. And then can you give us a sense, though we've had a bit more time to digest.
In the U S and European stimulus packages, where you see kind.
The various proposed green methanol platform showing coming on the cost curve after subsidies.
And then I guess related to that we're hearing a lot more about ammonia as a comp as a competitor for methanol Lynch.
In the.
To replace the bunker fuel can you give a sense for where you see the arbitrage there playing out.
Sure.
Maybe start with the first question on regulations I think the probably the most significant regulations that are we're looking at right. Now is the inflation reduction Act is the one that I know a lot of companies are looking at opportunities under the under the inflation reduction I. So certainly we're looking at.
The economics of carbon capture in Geismar under the inflation.
Both because of that government incentives as well as the infrastructure, that's being built for carbon capture so.
Preliminarily those capital costs are large.
And certainly the government incentives helped but there's there's premiums still required in the market to make that to make that project go forward.
As it relates to the green fuels theres various subsidies that are out there.
That are driving.
Some demand the UK fuel blending market. We think is around 150 to 200000 tons of green methanol going into that market a lot of the a lot of the demand, though is being driven on just customer's willingness to pay were seeing increased.
Increased interest in paying a premium for for low carbon methanol, so and we're in discussions with a lot of shipping shipping companies in that regard.
So that's a bit about the regulations on the competitiveness side, when we think about the shipping market the shipping market by itself represents.
On an energy equivalent basis, probably 4% to 500 million tons of annual methanol demand. So the shipping market is huge and when we think about methanol ammonia hydrogen to future shipping fuels. There is theres a lot of room for everyone and as as shipping companies commit to vessels.
Which is already at 4 million tons of demand potential and growing because we already are hearing other commitments. So I expect that number is going to continue to grow once the what's that.
Decision is made.
It becomes not a competing against pneumonia or hydrogen it's really about economics to the diesel alternative and so so I think I think there's going to be demand potential there and it is going to come down to methanol is cost competitive competitiveness against diesel and as well the cost to decarbonize both those.
<unk> as well so so.
We're really.
Really really excited about that opportunity and our low carbon solutions group is actively working in this space to see what opportunities lie ahead, and what solutions, we can provide to the shipping industry.
And if I may as you mentioned kind of shippers already or sorry, not shippers our customers already discussing in some areas sort of the green premium.
Is that showing up in terms of can you give a sense for what size of premium is being discussed and is it also showing up in terms of longer term off take agreements or is it really just groups transactions.
I'm going to say its early and certainly something that with the zero carbon voyage that.
Zero carbon voyage I mentioned in the.
In the in the opening remarks that was based on renewable natural gas and we're obviously active in the renewable natural gas market and we're having discussions with shipping companies about whether that makes sense to do longer term for their needs and so we're hoping to.
Open to be able to announce things going forward, but still early discussions.
Okay. Thank you.
Your next question is from the line of Matthew Blair with <unk>. Your line is open.
Hey, good morning, Thanks for taking my question.
Hoping you could talk a little bit more about the operations in New Zealand in the quarter operates look quite strong.
But you held your 2023 guidance.
Unchanged I believe.
Any more details on my feeling would be would be great.
Yes, so we did have a strong quarter in New Zealand and.
And it was in line with our expectations. When we look when we look to actually for the remainder of the year. We said that we have three turnarounds this year and we will be doing some maintenance and in.
In New Zealand. This year, so we are holding to our to our.
Our production forecast for the year.
When we look at New Zealand, we have two primary suppliers their OMB and Todd and the production.
Duction volumes than forecast, we provide are based off of us working with them on the results of their you know their production and their upstream activities that they're working on so so we continue to hold to the forecast today and we're quite comfortable at this level for the next few years and we're working with them on the results of their work that they are doing in the Taranaki basin.
And we will continue to provide guidance on on where that leaves us on production forecast, but.
That's why we're holding to the number that we have for the year.
Sounds good and then could you expand a little bit more on your R&D efforts.
I guess what percent of your total feedstock for <unk> and <unk>.
And how might that change going forward do you ever see yourself.
Moving into the actual RMG production market and what's the driver here is this.
Coming from customer request or is this mathematics looking to.
Imply with.
Sure.
Ghd targets in ESG targets.
So maybe just in terms of the size of the of that business today, it's relatively small. So today. We have we have really one contract that that's on a longer term R&D contract very very small volume, but it's a good starting point and then on in terms of what's driving it really is.
It really is based on customers. So we have interest from.
From the shipping industry as well as some traditional chemical customers that are interested in and green methanol of course this comes at a meaningful premium.
And so we're working with them.
And the way to contract the best contract is to have longer term off takes in longer term customer commitments. So so we're working with both of those segments on their interest in green methanol in terms of the <unk> market.
The total R&D market.
Americas is about the equivalent of 3 million tonnes of methanol demand and there is competition for for that as well because a lot of the RMG goes into it to natural gas vehicles. So so it's certainly an area that we want to explore and we want to work with our customers on.
We're not the only off taker for that RMG, So theres a competitive <unk>.
Perspective to it that we're also have to consider and so.
Yeah, we're we're exploring that certainly off of customer interest and.
And we're excited about the opportunities and working with customers on that so.
Great. Thank you.
Your next question is from the line of Nelson <unk> with RBC capital market. Your line is open.
Great. Thanks first question is just a follow up to Steve's question about.
About production and sales mix so.
I guess based on your commentary should we assume that after Q3 is up and running and fully producing.
The sales mix within the regions like Asia, China.
U S and Europe .
Should we assume that the sales mix will be relatively stable or.
Or will more products go into China.
I think assuming a relatively stable sales mix is what we would we would guide to a similar to what we've guided in the past.
Okay. Thanks.
Next question it sounds like based on your commentary.
China reopening.
Wrapping up is taking place slower than expected.
Do you have any kind of early signs in terms of how things are progressing after I guess after that.
The lunar new year and.
Like are you seeing any.
<unk> ramp up or are things still kind of slow going in China.
Well on the on the MTO side, certainly we're seeing ramp up there I think thats based off of some improved economics as well as increased methanol availability, just a reminder that.
A lot of Iranian supply is.
As does get supplied into MTO and we believe that that gets supplied at a discount to international.
As well so that that makes it more attractive and helps the affordability for for MTO. The MTO industry on an on the other energy applications I think we're seeing some some some signs of strength in the in the MTBE vehicles fuels.
Cooking and thermal applications and that's just based on general movement and more economic activity in the country, we haven't seen on the traditional terms chemicals side yet.
The demand pull from those segments and so that's something we're watching closely.
We do see signs of that manufacturing.
Numbers seem to be indicate growth export numbers seem to be showing up better.
Sometimes this does take its way of time to get back to methanol because we're kind of in.
And the starting point.
<unk> of the value chain and so sometimes that is a bit of inventories and things that have to be worked through but we're watching it closely to see when the timing when we start to see demand there, but as of today I haven't seen the traditional chemical applications.
Growth that we would anticipate with the with a 5% GDP growth for example, okay. Thanks, Rob Thanks for all the color rich I'll leave it there.
Yes. Thanks.
Your next question is from the line of Jacob bout with CIBC. Your line is open.
Good morning.
Jacob.
Yes, I have a question here just on.
Your thoughts around M&A I know historically, the focus has been either greenfield or brownfield, but.
How do you think about M&A in the current market.
Even with.
Some of your competitors looking at.
Strategic reviews or that type of thing.
Is that something on your radar or how are you pushing.
Yes.
Yes, I'd say, we always keep it want to keep it on our radar.
Obviously, when we look at when we look out we certainly see the industry growing in.
Notwithstanding there is some slowdown today, but when you look further out we see we see demand growing with not a lot of capacity additions and obviously M&A doesn't achieve achieved the growth but.
But when we think about M&A is something that we want to be closed off to if theres opportunities out there that makes sense then we'll look at it.
It is a lot of it is harder sometimes the depending on the location of those assets.
What kind of synergies do you pick up we've got G III coming online.
Which is we're very excited about it.
It's an Atlantic based asset and so.
We'd have to think carefully about what kind of synergies are created by by any M&A activity.
And ensuring the values right that we get out of it so but certainly not closed off to it.
And remain open to discussions on it.
Okay.
Then my second question is just how youre approaching gas hedging right now gas prices move down quite significantly over the past quarter or so.
Yeah.
How are you approaching it and how much can you walk in.
So right today, we're 85% hedged for 2000 22023, our target is to be in the outer years kind of first one to three years is to be around 70% hedged across our North America portfolio and network about where all the way there for 2010.
Four and 2025 with G III operating.
When we look beyond the kind of 2025 timeframe, where we're less hedged. So we're obviously actively watching whats happens at that.
The kind of medium or longer end of the curve.
The pricing notwithstanding the current pricing the pricing at that longer and hasnt come down to where the levels that we'd like to see and so we were still being patient to bring more hedges in there, but we're watching it closely we have heard that.
There's some in today's environment, where there's a lot of anticipation of LNG capacity additions being added in more demand in that longer timeframe. We've heard some of that is under pressure with increased capital costs as well as regulatory potential regulatory changes. So we're watching watching that and see if that moves the backend of the curve.
And creates an opportunity for more hedging.
Okay, great. Thank you.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question is from the line of Josh Spector with UBS. Your line is open.
Yeah, Hi, Thanks for taking my question I actually wanted to follow up on the gas side of things, so understanding youre pretty heavily hedged here, but.
With lower U S gas costs and your FIFO reporting.
Your first quarter numbers, I mean, I assume that's not fully reflecting the two to $3 gas. So how much of a benefit would you expect to see as you go into next quarter or would we see minimal because of the hedges.
Not to worry.
<unk>, 85% hedged in that.
That spot.
The spot moving is certainly helping our 15% unhedged position.
There might have been a little trailing impact from last year in our first quarter, but I'm not I wouldn't expect a big impact into the second quarter because that move there wasn't a lot of that inventory that would have impacted Q1.
So I wouldn't I wouldn't be factoring that in in terms of our biggest earnings.
<unk> tailwind for Q2.
And just to be clear.
Okay, and just on the hedging we're talking about U S gas explicitly not your whole portfolio of craft.
Correct, yes.
Okay.
Just I wanted to ask on the agreement announced in Egypt on that infrastructure development pipeline does that change anything for you is there any additional capacity creep needed to feed that at some time or does that change the mix or pricing of that product just curious on any thoughts around that thanks.
No no. This is a this is a formaldehyde buildout right next door. So this is this has been a plant that's been.
In the plans for quite some time.
We're really pleased that we signed a supply agreement that is relatively modest.
Volume in terms of methanol supply per year in the kind of 40000 tons of methanol supply, which will be pipeline supplied right next door, but thats. The best the best business. We can do with our customers is just pipeline right next door. So we're very happy to be supporting that project. It doesn't given that level of sales that doesn't move.
Really in terms of any anything to think about it in our sales mix or anything like that but we're very happy to be worrying that project and supporting any customers downstream demand buildup.
Got it I appreciate the thoughts thanks.
There are no further questions at this time I will now turn the call back over to Mr. Rich Sumner.
Yeah.
Thank you for your questions and interest in our company looking forward, we are well positioned with our current asset portfolio and a strong balance sheet. Our <unk> project is fully funded progressing safely on time and on budget and we expect to be in production in the fourth quarter of this year. We hope you will join US in July when we update you on our second quarter.
Results.
This concludes today's conference call you may now disconnect.
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Okay.
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