Q4 2024 Methanex Corp Earnings Call
John: Good morning, my name is John and I'll be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation 4th Quarter 2024 Results Conference Call.
John: All lights have been placed in mute to prevent any background noise.
John: After the speaker's remarks, there will be a question and answer session.
John: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.
Speaker Change: If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference call over to the Director of Investor Relations at Metanex, Ms. Sarah Herriott. Please go ahead, Ms. Herriott.
Sarah Herriott: Good morning, everyone. Welcome to our fourth quarter 2024 results conference call. Our 2024 fourth quarter news release, management's discussion and analysis and financial statements can be accessed from the financial reports tab of the investor relations page on our website at methanex.com.
Sarah Herriott: I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information.
Sarah Herriott: This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections, which are included in the forward-looking information.
Sarah Herriott: Please refer to our 4th Quarter 2024 MD&A and to our 2023 Annual Report for more information.
Sarah Herriott: I would also like to caution our listeners that any projections provided today regarding Methonex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters.
Sarah Herriott: For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, and our 60% interest in waterfront shipping.
Sarah Herriott: In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation.
Sarah Herriott: and the impact of certain items associated with specific identified events. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be comparable to similar measures presented by other companies.
Sarah Herriott: We report these non-GAAP measures in this way because we believe that they are a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. Rich Sumner, for his comments and a question and answer period.
Rich Sumner: Thank you, Sarah, and good morning, everyone. We appreciate you joining us today as we discuss our fourth quarter 2024 results. I'd like to start the call by thanking our global team for their ongoing dedication to safety.
Sarah Herriott: We achieved the best safety performance on record for the company in 2024 in a year of meaningful changes in our operating assets
Rich Sumner: and these results are a demonstration of the team's commitment to responsible care across the globe.
Rich Sumner: Now turning to the financial and operational review of the company for the fourth quarter.
our fourth quarter average real estate price.
Rich Sumner: of $370 per ton and produced sales of approximately 1.5 million tons.
Rich Sumner: generated adjusted EBITDA of $224 million and adjusted net income of $1.24 per share.
Rich Sumner: Adjusted EBITDA was higher compared to the third quarter of 2024, primarily due to a higher average realized price and higher produced sales.
Rich Sumner: For the full year of 2024, we had an average price of $355, produced sales of just over 6 million tons.
and generated adjusted EBITDA of $764,000.
Rich Sumner: $764 million and adjusted net income of $252 million or $3.72 per share.
Now turning to short-term methanol pricing and market dynamics.
Rich Sumner: We entered the fourth quarter with very tight market conditions in the Atlantic Basin.
Rich Sumner: underpinned by stable demand and lower and low operating rates from several key supply sources.
Rich Sumner: with these conditions remaining through the quarter. In the Pacific Basin, we entered the fourth quarter in a more balanced market with stable production and healthy inventories from lower methanol-to-olefins operating rates in the third quarter.
Rich Sumner: Through the fourth quarter, conditions in the Pacific tightened because of increased operating rates from MTO producers, combined with increasing supply constraints, particularly from Iran.
Rich Sumner: Consequently, MTO operating rates decreased late in the fourth quarter, with this trend continuing into the first quarter.
Rich Sumner: Overall, tight market conditions globally led to an increased methanol pricing environment in the fourth quarter and into 2025.
Rich Sumner: Our global average realized price of $370 per metric ton was $14 higher than the previous quarter.
Methanol pricing strength continued into the first quarter of 2025.
Rich Sumner: with our European quarterly price posted at €700 per tonne, representing a €130 per tonne increase from the fourth quarter.
Rich Sumner: Our posted prices for North America and China increased in January and rolled in February. And in Asia-Pacific, we increased posted prices in January and February.
Rich Sumner: Comparing methanol demand in 2024 to 2023, we estimate global methanol demand increased by approximately 3 million tonnes, which included relatively flat year-over-year demand for methanol to olefins, given supply constraints in the industry.
Rich Sumner: In 2025, we expect methanol demand to grow at a similar rate to 2024, driven by demand from traditional chemical applications as well as energy applications.
Rich Sumner: with operating rates in methanol to olefins, again playing a critical role in balancing the market.
Rich Sumner: Looking beyond 2025, we continue to see favorable supply and demand dynamics.
Rich Sumner: with traditional chemical and energy applications demand expected to outpace supply given limited capacity additions projected in the industry.
Rich Sumner: Now turning to our operations, Methanex production in the fourth quarter was higher compared to the third quarter, with higher production from Geismar, Chile, New Zealand, and Egypt.
Rich Sumner: Our production was higher than our produced sales in the fourth quarter of 2024 due to an inventory bill that produced methanol from these higher production levels.
Rich Sumner: In Geismar, production was higher during the fourth quarter, with G3 operating at full rates in October and December. In mid-November, we took a proactive shutdown of G3 to inspect some of the newly commissioned equipment to ensure reliability.
Rich Sumner: In Chile, I'm very happy to share that both plants have been operating at full rates and that after a brief maintenance outage in November, we produced 150,000 tons of methanol in December, which is the highest monthly level of production we've reached in Chile since 2007.
Rich Sumner: We have gas contracts in place with Chilean and Argentina gas producers until 2030 and 27 respectively, which underpin approximately 55% of the site's gas requirements year-round.
Rich Sumner: We continue to expect seasonality in production, but are seeing positive developments making full gas supply for a two-plant operation available for longer periods.
Rich Sumner: Based on contracted gas, 2025 production is expected to be between 1.3 and 1.4 million tons, which would result in the fourth consecutive annual increase in production from Chile.
Rich Sumner: In Egypt, production increased compared to the third quarter as temperatures moderated, the gas balances in the country stabilized, and we operated at close to full rates based on improved gas availability.
Speaker Change: Yeah, it's thanks, AMR, where we're progressing things well as planned and and you know we're going through the process in both Europe and the U S. As we discussed previously in it right now the expectation is to close in the first half is looking like it's going to be looked.
Speaker Change: Looking like it's more a Q2 close sometime in the first half of the year, but Q2 close right now.
Speaker Change: So you know, we're getting things all prepared for that and starting to plan, but in integration.
Speaker Change: As we get ready for regulatory approvals.
Speaker Change: Okay, Great Rick Thanks, and it's the second last question I had was could you speak to what you're hearing about output levels from the Iranian methanol industry. It seems like from some of the trade reports that they were barely running in December if you have any insights into how much has come back and potential further supply disruptions.
Speaker Change: This year.
Speaker Change: Yeah, well, we we don't have direct insight, but what we do is track a lot of the.
Speaker Change: Flows.
Speaker Change: Import statistics into the mainland China, and we've seen a significant reduction in imports into China, which is impacting inventory levels there.
Speaker Change: It would indicate that they youre right. There was not a lot of production coming through in December and likely into January and I think the energy crisis that Iran is going through is pretty well publicized so they're they're having a.
Speaker Change: Quite a difficult time, just from that resin keeping the residential demand supplied.
Speaker Change: Significantly impacting industry and methanol production. So we think that that probably leads to a constrained supply, particularly through the winter here, but likely as.
Speaker Change: As we saw last year, maybe a more prolonged impact of that.
Speaker Change: Through the first quarter, and possibly end of the second quarter, but where we're going to continue to monitor it.
Speaker Change: Okay Fair enough, that's all I had I'll get back in the queue. Thanks.
Speaker Change: Your next question comes from the line of Joel Jackson with BMO capital markets. Please go ahead.
Joel Jackson: Good morning Rich.
Joel Jackson: Just following up on a question I think you just said so you said I think you said that you expect.
Joel Jackson: So our sales of produced methanol in Q1 to be similar to production levels in Q4 is that right.
Joel Jackson: That's correct Yep.
Joel Jackson: No.
Joel Jackson: It seemed like it would be higher in Q1, because if.
Joel Jackson: If I take your guidance and I factor in turnaround, but it seems like production should be similar in Q1 versus Q4, and you add 400000 tons of inventory build in Q4. So can you tell us what would the attributable production look like in Q1 versus Q4, and then aren't youre drawing down the inventory.
Joel Jackson: Okay.
Joel Jackson: Oh were.
Joel Jackson: I think we're gonna be dry it's an inventory buildup produced product because there's a bit of a change in our system. When we bring in our overall inventory levels are the same but we're bringing in more produced with more production.
Joel Jackson: Which means a change from produced methanol.
Joel Jackson: <unk> produced methanol, which is a good thing for us. So so we've got an inventory buildup produced not in overall inventory build and so where we are in production should be similar where we're operating is consistent with the fourth quarter right now the assets are running really well. So we would expect a similar production level at this point, but.
Joel Jackson: You know what we'll have to work our focus is making sure we're delivering and performing on the assets.
Joel Jackson: We expect that kind of production level would be more kind of a run rate that we would see coming through assuming we keep production levels at really high levels. They are today.
Joel Jackson: Hopefully that answers the question.
Joel Jackson: Sure and then I'll follow up.
Joel Jackson: So.
Joel Jackson: Sure.
Joel Jackson: Cycle methanol 350, methanol I talked about before you know what you want to do as you close the OCI deal and pay down debt before we start buybacks yeah I'm sure you've done the sensitivity here were not up to 50 miles an hour 400.
Joel Jackson: Can you just give a sense of if it's 400 methanol not 350 like how many months quicker do you get through that debt repayment or how do you think about what is Florida methanol versus 250 ethanol mean for how fast can we start buybacks.
Joel Jackson: So I think.
Joel Jackson: Look at where we are Q Q1.
Joel Jackson: Would be at this methanol price with our assets performing the way they are.
Joel Jackson: Free cash flow.
Joel Jackson: $158 million or more range. So if you can just kind of do the math. This is pre OCI deal with with our existing asset base producing where it is.
Joel Jackson: That that would be a 12 month time frame, but of course, we're going to plan.
For a lower methanol price environment, then we've got all the financing in place that we have in <unk>.
Joel Jackson: Now I think this is great because assuming a Q2 close we're going to be bringing more cash to the table on clothes and are starting incremental leverage is going to be a lot lower than than when we when we first came out with the deal announcement, so we're already making our way on on our deleveraging as we.
Joel Jackson: Operate every day in a tight methanol market in and that's what we're going to continue to focus on.
Speaker Change: Thank you.
Bill Isaksson: Your next question comes from Bill on that Isaksson with Scotiabank. Please go ahead.
Bill Isaksson: Thank you and good morning, everyone two questions.
Bill Isaksson: First one is on the New Zealand, which last quarter on the call you said to start modeling one plant in New Zealand going forward and that's certainly consistent with your guidance, but the question is when you said that what are you thinking 500 to 700000 tons for the year or is this actually a step worse than you were thinking and the reason why I'm.
Bill Isaksson: Asking is what is the risk that we completely lose methanol production in New Zealand in two or three years.
Bill Isaksson: Yeah. So.
Bill Isaksson: Taiwan, we're gearing to a one plan operation we were looking at working with our gas suppliers on on the future deliveries of gas.
Bill Isaksson: And what we were saying was enough gas to run out of one plant operation.
Bill Isaksson: The actual range, we're going to be determined on on really looking closely at our production for the year in the range. We've given also doesn't include.
Bill Isaksson: Potentially some some downside in methanol production, where we may be on selling some gas into the market, but then yeah youre right.
Bill Isaksson: Do you need to see.
Bill Isaksson: Production in investment going into the into the upstream in New Zealand from where we are today to continue to support the one plant operation into the future and that's something that we're going to be working on with gas suppliers as well as with the government who we believe is looking at a lot of the policies that have you.
<unk> not been Incentivising, the right things for the upstream in the country and where 50% of the market. So we're gonna be working through that and we'll be giving guidance as we progress. So it's hard to say, it's hard to say.
Bill Isaksson: This year, what is it going to look like and is there risk yeah. There's risk there's risk and is something that we're gonna be working working to two.
Bill Isaksson: To preserve the long term sustainability of our supply into New Zealand. So.
Bill Isaksson: But we will continue to give updates and right now we do think it's one client at less than full rates with the potential that some gas gets diverted depending on what happens in the country.
Bill Isaksson: What is happening.
Bill Isaksson: In the country when Theres with the energy crisis, partly because of the lack of upstream in the government today recognizes that so that's something we think there is a focus on and that's something we'll be working towards.
Speaker Change: Perfect. That's helpful. And then my second question is on <unk>.
Speaker Change: And I may have missed this when the OCI deal was announced but.
Speaker Change: Does the weaker mix shift of sales volume post OCI mean that youll have a higher ASP all else equal on $350 methanol and if so does that also mean, you'll have a higher margin all else equal.
Speaker Change: So just on the ASP I think the answer is in today's pricing environment, where we're seeing premiums and outside of China. I think the answer is yes, a lot of the markets that you know.
Speaker Change: The markets that we expect it to be selling two will probably be mainly Atlantic base based.
Speaker Change: So yes on the on the higher realized price in terms of translating into.
Speaker Change: Into higher higher profits, we would have modeled all of this into our forecast of earnings than we used to everything at a $350 price.
Speaker Change: So we would expect there to be a higher uplift in <unk>.
Speaker Change: The RP, how that models back to our average realized price sort of remains to be seen on how differentials work in the industry.
Speaker Change: One of the things that you'll see this year as we've reduced down our sales.
Speaker Change: And that will we will probably be showing up mainly in China, but will also be reducing down purchases in the region. So net net it's not a it wasn't a big margin driving part of our business.
Speaker Change: So you Shouldnt expect you should expect a higher uplift in price, but not necessarily tracking back to margin because that wasn't where we were earning a lot of the margins in our business.
Speaker Change: Got it thanks, so much appreciate it.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Josh Spector with UBS. Please go ahead.
Speaker Change: Hey, guys. This is James Cameron on for Josh.
Speaker Change: I just wanted to double click on.
Speaker Change: One of the earlier questions on <unk>.
Speaker Change: Gas availability in New Zealand, you said that the guidance there reflects potential for some on selling of gas, but could you just frame for us.
Speaker Change: Based on your peer to peer gas supply what the what the implied production.
Speaker Change: Would look like.
Speaker Change: I think right now on gas, we're probably in the middle of that range or somewhere between 600, and 700000 without any gas on selling and that's going to be dependent on production out of the gas fields and then if it goes lower than that is likely.
Speaker Change: We would be selling into the into the gas market and I will remind that you know from a from a business perspective.
Speaker Change: Well when we've given our future forecast on earnings that are.
Speaker Change: We do have a few sites Trinidad and New Zealand. These are from a volume perspective are still in our numbers, but from an overall earnings perspective, and our run rate earnings are now representing a lot smaller proportion and so right now we do see a shift with G. III in and now the OCI acquisition, where we are.
We're seeing a lot of the value uplift, mainly in North America, and as well as upside around Chile today.
Speaker Change: Yes that makes sense.
Speaker Change: And then just one more on the MTO affordability I don't I don't know if you mentioned that earlier could you just remind us where that sits right now.
Speaker Change: But yes today, we see ethylene and propylene prices at around 850 to $900 per ton and that translates into around $300 somewhere between 200 $8300.
Speaker Change: MTO affordability affordability, but that's it.
Speaker Change: <unk> three level. They also have integrated downstream and when you factor in the integrated downstream, it's slightly higher or slightly it could be at slightly lower depending on where they're going. So we do think that we've seen pricing above that level in China, which is indicating that method.
Speaker Change: Markets are tight and that where we've seen it pushing to above right up to there are highest.
Speaker Change: Kind of affordability for coastal MTO producers that that 310 and $3 <unk> to 320 level.
Speaker Change: Yes.
Speaker Change: Got it thank.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from line of Hassan Ahmed with Alembic Global. Please go ahead.
Hassan Ahmed: Good morning, Rich you know question on pricing, obviously, you know there's been.
Speaker Change: A fair degree of buoyancy.
Speaker Change: Across all the regions, but there continue to be sort of variances, particularly in terms of north American pricing and Asian pricing. So how should we how should we think about the delta between those two.
Speaker Change: Ah Thanks, Shaun I think right now we see.
Speaker Change: There are some more and more of what we would say on the existing supply there is there's more and more.
Speaker Change: Well theres temporal constraints on supply and then there's more structural constraints on supply and so.
Speaker Change: We saw the Atlantic markets getting a lot firmer because of European pressure on European producers.
Speaker Change: We've also seen Venezuela operating at low rates, Trinidad ourselves reduced production and turn it up by 1 million tonnes.
Speaker Change: The there's a plant in Equatorial Guinea that we don't think is operating methanol today and so you've seen that those being somewhat some of that's temporary but a lot of that is structural so we've seen imports, particularly into Europe being under pressure and there isn't a lot of free flows that are.
Speaker Change: From maybe the middle east, but might might balance the market because there's pressure on the on the trade firstly theres not a lot of other contracted volume and secondly, the trade routes through the Red Sea.
Speaker Change: <unk> is effectively no one wants to take the risk to move product. There. So you know we do think that that these these forces are in place for at least now and we're gonna have to see how balance comes back into the markets as some of these temporal things change.
Speaker Change: But there are structural forces that we think are in place that are going to ease in any kind of short short timeframe. So we do think that there's premiums that we're seeing in the Atlantic is likely to be there for at least.
Speaker Change: The near to medium term here and then.
Speaker Change: I think that we have seen premiums in Asia Pacific outside of China as well.
Speaker Change: You know the Asia market is probably trading at a 20% to $30 premium.
Speaker Change: Above China.
Speaker Change: So today that that's sort of what we've seen in and that those are that tightness in the market sort of remains and as we look forward demand continues to grow in the supply constraints will have to see how much actually gets into the market and then also <unk>.
Speaker Change: Political forces.
Speaker Change: Increased pressure on some of the supply into the into the industry. As we are as we see what impact the new the new U S administration is going to have on in certain jurisdictions as well.
Speaker Change: Understood very helpful and as a follow up.
Speaker Change: Yes.
Speaker Change: A two part thing on the North American sort of.
Speaker Change: Oh gosh situation I mean, obviously you know Henry hub prices are up meaningfully.
Speaker Change: Meaningfully over the last several months.
Speaker Change: And you know obviously you guys are doubling down on your North American capacity with the whole OCI acquisition. So how are you guys thinking about you know the hedging strategy.
Speaker Change: As it exists today will there be any changes to that and then sort of.
Speaker Change: Moving slightly away from the gas side.
Speaker Change: Just I mean, obviously a lot of noise around Ghana Guy Rev Center like you know how are you thinking about that in.
Speaker Change: I mean would that have any if at all they were in the Canadian sort of diverse imposed would that have any impact on your trade flows and earnings.
Speaker Change: Yeah. Thanks, that's on us so I'll start with the gas side.
Speaker Change: We have seen spikes in and the kind of what I call. The short end of the spot pricing, which we think spot pricing is heavily impacted by weather and inventory levels.
Speaker Change: So.
Speaker Change: From that perspective, we expect volatility in the short term and we are hedging strategy is to be 70% hedged and have the flexibility to participate in the market and that volatility and we do take the risk and in a short term that we see spikes, but we also get the benefit when <unk> is below the forward curve when we look at the forward curve.
Speaker Change: The forward curve save more steady, which is an indication even we have even seen it coming down a little bit which is an indication that you know the supply and demand balances.
Speaker Change: Look healthier from a supply perspective and from a cost structure perspective for us. So we're you know where are we like the north American gas market and that was clearly something we took a very close look at when we when we did the OCI what's the ideal.
Speaker Change: And we like the structural forces there.
And you know so I think this new new New administration is also looking for to increase supply across the oil oil oil and gas industry, which is a.
Speaker Change: Positive and there's other things that all of us to factor in there, but we like long term North American gas when when we look at trade policy.
Speaker Change: And where we think about tariffs you know obviously you did the big ones that are being discussed as Canada, Mexico, and then China for US is are they.
Speaker Change: The acute business impact is pretty marginal we have do have some product flowing for medicine hat across the border into the U S. But we're talking about a pretty small volume for what we sell in a year and we have.
Speaker Change: If if that cost is difficult to recover we have we have ways to manage it within our supply chain and the flexibility to deliver to customers from a different point at potentially a pretty marginal incremental cost. So not concerned from that perspective, I think for US we are.
Speaker Change: We're now going to be a very big U S producer and.
Speaker Change: So we'll end at an exporter out of the U S and we will will have to really carefully look at potentially retaliatory tariffs.
Speaker Change: Don't have any U S product going to China, right now because there's already a tariff on that on methanol and.
Speaker Change: But it's something we'll be following really closely but don't really see any acute impact to our business.
Rich Sumner: Very helpful. Rich. Thank you so much.
Speaker Change: Your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.
Rich Sumner: Yeah.
Steve Hansen: Yeah, Good morning, guys.
Steve Hansen: Now that the transaction seems to be drawing closer.
My quick moves ahead is fully proposed.
Speaker Change: What do you need to do to get ready in advance I'm, just trying to think about supply chains, the broader marketing logistics you know.
Mechanism routine, but you've got in place I mean, what do you need to do to be ready to take on all these tons.
Speaker Change: That actually draws closer.
Speaker Change: I think Steve R. R.
Speaker Change: We're busy doing a lot of integration planning right now, we're obviously are still going through the regulatory process. So for us it's being ready on day, one and we've got we've got a great team in place on our side.
Speaker Change: Across all the functions.
Speaker Change: Looking at the integration and as.
Speaker Change: You know a huge priority for the company right now.
Speaker Change: We're gonna be the big thing is as a safe and reliable integration and doing that as quickly as we can but doing it safely and reliably and we've got all of our teams looking at it I don't.
Speaker Change: For US right now there is a big thing about can we.
Speaker Change: Processing and operate the business on day, one and we're spending a lot of time trying to figure out make sure that we're ready and well planned for for four four that the closing so.
Speaker Change: Right now when you think about marketing and logistics site.
Speaker Change: Yeah, well, we understand we understand the market and the supply chain as well and we don't see any big complications there, but we're gonna be thinking through everything really carefully as we are when we go to execute this safely and reliably and efficiently as soon as we possibly can.
Speaker Change: Yes.
Speaker Change: Okay helpful. Thanks, I just wanted to go back to the inventory question that was raised earlier by Joe I think.
Speaker Change: I understand the context around increasing your company produced product inventory that that's the reason to me.
Speaker Change: But it was still a big number the 443 or whatever it was.
Speaker Change: How should we think about inventory levels of produce products going forward maybe is it maybe the question just in the sense that do we expect some of that to draw down through the through the period and the first half of this year, how do we think about that level cleaning overtime.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Yeah, I mean, it's hard I guess hard to say overall inventory levels. We don't think it when we finished the year here are our are necessarily high for our supply chain. So the mix between purchased and produced inventory, we think probably stays about the same and it should be around.
Speaker Change: 80% produced at 20% purchase that we have.
Speaker Change: Our supply chain is kind of steady and so and that's where we are today. So I don't think we're going to see a big release, but when we do have a period like you know we went from we Werent operating in New Zealand we are.
Speaker Change: Operating one plant in Chile.
Speaker Change: We didn't have G III operating and Egypt was operating lower so it's a significant build in the quarter.
Speaker Change: For a more strict structural kind of inventory position at the end of the year if that helps.
Speaker Change: That's very helpful and just one last one if I may is just around the court decision that you referenced in the release and just the way we all understand that this is really around the ability for you to market the product coming off the Nat gasoline plant I think that was sort of the core of that legal case.
Speaker Change: Confirm that.
Speaker Change: And then maybe just a question of can you confirm that so we can understand how you'll be marketing those tons.
Speaker Change: Yeah. It was.
Speaker Change: The dispute was around the transferability of.
Speaker Change: The joint venture partners rights.
Speaker Change: And that's rights for everything operational decisions financial decisions and marketing decisions and so and so right. Now we believe that that is now 50. The decision is that those rates I'll transfer to a purchaser and that's been a that's been.
Speaker Change: That's the judgment of the court so.
Speaker Change: That's exactly what we would expect as those rates are now transferring on sale of course, there is a.
Speaker Change: Appeal process that we were not aware of what will happen there and so it's something we still have to have to track.
And we will we'll we'll we'll update you as things progress there.
Speaker Change: Okay very helpful. Thank you.
Speaker Change: Your next question comes from the line of Kevin <unk> with Jefferies. Please go ahead.
Kevin: Hey, guys. Thank you for taking my question just back on MTO operating rates I know theres been some fluctuation in the back half of the year I think like Q3, maybe there around like 65%.
Speaker Change: Around 85% Q4, I guess, where do they currently stand.
Kevin: Early January Eric. We're currently just wanted to get out some assumptions here.
Kevin: Yeah right right now we think that the operating rates are in the low seventies and.
Kevin: There's probably going to be increased pressure, there's a bit of a lag impact.
Kevin: With Iran. As Iran's operating rates stay sort of show up about 30% to 45 days after the production impacts so.
Kevin: When do you expect that imports into China continued to be under pressure and MTO is a big big buyer of of Iranian imports. So.
With that in the seventies right now and it's something we're going to continue to watch really at the end of the day. What this says is balancing the market.
Kevin: It's really a supply driven operating rate because.
Kevin: There's just not enough supply available for them to run consistently so and a lot of ways. The.
Kevin: The lower operating operating rates are indicative of a tight supply market.
Speaker Change: Okay. Thank you I appreciate it and then just on discount rates I guess, what are your expectations for the year or at least Q1, just given the higher overall average pricing.
Speaker Change: Well I think we probably haven't given guidance on discount rates I do think what you will see is a higher percentage of Atlantic base sales.
Speaker Change: Which should result in a higher discount rate than 2024 on average, but I'd also translates into as we discussed earlier on the call into a higher average realized price just given the markets that we're selling in and these are higher netback markets. So I think the higher discount is probably not the area to look at it is probably the fact that we're in.
Speaker Change: We're realizing actually a higher higher price and our network.
Speaker Change: Got it okay. Thank you I appreciate it.
Speaker Change: Your next question comes from the line of Matthew Blair with P. P. Eight. Please go ahead.
Speaker Change: Thank you and good morning, maybe sticking on the discount rate as we think about the the discount for 2025 is anything changing regarding.
Speaker Change: How youre negotiating new methanol contracts for this year and in particular.
Speaker Change: Should we expect discount rates to generally increase as the year progresses.
Speaker Change:
Speaker Change: What we're seeing.
Speaker Change: Is this the Atlantic markets have been pretty good.
Speaker Change: Constrained on supply I think we I don't think you should expect a.
Speaker Change: A big deterioration in and discount rates, but you've given the higher proportion of sales or our average discount may go up but not that's not the result of a big deterioration in discount rates again, I think that translates into a higher higher pricing for the for the business, which is a positive.
Speaker Change: Sounds good and then was there another new Zealand guests diversion benefit in the fourth quarter and if so what was the EBITDA impact there.
Speaker Change: Yeah, there was and we were diverting it up until the end of October the number is around I believe it's around $30 million, but that's obviously needs to be.
Speaker Change: Offset with that doesn't include the lost margin of not producing methanol right. So so we.
Speaker Change: Going forward, we'll be producing methanol and won't have the the margin on the gas sales and so all of that needs to be factored in as we move forward.
Sounds good thank you.
Speaker Change: Again, if he would like to ask a question press Star then the number one on your telephone keypad.
Speaker Change: Next question comes from the line of Nelson <unk> with RBC capital markets. Please go ahead.
Speaker Change: Great. Thanks, just a quick follow up on <unk> question on North American gas hedges.
Speaker Change: So I think prior to the OCI acquisition, you had plans to hedge around.
Speaker Change: 70% of our North American production and I believe you are buying the OCI.
Speaker Change: That's without any gas hedges, so that's correct.
Speaker Change: So going forward or is that 70% the right level and meaning you'll enter into a bunch of hedges later this year.
Speaker Change: Yeah that will be you know today, we like our gas strategy.
Speaker Change: It's usually we're about 70% hedged in the first three years and then a little less than the three to five year period. Nevertheless, again beyond the five year.
Speaker Change: Five year period, So and then went to opportunistically layer in more hedging as we get Expiries as time passes and that strategy has worked well for us and right now obviously, we're taking a close look at.
Speaker Change: At our at our hedging strategy as we plan for our integration and closing of the OCI deal but.
Speaker Change: So we don't we haven't layered anything in anticipation of that and will be will.
Speaker Change: Are we starting to do that as we get closer to the closing and bringing bringing those assets into that same strategy.
Speaker Change: Great. Thanks, and then just one last one another clarification on the whole tariff situation with the U S. So you mentioned that there's very limited trade between Canada and the U S. No exports from U S to China.
Speaker Change: Does that any methanol go to Mexico.
Speaker Change: No not in our system okay.
Speaker Change: Okay. There are there's very little there is some domestic actual production in Mexico with with some demand there, but it's not a big methanol market.
Speaker Change: Okay. So any tariffs would mainly be just the indirect impact of.
Speaker Change: A slowdown in domestic consumption or even global consumption right. Yeah. That's right I think the one we watch for sure is just you know in China, 10% tariffs.
Speaker Change: You know that one of the one of the.
Speaker Change: Where methanol is consumed in China is for export manufacturing. So we will look closely and if that impacts demand in China for for.
Speaker Change: Manufacturing of export goods that would be going to the United States and obviously what is the rollout of impact where does that manufacturing show up and how long does that take and the overall impact that that may have on industry demand, but nothing acute to our business and for it in terms of incremental costs or any risks there.
Speaker Change: There that we see today.
Speaker Change: Great. Thanks, that's all for me.
Speaker Change: Yeah.
There are no further questions at this time I will now turn the call back over to Mr. Reach some there.
Speaker Change: Alright, well. Thank you for your questions and interest in our company and we hope you'll join US in April when we update you on our first quarter results.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].