Q4 2024 Methanex Corp Earnings Call
John: Good morning, my name is John and I will be your conference operator today. At this time, I would like to welcome everyone to the MetaNex Corporation 4th Quarter 2024 Results Conference Call. All lines have been placed in mute to prevent any background noise.
John: For clarification any references to revenue EBITDA adjusted EBITDA and cash flow adjusted income our adjusted earnings per share made in today's remarks reflect our 63, 1% economic interest in the Atlas facility, our 50% economic economic interest in Egypt facility, and our 60% interest in the waterfront.
John: In addition, we report our adjusted EBITDA and adjusted net income.
John: To exclude the mark to market impact on share based compensation and the impact of certain items associated with specific identified events. These items, our 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. We report these non-GAAP measures in this way.
John: 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 Matt <unk>, President and CEO, Mr. Rich Sumner for his comments and a question and answer period.
Speaker Change: 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, we achieved the best safety performance on record for the company in 2024, and a year of meaningful changes in our operating assets in these <unk>.
Speaker Change: Our demonstration of the team's commitment to responsible Eric cross the call.
Speaker Change: Now turning to the financial and operational review of the companies in the fourth quarter, our fourth quarter average realized price of $370 per ton and produce sales of approximately one 5 million tonnes generating adjusted EBITDA of 220 $24 million and adjusted net income of $1 24 per <unk>.
Sure Hi.
Speaker Change: Adjusted EBITDA was higher compared to the third quarter of 2024, primarily due to a higher average realized price higher pretty sales for the full year of 2024, we had an average realized price of $355 produced sales of just over 6 million tons.
Speaker Change: And generated adjusted EBITDA of 764.
Speaker Change: $764 million and adjusted net income of $252 million or $3 72 per share.
Speaker Change: Now turning to short term ethanol pricing and market dynamics, we entered the fourth quarter with very tight market conditions in the Atlantic basin underpinned by stable demand and lower operating rates from several key supply sources with these conditions remaining through the quarter and the Pacific Basin, we entered the fourth quarter.
Speaker Change: A more balanced market with stable production and healthy inventories from lower methanol to olefins operating rates in the third quarter.
Speaker Change: Through the fourth quarter conditions in that specific tightened because of increased operating rates from MTO producers combined with increasing supply constraints, particularly from Iran.
Speaker Change: Consequently, MTO operating MTO operating rates decrease later in the fourth quarter with this trend continuing into the first quarter overall tight market conditions globally led to an increase in methanol pricing environment in the fall.
Speaker Change: Third quarter and into 2025.
Our global average realized price of 300 and $370 per metric ton was $14 higher than the previous quarter.
Speaker Change: Methanol pricing strength continued into the first quarter of 2025 with our our European quarterly price posted at 700 euros per ton, representing a 130 euro per ton increase from the fourth quarter.
Speaker Change: Our posted prices for North America, and China increased in January enrolled in February and in Asia Pacific, We increased posted prices in January and February.
Speaker Change: Comparing methanol demand in 2024 to 2023, we estimate global methanol demand increased by approximately 3 million tons, which included relatively flat year over year demand for methanol to olefins given supply constraints in the industry and.
Speaker Change: 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 with operating rates in methanol to olefins again, playing a critical role in balancing the market.
Speaker Change: We expect incremental supply will come from full year production of G III and from the Malaysia, Sarawak plant, which we understand recently started producing basketball.
Speaker Change: Beyond 2025, we continue to see favorable supply and demand dynamics with traditional chemical and energy applications demand expected to outpace supply given limited capacity additions projected in the industry.
Speaker Change: 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 production was higher than our produce sales in the fourth quarter of 2024 due to an inventory build that produced methanol from these higher production levels.
Speaker Change: Yes.
Speaker Change: In Geismar production was higher during the fourth quarter with G. III operating at full rates in October and December in mid November we took a proactive shutdown at G. III to inspect some of the newly commissioned equipment to ensure reliability.
Speaker Change: Plant successfully restarted and resumed full operating rates in December and has been operating at high rates since the restart.
Speaker Change: In Chile, I'm very happy to share that all the plants have been operating at full rates and that after a brief maintenance outage in November we produced 150000 tons of methanol in December which is the highest monthly level of production we've reached in Chile since 2007.
Speaker Change: We have gas contracts in place with Chilean in Argentina gas producers until 2030, and 27, respectively, which underpin approximately 55% of the sites gas requirements year round.
Speaker Change: We continue to expect seasonality in production and are seeing positive developments, making full gas supply for a two plant operation available for longer periods based on contracted gas 2025 production is expected to be between one three and one 4 million tons, which would result in the fourth consecutive annual increase.
Production from Chile.
Speaker Change: In Egypt production increased compared to the third quarter as Temperature's moderated.
Speaker Change: <unk> balances in the country stabilize and we operated at close to full rates based on improved gas availability, we're monitoring the gas market closely and would expect to experience. Some curtailments in 2025, particularly in the summer months, depending on gas supply.
Speaker Change: Demand dynamics.
Speaker Change: In New Zealand production in the fourth quarter was higher compared to the third quarter with the restart of our <unk> plant in November.
Speaker Change: Rguest operations were temporarily idled as we entered short term commercial arrangements to provide contractual natural gas into the New Zealand electricity market until the end of October 2024.
Speaker Change: Based on the current outlook from gas suppliers, we expect 500000 to 700000 tons of production from New Zealand in 2025, which will be dependent on gas availability and any on selling of gas into the electricity market to support New Zealand's energy needs.
Speaker Change: In 2025.
Speaker Change: We have three turnarounds scheduled that will impact our production in the first three quarters.
Speaker Change: Our expected equity production guidance for 2025 is approximately $7 5 million equity tonnes, which includes the impact of these turnarounds and forecast for gas feedstock availability outside of North America, but excludes any incremental production from OCI assets post acquisition closing dates.
Speaker Change: Actual production may vary by quarter based on timing of turnarounds gas availability.
Speaker Change: Plant outages and unanticipated events.
Speaker Change: Now turning to our current financial position and outlook. We ended the fourth quarter with $879 million of our share of cash and continued access to our 500 million dollar undrawn revolving credit facility.
Speaker Change: During the fourth quarter, we repaid the $300 million bond with cash generated from operations and executed our OCI acquisition financing plan, including issuing a $600 million bond and securing a $650 million term loan commitments from our banking partners.
Speaker Change: The completion of these arrangements gives us the financial capacity and flexibility to complete the OCI acquisition and our targeted deleveraging plan.
Speaker Change: We're continuing to progress the regulatory process as planned and looking forward to 2025, our priorities are focused on closing the OCI transaction safely and efficient and efficiently integrating assets, achieving the identified synergies and reducing leverage by repaying 556.
Speaker Change: $1 billion in debt over the next 18 months, assuming a $350 realized methanol price.
Speaker Change: Beyond this we do not anticipate significant growth capital over the next few years and remain focused on maintaining a strong balance sheet and financial flexibility.
Speaker Change: With strong free cash flow capability from our existing assets, which we expect to be strengthened by the OCI acquisition.
Speaker Change: We're positioned to execute.
Speaker Change: Our balanced approach that includes deleveraging and shareholder distributions, depending on future market conditions in methanol pricing.
Speaker Change: On our first quarter.
Speaker Change: European posted price along with our January and February posted prices in North America, China, and Asia Pacific Our January and February average realized price range is forecasted to be between approximately 395 and $405 per metric ton.
Speaker Change: Based on this higher forecasted average realized price coupled coupled with our produce sales expected to normalize closer to the fourth quarter production levels, we expect significant higher significantly higher adjusted EBITDA in the first quarter of 2025 compared to the fourth quarter wed now be happy to answer questions.
Speaker Change: Thank you as a reminder, if you would like to ask a question.
Speaker Change: Through my youth breast Star then the number one and get telephone keypad. Your first question comes from the line of homeopathy, all with CIBC capital markets. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: Richard are you able to give us an update on how the regular regulatory approvals for the OCI deal are progressing and should should.
Speaker Change: Should we still assume a close sometime in the first half.
Richard: 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.
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 it.
Speaker Change: Lowe's and <unk>.
Speaker Change: 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 they are.
Speaker Change: Energy prices that Iran is going through is pretty well publicized so there they are having a.
Speaker Change: Quite a difficult time, just from the resin keeping the residential demand supplied.
Speaker Change: Significantly impacting industry and methanol production. So we think that that probably leads that constrained supply, particularly through the winter here, but likely you know.
Speaker Change: As we saw last year, maybe up 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 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: Now does.
Joel Jackson: It seemed like it would be higher in Q1 because.
Joel Jackson: If I take your guidance and I factor in turnaround, but it seems like its production should be similar in Q1 versus Q4, and you add 400000 tons of inventory build.
Joel Jackson: Q4, so can you tell us what would a triple production looked like in Q1 versus Q4, and then arent youre drawing down the inventory.
Speaker Change: Well, we're I don't think we're gonna be dry it's an inventory buildup produced product is theres 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.
Speaker Change: Which means a change from produced methanol so our own 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 will.
Speaker Change: We expect a similar production level at this point, but.
Speaker Change: We'll have to work our focus is making sure we're delivering and performing on the assets.
So we expect that kind of production level would be more kind of a run rate that we would see coming through is assuming we keep production levels at really high levels. They are today.
Speaker Change: Hopefully that answers the question.
Speaker Change: Sure and then I'll follow up.
Speaker Change: So.
Speaker Change: Sure Mitch.
Speaker Change: Cycle methanol true 50, 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, I mean can you just give a sense of if it's 400 methanol not 350 like how many months.
Speaker Change: Or do you get through that debt repayment or how do you think about what is Florida methanol versus 250, methanol mean for how fast can we start buybacks.
Speaker Change: So I think if we look at where we are Q Q1.
Speaker Change: We would be at this methanol price with our assets performing the way. They are you know we would expect free cash flow.
Speaker Change: And the $158 million or more range. So.
Speaker Change: Kind of do the math this is pre OCI deal with with our existing asset base, producing where it is.
Speaker Change: That would be a 12 month time frame, but of course, we're going to plan for.
Speaker Change: Or a lower methanol price environment, then we've got all the financing in place that we have and right. 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 announcements.
Speaker Change: We're already making our way on on our deleveraging as we 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.
Speaker Change: Your next question comes from Bill out of bed Isaksson with Scotiabank. Please go ahead.
Speaker Change: Thank you and good morning, everyone. Two questions 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 asking.
Speaker Change: Is what is the risk that we completely lose methanol production in New Zealand in two or three years.
Speaker Change: Yeah. So.
Speaker Change: When we were gearing deal one plant operation, we were looking at working with our gas suppliers on on the future deliveries of gas.
Speaker Change:
Speaker Change: What we were saying was enough gas to run out of one plant operation.
Speaker Change: The actual rates were going to be determined on on really looking closely at our production for the year and the range. We've given also doesn't include.
Speaker Change: Potentially some some downside of methanol production, where we may be on selling some gas into the market, but then yeah youre right.
Speaker Change: Do you need to see a.
Speaker Change: Production in investment going into the into the upstream and 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.
Speaker Change: <unk> not been Incentivising, the right things for the upstream in the country and where 50% of the market. So we're going to be working through that and we'll be giving guidance as we progress. So it's hard to say, it's hard to say.
Beyond this year, what is it going to look like and is there risk yeah, there's risk there's risk and it's something that we're gonna be working working to two.
Speaker Change: To preserve the long term sustainability of our supply into New Zealand. So.
Speaker Change: But we'll continue to give updates and right now we do think it's it's one client at less than full rates with the potential that some gas gets diverted depending on what happens in the country.
Speaker Change: What's happening in the country when there's with the energy crisis, partly because of the lack of upstream in the government.
Speaker Change: 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.
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 E. S. P. 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 the.
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 and 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 produce down our sales.
Speaker Change: And that will we will probably be showing up mainland China, but will also be reducing don't purchases in the region. So net net it's not a it wasn't a big margin driving part of our business and.
Speaker Change: So you shouldn't 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 was 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.
Would look like.
Speaker Change: I think right now on gas, we're probably in the middle of that range or somewhere between the 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: You know, we would be selling into the into the gas market did 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.
Speaker Change: We do have a few sites Trinidad and New Zealand. These R. R.
Speaker Change: 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 and now the OCI acquisition, where we are seeing a lot of the value uplift.
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 today, we see ethylene and propylene prices at around 850 to $900 per ton and that translates into around $300 somewhere between 200 8300 dollar.
Speaker Change: MTO affordability affordability, but that's at a CTC three level. They also have integrated downstream and when you factor in the integrated downstream, it's like 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.
Speaker Change: That level in China, which is indicating that met the markets.
Speaker Change: Markets are tight and that where we've seen it pushing to above right up to there are highest.
Kind of affordability for coastal MTO producers that that 310 to $3 10 to 320 level.
Speaker Change: Got it thank.
Speaker Change: Thank you very much.
Speaker Change: Thanks. Your next question comes from line of Hassan Ahmed with Alembic Global. Please go ahead.
Hassan Ahmed: Good morning, Rich you know a 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.
Sun: Ah Thanks Sun I think right now we see.
Sun: There are some more and more what we would say on the existing supply, there's there's more and more.
Sun: Well, there's temporary constraints on supply and then there's more structural constraints on supply and so.
Sun: We saw the Atlantic markets getting a lot firmer because of European pressure on European producers.
Sun: We've also seen Venezuela operating at low rates, Trinidad ourselves reduced production in Trinidad by 1 million tonnes.
Sun: 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.
Sun: From maybe the middle East, but might my balanced the market because there's pressure on the on the trade firstly theres not a lot of contracted volume and secondly, the trade routes through the Red Sea.
Sun: <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.
Sun: But there are structural forces that we think are in place that are going to ease and 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.
Sun: The near to medium term here and then.
Sun: I think that we have seen premiums in Asia Pacific outside of China as well.
Sun: You know the Asia market is probably trading at a 20% to $30 premium.
Sun: Above China.
Sun: So today that that's sort of what we've seen in that those are that tightness in the market sort of remains and as we look forward demand continues to grow and and these supply constraints will have to see how much actually gets into the market and then also.
Sun: Geopolitical forces.
Sun: It puts 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.
Sun: I guess like a.
Sun: Two broad thing on the North American sort of Oh gosh.
Sun: I mean, obviously you know Henry hub prices are up meaningfully over the last several months.
Sun: 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.
Sun: As it exist today will there be any changes to that and then sort of.
Sun: Moving slightly away from the gas side I'm, just I mean, obviously a lot of noise around up got it sounded.
Sun: And the like you know how are you thinking about that and you know 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, we have seen spikes in and that's 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.
Sun: So.
Sun: 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 in the in a short term that we see spikes, but we also get the benefit when it's below the forward curve.
Sun: We look at the forward curve 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.
Sun: Look look healthy and 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.
Sun: And we like the structural forces there.
Sun: 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.
Sun: Positive and there's other things that are obvious to factor in there, but we're we like long term North American gas when when we look at trade policy.
Sun: And where we think about tariffs you know obviously the.
Sun: Big ones that are being discussed as Canada, Mexico, and then China for US is the you know the acute business impact is pretty marginal we have do have some product flowing from 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 half.
Sun: 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.
Sun: We're now going to be a very big U S producer and.
Sun: So we'll end at an export or out of the U S. And we will will have to really carefully look at potentially retaliatory tariffs.
Sun: Don't have any U S product going to China, right now because there's already a tariff on about on methanol and.
Sun: 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.
Sun: Yeah.
Operator: Your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.
Sun: Yeah, Good morning, guys.
Speaker Change: Now that the OCI transaction seems to be drawing closer.
Speaker Change: He was the head is fully proposed 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.
Speaker Change: Mechanism redeem that you've got in place I mean, what do you need to do to be ready to take on all these tons as the transaction goes closer.
Speaker Change: I think Steve R. R.
Speaker Change: We're 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 where it is.
Huge priority for the company right now.
Speaker Change: We're.
Speaker Change: Gonna be the big thing is as a safe and reliable integration and doing that as well.
Speaker Change: Quickly as we can but doing it safely and reliably and we've got all of our teams looking at it I don't you know 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 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, and I just wanted to go back to the inventory question that was raised earlier by Joe I think 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 could produce products going forward, maybe as a maybe a question just in the sense that do we expect some of that to draw it down through the through the period and the first half of this year, how do we think about that level of 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 that when we finish the year here are our are unnecessarily 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.
Our supply chain 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 weren't operating in New Zealand, we're operating one plant in Chile.
Speaker Change: We didn't have three operating and Egypt was operating lower so it's a significant build in the quarter to a more structural kind of inventory position at the end of the year.
Speaker Change: 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 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: So then maybe just a question can you just confirm that so we can understand how you'll be marketing those tons.
Speaker Change: Yeah. It was the.
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 those rights I'll transfer to a purchaser and that's been that's been.
Speaker Change: That's the judgment of the court so.
Speaker Change: That's exactly what we would expect as those rights 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.
Speaker Change: And we'll 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% and then about 85% Q4, I guess, where do they currently stand.
Speaker Change: Early January Eric. We're currently just wanted to put out some assumptions here.
Eric: Yeah right right now we think that the operating rates are in the low seventies and.
Eric: It's probably going to be increased pressure, there's a bit of a lag impact.
Eric: With Iran is Iran's operating rates stay sort of show up about 30 to 45 days after the production impacts so.
Eric: Do you expect that imports into China continue to be under pressure and MTO is a big big buyer of of Iranian imports. So.
Eric: 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 is is balancing the market.
Eric: It's really a supply driven operating rate because.
Eric: There's just not enough supply available for them to run consistently so.
Eric: A lot of ways the.
Eric: The lower operating operating rates are indicative of a tight supply market.
Eric: 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.
Eric: Well I.
Eric: 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 are.
Eric: Which should result in a higher discount rate than 2024 on average, but it 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.
Eric: 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.
Matthew Blair: Thank you and good morning, maybe sticking on the discount rate as we think about the the discount for 2025 is anything changing regarding.
Matthew Blair: How you're negotiating new methanol contracts for this year and in particular should.
Matthew Blair: Should we expect discount rates to generally increase as the year progresses.
Matthew Blair: I I think what we're seeing.
Matthew Blair: As you know this.
Matthew Blair: The Atlantic markets have been pretty constrained on supply I think we I don't think you should expect a.
Matthew Blair: A big deterioration in and discount rates, but 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 to burgeon 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.
Speaker Change: 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.
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.
Speaker Change: 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 of 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 that will be you know today, we like our gas strategy in it.
Speaker Change: It's usually we're about 70% hedged in the first three years, and then a little less than that three to five year period, and nevertheless, again beyond the five year.
Speaker Change: Five year period, So and then we 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 planned for for integration and closing of the OCI deal but.
Speaker Change: So we don't we haven't layered anything in anticipation of that and we will be.
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. There that there is very little.
Speaker Change: 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 at that.
Speaker Change: That impacts demand in China for for.
Speaker Change: Manufacturing of of export goods that wouldn't be going to the United States and obviously what is the rollout 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: 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'll hope you'll join US in April when we update you on our first quarter results.
This concludes today's conference call you may now disconnect.
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Speaker Change: Okay.
Speaker Change: Okay.
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