Q1 2025 Methanex Corp Earnings Call

Kate: Good morning, my name is Kate and I will be your conference operator today.

Good morning, My name is Kate and I will be your conference operator today.

Kate: At this time, I would like to welcome everyone to the Methanex Corporation first quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise.

At this time I would like to welcome everyone to the Mechanics Corporation first quarter 'twenty twenty-five 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.

Kate: After the speaker's remarks, there will be a question and answer session. If you would 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, press the pound key. Thank you.

Speaker Change: If you would like you asked 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 press. The pound key. Thank you I would now like to turn the conference call over to the director of Investor Relations at mechanics, Ms. Sarah here yet. Please go ahead Ms Harriet.

Sarah Herriott: I would now like to turn the conference call over to the Director of Investor Relations at Methanex, Ms. Sarah Herriott. Please go ahead, Ms. Herriott.

Sarah Herriott: Good morning, everyone. Welcome to our first quarter 2025 results conference call. Our 2025 first 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.

Speaker Change: Good morning, everyone. Welcome to our first quarter 2025 results are 2025 first car Warner News really managements discussion and analysis and financial statements can be accessed from the financial times.

Speaker Change: All reports tab of the Investor Relations page on our website.

Sarah Herriott: I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections, which are included in the forward-looking information.

Speaker Change: I would like to remind our listeners that our comments and answers to your questions today Nathan.

Speaker Change: They 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.

Speaker Change: 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 2025, MD&A and to our 2024 annual report for more information I would also like to caution our listeners that any projections provided today regarding <unk> future.

Sarah Herriott: Please refer to our first quarter 2025 MD&A and to our 2024 annual report for more information.

Sarah Herriott: I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's It is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, 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. 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.

Speaker Change: National performance are effective as of same day and it is our policy not to comment on or update this guidance between quarters for clarification any references to revenue EBITDA adjusted EBITDA cash flow adjusted income adjusted earnings per share made in today's remarks reflect our 63, 1% economic interest in the Atlas facility.

Speaker Change: 2% economic interest in Egypt facility, and our 60% interest in waterfront shipping. 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 come out these items, our non-GAAP measures and ratios that do not have any standardized meaning.

Sarah Herriott: 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. 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.

Speaker Change: 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 that manner.

Rich Sumner: 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. Thank you, Sarah, and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2025 results. Our first quarter average realized price of $404 per ton and produced sales of approximately 1.7 million tons, generated adjusted EBITDA of $248 million and adjusted net income of $1.30 per share. Adjusted EBITDA was higher compared to the fourth quarter of 2024, primarily due to a higher average realized price and higher produced sales.

Matt: I would now like to turn the call over to Matt <unk>, President and CEO, Mr. Rich Sumner, great comments, and a question and answer period.

Matt: Thank you Sarah and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2025 results, our first quarter average realized price of $404 per ton.

Matt: Sales of approximately one 7 million tons generated adjusted EBITDA of $248 million and adjusted net income of $1 30 per share.

Matt: Adjusted EBITDA was higher compared to the fourth quarter of 2024, primarily due to a higher average realized price and higher sales.

Rich Sumner: As we entered the first quarter, methanol markets were very tight, with numerous supply constraints across the industry, leading to pressure on global inventory. In the Atlantic Basin, supply was restricted by planned and unplanned outages, gas feedstock constraints and restricted flows from the Middle East caused by the conflicts in the region. In the Pacific Basin, supply was restricted primarily from very low operating rates in Iran, which we estimate at well below 50% through the first quarter. These conditions led to pressure on global inventories and high methanol pricing through most of the first quarter. Conditions in the Atlantic Basin improved through the first quarter, as plants returned from planned and unplanned outages, as well as increased supply flows from the Middle East into Europe, and as a result, we saw a decrease in methanol pricing in the Atlantic from high levels as we moved forward.

Matt: As we entered the first quarter methanol markets were very tight with numerous supply constraints across the industry, leading to pressure on coal inventories and.

Matt: In the Atlantic Basin supply was restricted by planned and unplanned outages gas feedstock constraints and restrict inflows from the middle east caused by the conflicts in the region.

Matt: In the Pacific Basin supply with restricted primarily from very low operating rates in Iran.

Matt: We estimate that well below.

Matt: 50% through the first quarter.

Matt: These conditions led to pressure on inventory and high methanol pricing through most of the first quarter.

Matt: Conditions in the Atlantic Basin improved through the first quarter as plants returned from planned and unplanned outages as well as increased supply flows from the middle East into Europe and as a result, we saw a decrease in methanol pricing and the Atlantic from high levels as we move into the second quarter and the Pacific We've seen some improvement in operating.

Rich Sumner: In the Pacific, we've seen some improvement in operating rates in the basin, with increased production from Iran, although coastal inventories in China remained well below prior year average levels through April. In China, we've seen methanol spot pricing decrease by approximately $20 per metric ton from Q1 levels, which we believe is driven by the anticipation of increased supply into the market and some moderation in global energy pricing impacting marginal production costs and MTO affordability. We estimate the current marginal cost of production in China in the $270 to $280 per ton range. We posted our second quarter European quarterly price at 625 euros per ton, representing a 75 euro decrease from the first quarter.

Matt: Rates in the basin with increased production from Iran. Although coastal inventories in China remained well below prior year average levels through April.

Matt: China, we've seen methanol spot pricing decreased by approximately $20 per metric ton from Q1 levels, which we believe is driven by the anticipation of increased supply into the market and some moderation in global energy pricing impacting marginal production cost and MTO affordability, we estimate the current marginal cost of <unk>.

Matt: <unk> in China, and the 270 to $280 per ton range.

Matt: We posted our second quarter European quarterly price 625 euros per ton, representing a 75 year old decrease from the first quarter, our posted prices for North America Asia Pacific and China were flat in April a decrease in bank.

Rich Sumner: Our posted prices for North America, Asia Pacific and China were flat in April and decreased in May. We're closely monitoring the impact of potential tariffs on global economic activity and are cautiously managing our business through this period of uncertainty. Although the direct impact of tariffs on our business currently is limited, an economic slowdown would impact methanol demand. To date, we have not seen an impact on methanol demand, and we expect demand in the second quarter to be higher than the first quarter, given increased seasonal activity and construction and mobility, as well as higher MTO operating rates.

Matt: We're closely monitoring the impact of potential tariffs on global economic activity and are cautiously managing our business. During this period of uncertainty.

Matt: Although the direct impact of tariffs on our business currently limited an economic slowdown would impact methanol demand today.

Matt: To date, we have not seen an impact on methanol demand and we expect demand in the second quarter to be higher than the first quarter given increased seasonal activity in construction and mobility as well as higher MTO operating rates MTO operating rates are expected to increase given increased supply availability in the market from seasonally higher operating rates.

Rich Sumner: MTO operating rates are expected to increase given increased supply availability in the market from seasonally higher operating rates from the methanol industry in the second quarter.

Matt: The methanol industry in the second quarter now.

Rich Sumner: Now turning to our operations, Methanex production in the first quarter was lower compared to the fourth quarter, with lower production from Geismar, Trinidad and Egypt. In Geismar, production was lower due to a planned turnaround at G2 and an unplanned outage at G3 at the end of February. G2 successfully restarted in March and is operating at full rates. We announced this morning that G3 has successfully restarted and has begun producing methanol. Our team worked closely with Johnson Matthey, the technology provider, during the outage to complete a root cause analysis and revised startup plan, which was successfully executed by the team.

Matt: Now turning to our operations and ethanol production in the first quarter was lower compared to the fourth quarter with lower production from Geismar Trinidad in Egypt.

Matt: Geismar production was lower due to the planned turnaround at <unk> and an unplanned outage at G. III at the end of February.

Matt: <unk> successfully restarted March and is operating at full rates, we announced this morning that G. III has successfully restarted as begun producing methanol. Our team worked closely with Johnson Matthey and technology provider during the outage to complete a root cause analysis and revised startup plan, which was successfully executed by the team.

Rich Sumner: In Chile, I'm very happy to share that both plants have been operating at full rates and production was higher in the first quarter due to better reliability and a technical constraint being removed during the outage that occurred in November 2024. We have gas contracts in place with Chilean and Argentinian producers until 2030 and 2027 respectively, which underpin approximately 55% of the site's gas requirements year-round. 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. In Egypt, the first quarter production was 20,000 tons lower than the fourth quarter due to gas curtailments that were driven by gas supply-demand balances in the country.

Matt: In Chile, I'm very happy to share that both plants have been operating at full rates and production was higher in the first quarter due to better reliability and it and technical constraint being removed during the outage that occurred in November 2024, we have gas contracts in place with Chilean and Argentinean producers until 2030 in 2027.

Matt: Actively which underpin approximately 55% gas.

Matt: Gas requirements year round, we continue to expect seasonality in production and are seeing positive developments, making old gas supply for a two plant operation available for longer periods.

In Egypt, the first quarter production was 20000 tons lower than the fourth quarter due to gas curtailments that were driven by gas supply demand balances in the country. 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 and demand dynamics.

Rich Sumner: We're monitoring the gas market closely and would expect to experience some contaminants in 2025, particularly in the summer months, depending on gas supply and demand dynamics. Now turning to our current financial position and outlook, we ended the first quarter with $1,031,000,000 of our share of cash and continued access to our $500,000,000 undrawn revolving credit As a reminder, in the fourth quarter, we executed our OCI acquisition financing plan, including issuing a $600 million bond and securing $650 million term loan aid commitments from our banking partners. The completion of these financing arrangements gives us financial capacity to complete the OCI acquisition and flexibly achieve our deleveraging plan.

Matt: <unk>.

Matt: Now turning to our current financial position and outlook. We ended the first quarter with $1 billion and $31 million of our share of cash and continued and continued access to our $500 million Undrawn revolving credit facility as a reminder, in the fourth quarter, we executed our OCI.

Matt: <unk> financing plan, including issuing a $600 million bond and securing $650 million tunnel term loan a commitments from our banking partners.

Matt: The completion of these financing arrangements arrangements gives us the financial capacity to complete the OCI acquisition and flexibly achieve our deleveraging plan.

Rich Sumner: We are continuing to progress the regulatory process and expect the transaction to close in Q2 2025. Our 2025 priorities are to safely, reliably, and efficiently operate our business, close the OCI transaction and achieve the identified synergies, and direct all free cash flow to reduced leverage. do not anticipate significant growth capital over the next few years and remain focused on maintaining a strong balance sheet and financial flexibility, paying particular attention to the prevailing economic environment. Based on our second quarter European posted price, along with our April and May posted pricing in North America, China and Asia Pacific, our April and May average realized price range is forecast between approximately $360 and $370 per metric ton.

Matt: We're continuing to progress the regulatory process and expect the transaction to close in Q2 2025.

Matt: Our 2025 priorities are to safely reliably and efficiently operate our business what was the OCI transaction and achieve the identified synergies and direct all free cash flow to reduce leverage.

Matt: We do not anticipate significant growth capital over the next few years and remain focused on maintaining a strong balance sheet and financial flexibility paying particular attention to the prevailing economic environment.

Matt: Based on our second quarter European posted price along with our April and May posted pricing in North America, China, and Asia Pacific Our April and May average realized price range is forecasted.

Matt: Between approximately 360 and $370 per metric ton.

Rich Sumner: Based on this lower forecasted average realized price coupled with lower produced sales due to the T3 outage, we expect lower adjusted EBITDA in the second quarter of 2025 compared to the first.

Matt: Based on this lower forecasted average realized prices coupled with lower produce sales due to the G. III outage, we expect lower adjusted EBITDA in the second quarter of 2025 compared to the first quarter, we'd now be happy to answer questions.

Rich Sumner: We would now be happy to answer questions.

Matt:

Kate: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad.

Speaker Change: 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 comes from the line of Ben Isaacson wed Scott You Bank. Your line is open.

Ben Isaacson: Your first question comes from the line of Ben Isaacson with Scotia Bank. Your line is open. Thank you very much and good morning, everyone. I have two questions. Rich, the first one is on capital allocation. I'm sure it's one you've been asked before. When the OCI deal was announced, your stock was $40 and the weighted average spot price was about $350 or so. Now the stock is $30, the weighted average price is getting closer to $300. So the buyback return opportunity has improved. And from a time value of money point of view, the OCI return has kind of taken a very slight decline.

Speaker Change: Thank you very much and good morning, everyone I have two questions.

Speaker Change: The first one is on capital allocation I'm sure. It's when you've been asked before when.

Speaker Change: When you win the OCI deal was announced you stock with 40 Bucks and the weighted average spot price was about 350 or so now the sockets 30 Bucks a weighted average price is getting closer to 300, so the buyback Ric Kern.

Speaker Change: Opportunity has improved from a time value of money point of view. The OCI return has kind of taken a very slight decline balance sheet risk has increased slightly I'm not asking.

Ben Isaacson: Balance sheet risk has increased slightly. I'm not asking whether or not there's an opportunity to do buybacks instead of OCI. My question is.

Speaker Change: Whether or not there's an opportunity to do buybacks.

Speaker Change: <unk> My question is.

Ben Isaacson: how flexible is the board willing to be on this type of calculus? What is the threshold that they think about when deciding whether to pivot into something like buybacks versus completing this transaction without being criticized of too much short-termism? Thank you.

Speaker Change: How flexible is the board willing to be on this type of calculus. What is the threshold that they think about when deciding whether to pivot into something like buybacks versus completing this transaction without being criticized too much short term ism.

Rich Sumner: Thanks, Ben. You know, I think I think when we talk about capital allocation, and we look at our priorities for capital, number one, we want to have a strong balance sheet and be able to maintain our business through all cycles. And when we did the and the second thing is also looking at growth capital.

Ben: Thanks Ben.

Speaker Change: I think when we talk about capital allocation and we'd look at.

Speaker Change: Our priorities for capital and is the number one we want to have a strong balance sheet and be able to maintain our business through all cycles and when we did the and then the second thing is also looking at growth capital and when we looked at both of those opportunities with <unk>.

Rich Sumner: And when we looked at both of those opportunities, The OCI Acquisition, we're very excited about the value that creates for the company. But what we were committed to and remain committed to is de-levering the balance sheet. And that's the continued focus for all of our free cash generation right now until we get to a place where we were pre-deal with a much stronger asset base having brought on those assets.

Speaker Change: With the OCI acquisition, we're very excited about the value that creates for the company, but what we what we were committed to and remain committed to us is delevering the balance sheet and that's that's the continued focus for all of our free cash generation right now until we get until we get to a place where we are.

Speaker Change: Where we were pre deal with them with a much stronger asset base, having brought on those assets. So that's the main focus and the right now we're not we're not considering.

Ben Isaacson: That's the main focus and right now we're not considering share repurchases at this moment. Fair enough, thank you for that.

Speaker Change: Share repurchases at this at this.

This moment fair.

Speaker Change: Fair enough. Thank you for that and then my follow up question is on Iran.

Ben Isaacson: And then my follow-up question is on Iran. Can you give an update in terms of what you know about this port explosion and how it impacts methanol, whether it's trade, nearby capacity, storage? And then also, what is your latest intel in terms of the impact that sanctions or the ramp of enforcement of sanctions are having on Iran methanol flow?

Speaker Change: Can you give an update in terms of what you know about this port explosion and how it impacts methanol, whether it's trade nearby capacity storage.

Speaker Change: And then also what.

Speaker Change: What is your latest Intel in terms of the impact of sanctions or the ramp up enforcement of sanctions are having on Iran. Methanol flow. Thank you very much.

Rich Sumner: Thank you very much. Yeah, thanks, Ben.

Speaker Change: Yes, Thanks, Ben So first and foremost though that that.

Rich Sumner: So first and foremost, though, that that that was a really tragic event that happened in Iran. And it you know, we we we don't believe that that's impacted methanol in any way. But obviously, that's something that, you know, they're going to have to review and and and figure out what that does from a safety and operational perspective, but not impacting methanol as it relates to sanctions. I think what we saw through Q4 and Q1 is is we saw Iran probably at some of the lowest points we've seen in from an operating, which is mainly because of the gas situation there.

Speaker Change: That wasn't really a tragic event that is happening in Iraq and in it.

Speaker Change: We are we don't believe that that's impacting methanol in any way.

Speaker Change: But obviously, that's something that you know there are going to have to review and and Oh.

Speaker Change: And figure out what that does from a safety and operational perspective, but not impacting us at all.

Speaker Change: As it relates to sanctions I think what we saw through Q4 and Q1 as we saw Iran. Probably at some of the lowest points. We've seen and are you from an operating which is mainly because of the gas situation. There. We believe a lot of residential demand combined.

Rich Sumner: We believe a lot of residential demand combined with how the gas infrastructure performs. And obviously, that has to do with the impact of sanctions on their ability to to produce and and explore and and and invest in infrastructure there. So we saw well below 50 percent operating rates through Q1. We are starting to see increased rates as we come out of the winter period. We we we get most of our intel by looking at trade flow statistics. So we don't have a lot of insight into actually how each plant is is is operating. And we continue to monitor that.

Speaker Change: With how the the gas infrastructure performs and obviously that has to do with the impact of.

Speaker Change: Sanctions on their ability to produce and explore and invest in infrastructure. There. So we.

Speaker Change: We saw well below 50% operating rates through Q1, we are starting to see increased rates as we come out of the winter period.

Speaker Change: We get most of our Intel by looking at trade flows statistics. So we don't have a lot of insight on to actually how each bond.

Speaker Change: Our operating and we continue to monitor that but we are expecting.

Rich Sumner: But we are expecting an increase in in Iran flows into coastal China in the coming months. Thanks.

Speaker Change: An increase in in Iran flows into coastal China in the coming months.

Speaker Change: Thanks.

Speaker Change: Okay.

Joel Jackson: Your next question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open.

Speaker Change: Your next question comes from the line of Joel Jackson with BMO capital markets. Your line is open.

Joel Jackson: Morning. A break at G3 is starting to ramp back up. It lasted a while here.

Joel Jackson: Good morning.

Joel Jackson: So break that G III, starting ramp back up over the last little while here.

Joel Jackson: When you think about that plant and some of the challenges you've had on it, you know, it's a bit of a different setup and configuration than you have with other plants. And I think the best of a configuration sort of requires What's the right words like more user experience, competence, getting to know the asset better? Can you talk about that as the team learns to run this asset better? You know, how much confidence you have you can run this plant at 95% like your other plants, you know, or if you know, or do you have to model for more maintenance, more downtime, more issues, you know, going forward?

Joel Jackson: When you think about that plants and some of the challenges you've had on it a bit.

Joel Jackson: You have a different setup and configuration have other plants and I think that that type of configuration sort requires.

Joel Jackson: What's the right words like more user experience competence getting to know the acid better can you talk about that as the team learns to run this asset better how much confidence do you have you can run this plant at 95% and the draw their plants, you know or you know.

Joel Jackson: Or do you have to model for more maintenance more downtime more issues going forward.

Rich Sumner: Oh, thanks, Joel. You know, the big the big thing for us was, was getting the right restart, the startup conditions for the ATR. So that was, that has been the challenges we've worked through. We worked really closely with Johnson Matthey, as well as bringing third parties here to help us through that process. And what we did is we've now got restart conditions. This startup went very smooth. We've also built in validation checks that would tell us, you know, the two issues we experienced and all of our validation checks have looked really good. And these conditions can be, would also be used anytime we go to, if we ever have the plant come down for maintenance or, or an unplanned and unplanned maintenance.

Joel Jackson: Thanks to all of you know the.

Joel Jackson: The big thing for us because it was getting the right restart in the store.

Joel Jackson: Chart up conditions for the ATR. So that was that has been the challenges we've worked through.

Joel Jackson: We worked really closely with Jay with Johnson, Matthey, as well as as well as bringing third parties here.

Joel Jackson: Help us through that process and what we did is we've we've now got restart conditions. This is startup went very smooth.

Joel Jackson: We've also built in validation checks.

Joel Jackson: Tell us you know the two issues, we experienced in all of our validation checks of them look really good and these conditions can be would also be used anytime. We go to if we ever happened the plants come down for maintenance or or odd planned and unplanned maintenance. So we expect that.

Rich Sumner: So we expect that these conditions look really good. Everything's checked out. And, and, you know, we feel really good about the ability for this plant to be up and running on a sustained basis and, and planning for high reliability. So, you know, we have to, we obviously have to prove that out and have a sustained run, but the startup went extremely smooth and we're very, very happy with where we're at right now.

Joel Jackson: These conditions look really good everything's checked out and and you know we feel really good about our ability for this plant to be up and running on a sustained basis.

Joel Jackson: And are planning for high reliability. So oh, we have to we obviously have to prove that I wouldn't have a sustained run but startup went extremely smoothly and we're very very happy with where we're at right now.

Joel Jackson: Okay, and then you, you know, you have a busy month or so coming up, right? I guess you're hopefully going to close the OCI assets in the next imminent weeks. Have you been able to get some more color around NACDAF and Beaumont have ramped up? I've seen things that they're doing better than they have in the past?

Joel Jackson: Okay, and then you don't have a busy month or so coming off very I guess are we going to close the OCI assets in the next minute weeks.

Speaker Change: Have you been able to get some more color around how knocked off and Beaumont are ramped up I've seen that they are doing better than they have in the past or is this you really only get onsite once you close the deal.

Rich Sumner: Or is it you really only get on site once you close the deal? It is more we get on site once we close the deal, we hear about industry operating rights through the same news. reports or industry analysts that a lot of people read. Both those plants have come off of turnarounds recently, so that's a bonus for us.

Speaker Change: It is more we get on site once we close the deal and we hear about industry operating rates through the same news news.

Speaker Change: Reports are industry analysts.

Speaker Change: A lot of people read.

Speaker Change: Both of those plants have come off of turnarounds recently, so so that's a that's a bonus for us and but we will we're on our way to move through the regulatory process in Q2 and are excited.

Rich Sumner: But we're on our way to move through the regulatory process in Q2 and are excited to bring those world-class assets into our supply chain. If I just fit one more in, it looks like you're implying about a 40% discount rate so far to posted price in Q2. Is that the right level of discount rate we should be using as a base case for the rest of the year, second half of the year, even after the OCI asset closes and after G3 is back running normal? We gave a range of $360,000 to $370,000 for the posted price.

Speaker Change: To bring those are world class assets into our into our supply chain.

Speaker Change: If I just fit one more in it looks like you're implying about a 40% discount rates. So far to posted price in Q2 is that the right level of discount rate, we should be using as a base case for the rest of the year second half of the year, even after the OCI asset closes and after G. III is back running normal.

Speaker Change:

Speaker Change: You know, we gave a range of $3 60 to $3 70 for the for the posted price is probably on the higher end of that range for the few months.

Rich Sumner: It's probably on the higher end of that range for the few months. Giving a discount rate, I think what we're looking at right now is always what's the level over China in our global ARP. I think right now China's pricing is at around $270,000-$280,000 and we're realizing this level. We could see some moderation in that depending on global supply-demand balances and what we see on energy pricing. Right now, we really focus on what's that realized pricing over China. It's hard to give you a discount rate.

Speaker Change: You know, giving a discount rate I think what we're looking at right now is always what's the level over China at our in our global ERP and I think right now China's approach pricing at around 270, 280, and we're realizing this level. So we could see some moderation in that depending on the global.

Speaker Change: By demand balances and AR and what we see on energy pricing, but right now we really focus on what's that realized pricing over.

Speaker Change: China and and.

Speaker Change: So hard to give you a discount rate I mean, if you want to use that 40%.

Rich Sumner: If you want to use that 40%, It's something we probably want to get back to you on. But right now, we like the premiums that we're seeing over in the market. And we'll continue to track and monitor that as we as we move forward.

Speaker Change: It's something we'd probably want to get back to you on but right now we like the premiums that we're seeing over over them in the market and and we'll continue to track and monitor that as we as we move forward.

Speaker Change: Thank you.

Josh Spector: Your next question comes from the line of Josh Spector with UBS Financial. Your line is open.

Speaker Change: Your next question comes from the line also Josh Spector with UBS financial your line is open.

Josh Spector: Yeah, hi, good morning. Thanks for taking my question. I wanted to ask two things on China. It's just one, you know, where you talk about where prices are today. I mean, they've moved down decently over the last month. How do you think about the support level, given where coals move towards? Does that leave more room to move down? Or is there something where you'd say this is something that drives support here? And then second, just I know, there's not really any direct trade flow here of US into China. But just thinking about tariffs creating friction, does that have any impact on Western Basin supply at all in terms of some of the movements or Asia, if that's one worth commenting on more?

Josh Spector: Yeah, Hi, good morning, Thanks for taking my question.

Josh Spector: I wanted to ask two things on China. It's just one where you talk about where prices are today I mean, they move down decently over the last month, how do you think about the support level, given where kohl's moved towards does that leave more room to move down or is there something where you'd say this is something that drives support here and then second just I know theres not really any direct trade.

Josh Spector: Slow here in the U S into China, but just thinking about tariffs, creating friction does that have any impact on western basin supply at all in terms of some of the movements or Asia. If that's just the one worth commenting on board. Thanks.

Rich Sumner: Thanks.

Rich Sumner: To answer your first question, the cost curve today is at that $2.70 to $2.80 level. That's a pretty firm cost curve based on coal pricing at around $650 RMB per tonne. And we've seen coal pricing, it's right in kind of the range that the government kind of sets on where they target coal pricing to be. You know, so right now we've seen, we've tested our cost curve many times in this industry, and it is quite resilient and responsive. And that's the level we see today. And it's, the other data check is MTO affordability and where Oliphant's pricing is at.

Josh Spector: Thank you.

Josh Spector:

Josh Spector: Angie your your your first question the cost curve today is that that $2 70 to 280 level, that's a pretty firm cost curve.

Josh Spector: Based on coal pricing in around 650 RMB per ton in and we've seen coal pricing is right and kind of the range that the.

Josh Spector: Government kind of set somewhere they target coal pricing to be.

Josh Spector: So right now we've seen we've tested our cost curve many times in this industry and it is quite resilient and responsive and that's the level, we see today and it's it's it's a the other data check as MTO affordability, and where all of a sudden pricing that and I would say that's another kind of data point that is pointing to.

Rich Sumner: And I would say that's another kind of data point that is pointing to around that $2.80 to slightly above level. So we think China is firmly in that space today as it relates to product movements and friction. We don't expect a lot of, there isn't a lot of US flows moving to China today. Actually, there's no flows moving today. I think the biggest thing we would be looking at, you know, is just the impact of tariffs on export manufacturing out of China. And that's something we're going to be watching, you know, because the Chinese manufacturing, a big proportion of that is for exports.

Josh Spector: Around that $2 80 to slightly above level. So we think China's firmly in that in that space today as it relates to product movements and friction is it we don't expect a lot of there's a lot of U S flows moving to China today actually there's there's no flows.

Josh Spector: Today, I think the biggest thing we'd be looking at it you know is just the impact of tariffs on export manufacturing out of China, and that's something we're gonna be watching you know because.

Josh Spector: The the Chinese manufacturing a big proportion of that is for exports.

Rich Sumner: The government's trying to stimulate domestic consumption as well. There's actions being taken there, but that's something we're closely monitoring right now.

Josh Spector: The government is trying to stimulate domestic consumption as well so there's there's actions being taken there, but that's something we're closely monitoring right now.

Rich Sumner: That's probably too tough to answer, but I'll try. It's just if you did have some downturn further from here in terms of China demand. Would you see exports going into China needing to find a new home or would you see domestic assets shutting down? Is there any one of those that you would see as a more likely scenario? It's probably, I mean, what we would see is, if you got into, first off, we don't see a big impact, because when you really boil it down, China is a big consumer of methanol, they consume about 60 million tons, about one-third of that is into traditional chemical applications, and then if you look at how much of that is export, you know, a ballpark might be about 50% of that, and about 15% of manufacturing from China goes into the U.S.

Josh Spector: That's probably too tough to answer but I'll try it. It's just if you did have some downturn further from here in terms of China demand.

Speaker Change: What do you see exports going into China needing to find a new home or would you see domestic.

Speaker Change: Assets shutting down is there any one of those that you would see is a more likely scenario.

Speaker Change: It's probably I mean, what you would see as if he got into first off we don't see a big impact because when you really boil it down China is a big consumer of methanol they consume about 60 million tonnes or about one third of that is into traditional chemical applications and and then if you look at how much of.

Speaker Change: That is export.

Speaker Change: A ballpark might be about 50% of that in at about 15% of manufacturing from China goes into the U S. A you get down to a pretty small number that were monitoring so it wouldn't we wouldn't expect to see a big reaction right now on on demand. If you got into an oversupply situation, yeah, we'd probably see some moderation of.

Rich Sumner: You get down to a pretty small number that we're monitoring, so we wouldn't expect to see a big reaction right now on demand. If you got into an oversupply situation, yeah, we'd probably see some moderation of operating rates in coastal China to balance the market, but not something we're seeing today, and we don't expect to see a big impact.

Speaker Change: Of operating rates in coastal China to balance the market, but not something we're seeing today and we don't expect to see a big impact.

Speaker Change: It's helpful. Thank you.

Steve Hansen: Your next question comes from the line of Steve Hansen with Raymond James. Your line is open. Yeah, good morning, guys. Thanks for the time.

Steve Hansen: Your next question comes from the line of Steve Hansen with Raymond James Your line is open.

Steve Hansen: Yeah. Good morning, guys. Thanks for the time just wanted to ask about risk mitigation as you move into the closing stages of the transaction here what are the key steps you need to peak or maybe some of the initiatives that you need to put in place to make sure you've got the risk managed as you take on these new assets are bringing gas in particular I know it's been hedged.

Rich Sumner: Just wanted to ask about risk mitigation as you move into the... of the Transaction here, what are the key steps you need to take or maybe some of the initiatives that you need to put in place to make sure you've got the risk managed as you take on these new assets. I'm thinking gas in particular, I know it's an any additional operational or off. marketing type agreements. Just walk us through how you can get a hold of that and take risk down in what's still a pretty uncertain environment. Thanks, Steve. Yeah, no, we.

Steve Hansen: Any any additional operational or offtake marketing type of agreement just walk us through how you can get a hold of that and antique risk down and what's still a pretty uncertain environment.

Steve Hansen: Thanks, Steve.

Steve Hansen: Yeah no we.

Rich Sumner: I mean, what we've done is already stood up a big integration management team that's looking at all aspects of the integration. Ensure on day one, we're going to be producing methanol safely and reliably, as well as delivering to customers. Obviously, we can't step into that business today, but we've been planning as much as we can ahead of the transaction to be ready on day one. There really isn't, I don't, I don't, we don't see a lot of big risks and hurdles, but we've obviously been assessing all of the risks and trying to address everything we can.

Steve Hansen: What we've done is already stood up a big integration management team. That's looking at all aspects of the integration ensure on day, one we're gonna be producing methanol safely and reliably as well as delivering to customers. Obviously, we can't step into that business today, so, but we've been planning as much.

Steve Hansen: As we can ahead of the transaction to be ready on day, one there really isn't a I don't we don't see a lot of big risks and hurdles, but we've obviously been assessing all of the risks.

Steve Hansen: And then trying to address everything we can our big thing is you know getting on the systems and being able to communicate you know early in understanding information flows being able to do.

Rich Sumner: A big thing is, you know, getting on the systems and being able to communicate, you know, early and understand information flows, being able to, to, to, to bill and pay invoices, all of those things. And we're thinking through all of that. So on day one, we bring this on in a very seamless, seamless way and be able to, to incorporate this into our business as quickly as possible. And then, and then really work on, on, on delivering on synergies, which will take, take some time. So we've had a big team focused on this internally and working with OCI as much as possible ahead of the transaction, while ensuring, you know, all sensitivities to the, to the regulatory process and, and that not being closed yet.

Steve Hansen: To due to bill and pay invoices all of those things and we're thinking through all of that so on day. One we bring this on in a very seamless seamless way and are being able to to incorporate this into our business as quickly as possible and then and then really work on on Oh.

Steve Hansen: On delivering on synergies, which will take some time so we've had.

Steve Hansen: A big team focused on this internally and working with OSA as much as possible ahead of the transaction well insuring.

Steve Hansen: All sensitivities to the to the regulatory process and not not being closed yet.

Steve Hansen: Okay, great, that's really helpful.

Steve Hansen: Okay, Great. That's really helpful. And then just thinking back to the <unk> three mm.

Steve Hansen: And then just thinking back to the G3 recovery and startup now that's been announced, is there gonna be gating milestones as it's going through, you know, this new, I'll call it run rate process with the new catalyst in place or the new fixes to the ATR anyway? So how should we think about that? Is there planned up and downs to test out how it's going? I'm trying to get a sense for whether we should expect any sort of fluttering in the operating rate here in the next quarter or two.

Steve Hansen: Recovery in startup now it's been been announced is there was there is there going to be getting milestones as it's going through you know this new I'll call. It run rate process with the new catalyst in place for the new fixes to the ETR anyway. So how should we think about that is there planned up and downs.

Steve Hansen: To test out how it's going I'm trying to get a sense for whether we should expect any sort of fluttering and the operating rate here in the next quarter or two.

Rich Sumner: I think one distinction, and maybe it's just something to clarify, is this has all been about startup conditions and getting the unit to full operating rates. Once we've gotten to full operating rates, the autothermal reformer has operated really well at 100% operating rates. We operated it for four months at close to full capacity, producing 600,000 tons. So once we get the unit up to full rates, it's operated extremely well. What we didn't have are startup conditions that either didn't produce soot or didn't have pressure on the system that caused the catalyst damage. What we've done through this step, and I feel very confident about that we validated through the process, is that we now have startup conditions that allow us to get to those high levels without doing any damage within the unit.

Steve Hansen: So I think one distinction and maybe it's just something to to clarify is this has all been about startup conditions and getting the unit to full operating rates.

Steve Hansen: Once we've gotten to full operating rates the AIDS yeah auto.

Steve Hansen: Auto thermal reformer has operated really well at 100% operating rates. We we operated it for for four months at close to full capacity producing 600000 tons. So once we get the unit up to full rates. It's operated extremely well what we didn't have our startup conditions that either.

Steve Hansen: Didn't produce it or didnt have pressure on the system that caused the catalyst.

The damage and so what we've done there.

Steve Hansen: This step and feel very confident about that we validated through the processes that we now have startup conditions that allow us to get to those high levels without doing any any damage within the unit. So.

Rich Sumner: There is no bringing down to test. We've got ourselves up to high operating rates, and that's where we expect to be. Of course, if we were to have unplanned downtime, we would go in and inspect and just validate everything that we can't do while we're online, but everything online tells us we're in good shape.

Steve Hansen: So there is no bringing down to test where we are.

Steve Hansen: Got ourselves up to high operating rates and that's where we expect to be of course anytime. We if we were to have unplanned downtime. We would go in and inspect and just validate everything that we can do well.

Steve Hansen: We're online, but everything online tells us we're in a we're in good shape.

Steve Hansen: Yeah.

Rich Sumner: And then just one last one. I apologize if I missed it earlier on some of the tariff talk. But is there any issue with bringing methanol in from Trinidad, as you see it here today? Is there any, I don't know, risk to the tariff structure there and how that should impact sort of inbound flows, I guess, more broadly from the country? Yeah, so there is some limited flows of Trinidad into North America, mainly on the East Coast supply chain, so there is a flat 10% tariff right now, and it's a very minor, limited impact to the business, and that's something that we're working on right now.

Steve Hansen: Okay, Great and then just one last one I apologize if I missed it earlier on some of the tariff talk but is there any issue with bringing him ethanol and for Trinidad as you see it here today is there any kind of a risk to the tariff structure, there and how that should impact sort of inbound flows I guess more broadly from that from the country.

Steve Hansen: Yeah. So there is some limited flows of Trinidad into into North America, mainly in the on the East coast supply chain. So there is a flat 10% tariffs.

Steve Hansen: Right now and it's pretty pretty very very minor and limited impact to the business and that's something that we're working on right now.

Steve Hansen: Okay, we're good. Appreciate the time.

Speaker Change: Okay very good.

Hassan Ahmed: Your next question comes from the line of Hassan Ahmed with Olympic Global. Your line is open.

Hassan Ahmed: Your next question comes from the line of Hassan Ahmed with Alembic Global Your line is open.

Hassan Ahmed: Morning, Rich. You know, question around demand, you know, over the last couple of years, I take a look at a variety of sort of commodity chemicals out there, you know, they've been pretty weak, you know, maybe even some sort of, you know, customers of yours, I'm just sort of thinking in terms of like polyurethanes and the like. And I know that's a much smaller sort of piece of the pie. But you know, I mean, as I read sort of some of your near term commentary, you know, particularly as you talked about some sequential demand declines in Q1, I mean, it just appears to me that they were, you know, primarily called it for seasonal reasons, Lunar New Year and the like, maybe, you know, slightly reduced MTO operating rates.

Hassan Ahmed: Good morning, Rich you know question around demand.

Hassan Ahmed: You know over the last couple of years I take a look at a variety of sort of commodity chemicals out there you know they've been pretty weak maybe even some <unk>.

Hassan Ahmed: Sort of a customer.

Hassan Ahmed: Customers of yours, or I'm, just sort of thinking in terms of like polyurethane and the like and I know that's a much smaller sort of piece of the pie, but you know I mean as I read sort of some of your near term commentary.

Hassan Ahmed: Particularly as you talked about some sequential demand declines in Q1 I mean, it just appears to me that there were you know Brian that would be call. It for seasonal reasons lunar new year and the like maybe you know sticky reduced MTO operating rates and then you know if I heard you correctly, you're talking about a sequential uptick in demand in.

Hassan Ahmed: And then, you know, if I heard you correctly, you're talking about a sequential uptick in demand in Q2.

Hassan Ahmed: In Q2, so with all of this volatility you know macroeconomic volatility some of your end markets being a little volatile I mean could you talk about how methanol demand has actually held up.

Rich Sumner: So with all of this volatility, you know, macro economic volatility, some of your end markets being a little volatile, I mean, you know, could you talk about how methanol demand is actually held up, you know, far better than then, you know, some of the other commodities out there and what your expectations are, you know, even in this sort of, you know, reduced global GDP growth environment, you know, over the next couple of quarters? Sure. Thanks, Hassan. Right now, I get... I think I've talked about the makeup of demand for methanol. very a variety a number of factors has led existing supply to be constrained and not a lot of new capacity being added in the industry so I think I do think there's a bit of a differentiation that even with slower demand methanol is not getting out of balance like we do see in some of the other other sectors.

Hassan Ahmed: Our better than than you know some of the other commodities out there and what your expectations are you know even in this sort of you know reduce global GDP growth environment over.

Hassan Ahmed: Over the next couple of quarters.

Hassan Ahmed: Sure. Thanks.

Hassan Ahmed: So.

Hassan Ahmed: Great now I get you.

Hassan Ahmed: I think I've talked about the make up of demand for methanol. It's it's you know when we talk about 50% as traditional chemical applications about 30% to 35% as energy applications and the other 15% to 20% as methanol to olefins. So I mean, if you start with the energy application flows have been quiet.

Hassan Ahmed: Quite good for Us and you know when we're seeing those we haven't seen big variability or volatility in and that demand has been really stable and growing MTO is tends to be a balance on the industry. So when there's a lot of supply in the market. They tend to operate at high rates and when the supply gets tight they tend to operate low.

Hassan Ahmed: Right. So there's a bit of a noise in our demand because of the balancing act of MTO operating rates on our industry. The traditional chemical applications vary by have varied by region and that depends heavily on GDP.

Hassan Ahmed: Each of the in each of the regions and.

Hassan Ahmed: That's something we monitor really closely and it's a lot of it goes into all the leading indicators of economic activity and so you go around the world and it hasn't been particularly strong, but we haven't seen weakness in it but it's something that we're watching and we're expecting relatively flattish when we say you know.

Hassan Ahmed: <unk> got to pick up we're not talking about big increases in and from a percentage basis, but it was seasonally low in Q1, and then we expect it to be seasonally higher in the second quarter, certainly auto housing all those leading indicators or things that we're tracking in and we're going to watch closely but I think one.

Hassan Ahmed: One of the things to note about our industry relative to other petrochemical industries is is that we have seen I would call it lower growth than we've seen historically, what we are what we are seeing is limited supply and I think that's one of the differentiation points existing supply in methanol.

Hassan Ahmed: <unk> had a hard time, keeping pace, even with slower growth because of constraints around Iran constraints around Russia.

Hassan Ahmed: Venezuela, we've seen it in Trinidad.

Hassan Ahmed: New Zealand et cetera, because of those gas feedstock ore.

Hassan Ahmed: Geopolitical sanctions.

Hassan Ahmed: Oh very a variety of number of factors has led to existing supply to be constrained and not a lot of new capacity being added in the industry. So I think I do think there's a bit of a differentiation that even with slower demand methanol is not getting out of balance like we do see in some of the other our other sectors.

Speaker Change: Understood very helpful and as a follow up on the feedstock side of things.

Speaker Change: <unk> on the U S natural gas side, I mean, obviously with the close of the OCI deal. You know your exposure is going to get larger in the U S. I mean, it just seems that you know you have arguments being made on both sides of natural gas prices. Obviously, we've seen a fair degree of volatility in Nat gas prices crude oil prices have gone under.

Pressure, you know theres, some sort of pundits out there talking about how they're potentially in a lower oil price environment could be shut ins.

Speaker Change: In the Permian you know I mean, how now is your exposure is rising in the U S.

Speaker Change: With all of their sort of noise around natural gas pricing.

Speaker Change: How are you guys thinking about not God. How are you guys thinking about your existing hedging program. How are you guys thinking about the hedging program on a go forward basis with you.

Speaker Change: You know the OCI deal eventually closing.

Rich Sumner: Oh, thanks. We look at it very closely, obviously. And right now, as you know, we actively are in the market with our rolling hedge program, targeting to get certainty around our cost structure at around 70% operating rates. So that's where we are today on our current US assets. And I think what we're seeing is we have seen volatility in the short run, and we've seen the long run end of the curve actually coming down. So when you look at where the long end of the curve is, it's at, you know, we're seeing 350 pricing or below, which is really positive for us.

Speaker Change: It sounds like all things, we look at it very closely obviously in and right now.

Speaker Change: As you know we actively are in the market with our rolling hedge program targeting to to get certainty around our cost structure and around 70% operating rates. So that's where we are today on our current U S U S assets and.

Speaker Change: What we're saying is we have seen volatility in the short run and we've seen in the long run end of the curve actually coming down. So when you look at where the long end of the curve is is that you know we're seeing 315 pricing are below which is really positive for us. So you know we're actively looking at what we want to do with OCI, we haven't.

Rich Sumner: So, you know, we're actively looking at what we want to do with OCI. We haven't, we haven't, we haven't taken any action on that to date. But it is trending positive to gas pricing that gives us a really good cost structure over that longer period. In the short term, what we've seen spot gas trading down, you know, below 350. But when you look over 20, the remainder of 25 and into 26, and somewhat into 27, it's still in the $4 range. And so, you know, we're kind of, we can be a little opportunistic with the way we layer in.

Speaker Change: We haven't we haven't taken any action on that to date, but it is trending positive to gas pricing that gives us a really good cost structure over that longer period in the short term, what we've seen spot gas trading down below 350, but when you look over 'twenty, the remainder of 'twenty five and into 'twenty six.

Speaker Change: And somewhat into 'twenty seven it's still in the $4 range and so you know we're kind of we can be a little opportunistic look away we layer in so we're looking at both the short term and the longer term, but we believe theres going to be opportunities to get a really good cost structure to underpin, making our company stronger and more resilient with these assets.

Rich Sumner: So we're looking at both the short term and the longer term, but we believe there's going to be opportunities to get a really good cost structure to underpin making our company stronger and more resilient with these assets.

Hassan Ahmed: Very helpful, Rich. Thank you so much.

Richard: Very helpful. Richard Thank you so much.

Nelson Ng: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open.

Speaker Change: Your next question comes from the line of Nelson N R.

Speaker Change: RBC capital markets. Your line is open.

Nelson Ng: Thanks and good morning everyone. First question just relates to New Zealand. Can you just talk a bit more about the gas supply situation there? Because it looks like you diverted gas. Q1, and I think in the past. being over the summer or the northern hemisphere summer. Do you expect, I guess the follow-on question is, do you expect the... Diversions, The Power Sector 2 Ramp-Up. Can you decide when to divert gas, or does the... Thanks.

Speaker Change: Great. Thanks, and good morning, everyone.

Speaker Change: First question just relates to New Zealand.

Speaker Change: Can you just talk a bit more about the gas supply situation there because.

Speaker Change: It looks like.

Speaker Change: You diverted gas in Q1, and I think in the past, it's typically been over the summer or the northern Hemisphere summer.

Speaker Change:

Speaker Change: Do you expect I guess the follow on question is do you expect the.

Speaker Change: Diversions to the power sector as you ramp up and.

Speaker Change: Can you decide when to divert gas or does the offtake or do that.

Rich Sumner: No, on New Zealand gas, you're right, we did. We produced about 160,000 tonnes during the quarter, so we produced less than the full capacity of one plant. We are selling a small portion of gas, and that was a contract that was asked of us and we negotiated last year. As we move into the winter months. more likely that we could see a big ask on gas, which we'd be very responsive to if that's the case. So it's more an ask on us rather than us selling in. You know, gas in New Zealand, I would say where we are today, just with our suppliers Our continued operations at one plant are dependent on gas production in New Zealand, and it's something we continue to work really closely with our gas suppliers there.

Speaker Change: Thanks Hum.

Speaker Change: New Zealand gas you're right. We didn't we did we produced about 160000 tonnes during the quarter, so or produced less than full capacity in one plant. We are selling a small portion of gas and that was a contract that was asked of us and we negotiated last year.

Speaker Change: As it relates as we move into the winter months.

Speaker Change: More likely that we could see a big ask on on gas, which we would we'd be very responsive to that.

Speaker Change: That's the case, so it's more I'd ask on us rather than us.

Speaker Change: Selling in.

Speaker Change: You know gas in New Zealand.

Speaker Change: I would say, where we are today just with our suppliers.

Speaker Change: Our our continued operations are our.

Speaker Change: At one plant are dependent on gas production in New Zealand and it's something we continue to work really closely with our with our gas suppliers. There. So we're in this balance of you know we need the gas to continue to maintain our minimum operating rates. There are some requirements of needs for the residential power.

Rich Sumner: So, you know, we're in this balance of, you know, we need the gas to continue to maintain our minimum operating rates. There's some requirements of needs for the residential power. And so we're going to balance all of that while working with our gas suppliers on their outlook for gas supply. So it's a pretty dynamic situation, and we'll be able to give you more of an update on when we get through Q2 as to how that power sector and draw on gas plays out. And if methanol prices trend lower, are you able to more into the power sector.

Speaker Change: And so we're trying to balance all of that while working with our gas suppliers on their on their outlook for for gas supply. So it's a pretty dynamic situation and we'll be able to give you more of an update on when we get through Q2 as to how that that power sector and drawn on gas plays out.

Speaker Change: And if methanol prices trend lower or.

Speaker Change: Are you able to.

Speaker Change:

Speaker Change: Push more into the power sector.

Rich Sumner: or like you said, it's more about. them asking for it, but it's it's more about. Yeah, it is more about the demand-supply balances in the country and what comes to us from requests. Certainly, we're there and we've always been responsive to that.

Speaker Change: Or like you said, it's more about.

Speaker Change: I'm asking for it but.

Speaker Change: It's more about it.

Speaker Change: Yeah. It is more about a the demand supply balances in the country and what comes to us from request certain certainly where we're where they're in and we've always been responsive to that and will continue to be.

Speaker Change: Got it Okay, and then just switching topics a bit on the OCI.

Rich Sumner: And then just switching topics a bit, on the OCI transaction, can you just talk about which key approvals are needed and if any have been received? Yeah, if we're going through the regulatory review process in both US and Europe, and those continue to progress and that Those are the remaining steps to take. to move through approval of the transaction.

Speaker Change: <unk> can you just talk about which are key approvals are needed and if any have been received yet.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: We're going through the regulatory review process in both Europe U S and in Europe, and those continue to progress in that.

Speaker Change: Those are the remaining steps to take.

Speaker Change: To move through approval of the transaction.

Speaker Change: Okay got it.

Rich Sumner: I'll leave it there.

Speaker Change: I'll leave it there thanks.

Speaker Change: Yeah.

Matthew Blair: Your next question comes from the line of Matthew Blair with TPH. Your line is open.

Speaker Change: Your next question comes from the line of Matthew Blair with P. P. H. Your line is open.

Matthew Blair: Great, thank you. And good morning, Rich. I want to circle back to the Q2 guide.

Speaker Change: Great. Thank you and good morning, Rich I wanted to circle back to the Q2 guide so the $3 60 to $3 70.

Rich Sumner: So the 360 to 370, it seems to imply that the discount rate is getting worse in Q2 than it was in the first quarter. Are there any structural changes that would explain that? Or is that just a function of the geographical mix? Yeah, no, I think you probably shouldn't read too much into that. I think we'll probably be on the high end of the range, so I'm not sure where you're calculating the percentage. Again, we're really focused in kind of what will be the realized pricing over kind of what we think about the cost or the price set or region, which is China.

Speaker Change: It seems to be quite a bit the discount rate is getting worse in Q2, then than it was in the first quarter.

Speaker Change: Are there any structural changes that would explain that or is that just a function of the geographical mix.

Speaker Change: Yeah, No I think you probably shouldn't read too much into that I think will probably be on the high end of the range. So I'm not sure when we're calculating the percentage again, where we're really focus in and kind of what will be the realized pricing over over kind of what do we think about the cost or the price setter.

Speaker Change: Our region, which is China.

Rich Sumner: We have seen, you know, inventories getting more healthy and through with more supply into the market. So as we trend through Q2, we'll just continue to track and, you know, directionally, we have seen some moderation there. But I wouldn't be pointing you to a big, you know, expansion in the discount. It's more pointing to where some of the spot markets have trended in the short term. Sounds good.

Speaker Change: We have seen you know our inventories getting more healthy and and through with more supply into the market. So as we trend through Q2, we'll just continue to track in there you know directionally, we have seen some moderation there so but.

Speaker Change: But I wouldn't be pointing you to a big you know expansion in the discount it's more pointing to where some of the spot markets have trended in the short term.

Speaker Change: Yeah.

Rich Sumner: And then you mentioned improving methanol demand in the second quarter in part due to higher MTO op rates. Is there any numbers you can share on where MTO utilization is today versus the average for the first quarter? Thank you. Yeah, today, it's pretty similar to the first quarter. It's around 75 to 80% operating rates, and that's where we are. We have seen when there's lots of supply available in the market, which we do think as Iran ramps up and we start to see more coastal product available in China, that we have seen them get into the above 90%.

Speaker Change: Sounds good and then you mentioned improving methanol demand in the second quarter in part due to higher MTO operate is there any numbers you can share on where MTO utilization is today versus the average for the first quarter. Thank you.

Yeah. It's it's today, it's pretty similar to the first corner, it's around 75% to 80% operating rates and that's where we are.

Speaker Change: We have seen when there's lots of supply availability available in the market, which we do think as I ran ramps up and we start to see more coastal product available in China that we have seen them get into the above 90% and there's again, there's about 21 million tons of capacity, so a 10% change.

Rich Sumner: And again, there's about 21 million tons of capacity. So a 10% change means, you know, kind of 2 million tons of demand there. That will all be dependent on what's available in the market and as these plants come out of their maintenance. Great, thank you.

Speaker Change: <unk> means you know kind of 2 million tons of demand there that will all be dependent on what's available in the market and as these plants come out of their maintenance.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

Lawrence Alexander: Your next question comes from the line of Lawrence Alexander with Jeffreys. Your line is open.

Speaker Change: Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open.

Lawrence Alexander: Good morning. Could you speak to, as you were assessing kind of trough scenarios for the OCI merger? you know, how severe a trough you considered and what sort of liquidity metrics you focused on.

Laurence Alexander: Good morning could you speak to as you were assessing kind of trough scenarios for the OCI merger.

Speaker Change: How how severe trough you considered and walk through liquidity metrics you're focused on.

Rich Sumner: And secondly, could you give an update on what you're seeing on the shipping pipeline for methanol? capacity. Thanks Lawrence. You know, in terms of a trough scenario, we sort of plan the company in the balance sheet around a $250 per metric ton price. This is the lowest we see pricing go in a 12-month period and usually would only be in a sort of an economic shock type of event like a COVID or a financial crisis is where we've seen that happen. You know, the first thing that we do in terms of planning the company is having assets that are on the low end of the cost curve and cash positive through the cycle, which we think these assets would be.

Speaker Change: And secondly could you give an update on what youre seeing on the shipping pipeline for methanol flex fuel capacity.

Laurence Alexander: Sure. Thanks Laurence.

Speaker Change: And in terms of a trust trough scenario.

Laurence Alexander:

Laurence Alexander: We we sort of plan the company and the balance sheet around the $250 per metric ton price. This is the lowest we see pricing go in the 12 month period, and usually would only be in a sort of an economic shock type of a event like a COVID-19 or a financial crisis is where we've seen that that has.

Laurence Alexander: And you know the first thing that we do in terms of applying the accompanying as having assets that are on the low end of the cost curve and cash positive through through the cycle.

Laurence Alexander: We think these these assets would be.

Rich Sumner: And then it's also just ensuring we have access to liquidity and so our undrawn credit line is available to us and that will be actually increased to $600 million post-deal as well. So we have natural levers in our business. Typically when you see a lower methanol price, our gas contracts respond. Some of them are pinned to methanol price. In those lower environments, we always see gas in North America tends to be a lot lower. We get foreign exchange on our fixed cost structure because the U.S. dollar tends to and currencies against it tend to be weaker.

Laurence Alexander: And then and then its also just ensuring we have access to liquidity and so our undrawn credit line.

Laurence Alexander: Your line is it is it is available to us and you know that will be actually increased to $600 million post deal as well. So we have natural levers in our in our in our in in.

Laurence Alexander: Our business typically when you see.

Lower methanol price our gas contracts respond some of them are our penta methanol price in those lower environments, we always see gas in North America tends to be a lot lower.

Laurence Alexander: Foreign exchange on our fixed cost structure, because the U S dollar tends to strengthen in currencies against it.

Rich Sumner: And then we also look at other things like discretionary CapEx and OpEx and other measures that we would take in those types of environments. So we feel that we've properly planned for any trough scenario. We're certainly way far away from that today and we'd have to see a lot greater impact to get to anything that resembles that. Okay, great.

Laurence Alexander: Tend to tend to be weaker and then we also look at other things like discretionary capex and our Opex and other measures that we would take in those types of environments. So we feel that we properly planned for any trough scenario, where certainly way far away from that today in and we'd have to see a lot greater impact to get.

Laurence Alexander: To anything that resembles that.

Laurence Alexander: Yeah.

Laurence Alexander: Okay.

Laurence Alexander: Okay, great and just on the marine flex fuel.

Rich Sumner: Just on the marine flex fuel. Oh, sorry. Yeah. You know, we're, we're, I think we'll start with the ships. We still still see all of the container ships and the outlook there is 350 plus ships coming into the market over the next four or five years. By the end of this year, the demand potential for all the ships that will be on the water would be close to about 3 million tons of demand potential. Of course, that will depend on their selection of fuel. Are they going to burn methanol or will they burn conventional bunker fuels?

Speaker Change: Oh, sorry, yeah.

Speaker Change: You know where where are I think we'll start with the ships are you still you still see all of the container ships and the outlook. There is 350 plus ships coming into the brand.

Speaker Change: So the market over the next four or five years by the end of this year the demand potential for for all the ships that would be on the water would be close to about 3 million tons of demand potential of course that.

Speaker Change: That will depend on their their selection of fuel is it are they going to burn a methanol when they burn conventional bunker fuels today.

Rich Sumner: Today, gray methanol, so call it conventional methanol, is the affordability levels today. Methanol would probably be higher than low sulfur fuel oil, probably lower than marine gas oil. We're not sure what economic decisions shipping companies are going to make there, but obviously we're in a lot of with them today on their needs. Giving you a demand forecast. difficult because those decisions have not been made structurally so we're not seeing long-term contracts for for methanol quite yet and we're working on on making sure that that that methanol is available in all the major ports through relationships with bunkering companies.

Speaker Change: Gray methanol so call. It conventional methanol is the affordability levels today methanol would probably be higher than the low sulfur fuel oil are probably lower than marine gas oil. So we're not sure what economic decisions are shipping companies are gonna make there, but obviously, we're in a lot of discussions with them.

Speaker Change: Today on on their needs.

Giving you a demand forecast is difficult because that those decisions have not been made structurally so we're not seeing long term contracts or for methanol quite yet and we're working on on making sure that that that methanol is available in all the major ports through relationships with Bunkering.

Rich Sumner: But difficult to give you a demand forecast.

Speaker Change: <unk>.

Speaker Change: But difficult to give you a demand forecast discussions around low carbon ethanol also continue in.

Rich Sumner: Discussions around low carbon methanol also continue. And, you know, that that becomes a bit more about our cost decision and and our regulations going to push that. and our customer is going to have willingness to pay. We have seen some positive signs from the IMO regarding both their percentage of lower carbon fuels they want to see go into the global fuel pool, as well as potential penalties that would be applied if shipping companies are non-compliant. Those have not been implemented and there's still lots of discussions, but the IMO has taken some steps to try to push forward with that and that's something we're watching really closely.

Speaker Change: No that that becomes a bit more about other cost decision and our regulations going to push that.

Speaker Change: And our customers Gotta have willingness to pay we have seen some positive signs from the I M O regarding both their percentage of lower carbon fuels. They want to see you go into the global fuel pool as well as pet potential penalties that would be applied a shipper shipping companies are.

Speaker Change: Client to those that are have not been implemented and there's still lots of discussions, but the I am always has taken some steps to try to push forward with that and that's something we're watching really closely.

Rich Sumner: And then just lastly, the U.S. proposal to implement fees on China-made or China-owned Ships or fleets ordering ships from China. Does that create any arbitrage opportunities for you? relative to competitors I don't I don't think it does. You know, being I guess it's being a Canadian company, do we have an opportunity that Yeah, I think maybe it depends on what type of ships we're talking about. The types of ships that we're building are medium range vessels that are smaller in size. So I think this more gets into larger container ships. But we can get back to you on that question.

Speaker Change: And then just lastly, the U S proposals to implement fees on China made or.

Speaker Change: Trying to owned.

Speaker Change: Trips or fleets ordering ships from China does that create any arbitrage opportunities for you relative to competitors.

Speaker Change:

Speaker Change: I don't I don't think it does.

Speaker Change: It's being a Canadian company do we have an opportunity to do that.

Speaker Change: Yeah.

Speaker Change: Yeah, I think maybe it's it depends on what type of ships, where we're talking about the types of ships that we are building our medium range vessels that are smaller in size. So I think that's more gets into larger container ships, but we can get back to you on that on that question.

Speaker Change: Thank you.

Kate: There are no further questions at this time.

Speaker Change: There are no further questions at this time I will now turn the call back over to Mr. Richard Sumner.

Rich Sumner: I will now turn the call back over to Mr. Rich Sumner. Thank you for your questions and interest in our company. We hope you'll join us in July when we update you on our second quarter results.

Speaker Change: Thank you for your questions and interest in our company, we hope you'll join US in July when we update you on our second quarter results.

Kate: This concludes today's conference call, you may now disconnect.

Speaker Change: This concludes today's conference call you may now disconnect.

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