The Long Arm of Methanex’s Methanol

The company is tied to natural gas prices, but it boasts a dominant market share and increasing production.

| More on:
The Motley Fool

By Cameron Conway

Vancouver-based Methanex (TSX: MX), incorporated in 1992, has become a global leader in the production, sales, and shipping of one key and little known chemical: methanol.

This 1,000-employee-strong company has become the world’s largest supplier of methanol to major international markets in Asia Pacific, North America, Europe, and Latin America.

Methanex reaches these markets through its production facilities located in Canada, New Zealand, Chile, Egypt, and Trinidad. Combined, these facilities currently produce around 9.5 million tonnes of methanol a year.

But what is methanol?

First off, methanol should not be confused with those little blue rocks from Breaking Bad. It is essentially a liquefied form of renewable and non-renewable fossil fuels. Methanex produces its methanol with natural gas, creating what people more educated than me would call CH3OH or methyl alcohol.

Methanol is used in many different ways. It can be converted to formaldehyde and made into recyclable plastic bottles, plywood, and paint. It can be used as a chemical solvent, as a pipeline antifreeze (very popular in the oil sands), or even as high-performance race fuel. Recently it has become a key ingredient in certain formulations of biodiesel. But for most of us here in Canada, we would know methanol as the active ingredient that keeps our windshield washer fluid from freezing.

Growth within Methanex

In order to meet growing international demand, Methanex recently announced the relocation of two of its idle Chilean facilities to Geismar, Louisiana, a move made to take advantage of lower natural gas prices in the United States. This relocation is expected to cost $54 million in capital expenditures, and in turn add an additional 2 million tones of potential production a year by 2016.

Further, on Oct. 4, Methanex produced its first batch of methanol from its reactivated Waitara Valley facility in New Zealand. Along with expansions at the Montuni, New Zealand facility, this increases production capabilities by another 0.9 million tonnes per year.

Not overlooking Canada, upgrades to the Medicine Hat Facility have increased production capacity by 100,000 tonnes a year. These expansions, plus future facilities in Texas and Azerbaijan, add up to a lot of methanol being produced each and every year.

With global demand reaching 54 million tones per year, Methanex has increased its production capacity to nearly 10 million tones a year.

The risk

With strong growth and expansion — not to mention a dominant market share — Methanex appears to be a strong company. But like most commodity-based companies, the price to produce can be both a benefit and a burden. The cost of natural gas is the crux of the company’s growth. It can contribute to a loss of $68 million as it did in 2012, or it can add to a current net income of $115 million, as it’s done for the first half of 2013.

There could be a macro trend in the company’s favour, given the recent marketing pushes in both B.C. and the U.S. for the use of natural gas, combined with a growing consumer desire to move away from conventional gas and diesel fuels. The company will remain tied to commodity prices, but with methanol becoming a key ingredient in the future of fuels, Methanex stands at the forefront to benefit from the increases in demand.

The Motley Fool’s top two stock ideas
The Motley Fool Canada’s senior investment analyst recently unveiled his top two stock ideas for new money now. And YOU can be one of the first to read his buy reports — just click here for all the details.

Cameron Conway does not own shares of any companies mentioned.  The Motley Fool does not own any of the companies mentioned.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Oil pumps against sunset
Energy Stocks

Is it a Good Time to Buy in the Energy Sector?

Boosted by a very bullish supply/demand environment, energy stocks like Canadian Natural Resources and Tourmaline have much further to go.

Read more »

Investing

2 Stocks to Buy Offering Better Value Than Air Canada

Air Canada has been a popular stock for years, but despite its low price, these two picks are much better…

Read more »

money cash dividends
Investing

How to Make $373/Month in Passive Income With These 2 TSX Stocks

You could bring in passive income of $4,482 annually, or $373 per month!

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

investment research
Dividend Stocks

Young Investors: Create Cash Flow With This Top Dividend Stock

If you're a young investor looking for cash flow, you need a strong dividend stock and solid banking program designed…

Read more »

Illustration of bull and bear
Investing

Is the Stock Market Selloff Over?

Throughout this week, many stocks have been gaining value and rebounding from their lows. So, is the stock market selloff…

Read more »

potted green plant grows up in arrow shape
Investing

Retirement 101: How Investors Can Turn $20,000 Into $500,000 in 25 Years

These top TSX dividend stocks have made some investors rich.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 Superb Dividend Stocks I’m Ready to Buy

The market is full of great options for income-seeking investors. Here are three superb dividend stocks to buy now.

Read more »