Methanex Q4 2024 Earnings Report

Methanex EPS Results

• Actual EPS: $1.24
• Consensus EPS: $0.94
• Beat/Miss: Beat by +$0.30
• One Year Ago EPS: N/A

Methanex Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.02 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Methanex Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 11:00AM ET

Methanex (NASDAQ:MEOH) produces and supplies methanol in China, Europe, the United States, South America, South Korea, Canada, and Asia. The company also purchases methanol produced by others under methanol offtake contracts and on the spot market. In addition, it owns and leases storage and terminal facilities. The company owns and manages a fleet of approximately 30 ocean-going vessels. It serves chemical and petrochemical producers. Methanex Corporation was incorporated in 1968 and is headquartered in Vancouver, Canada.

Methanex Q4 2024 Earnings Call Transcript

Presentation

[Operator]

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 Methanex Corporation 4th Quarter 2024 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.

[Operator]

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

[Sarah Herriott, Director of Investor Relations at Methanex]

Good morning, everyone. Welcome to our Q4 2024 results conference call. Our 2024 Q4 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 methanax.com. 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.

[Sarah Herriott, Director of Investor Relations at Methanex]

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 Q4 2024 MD and A and to our 2023 Annual Report for more information. 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 date. 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 percent economic interest in the Atlas facility, our 50 percent economic interest in the Egypt facility and our 60% interest in Waterfront Shipping.

[Sarah Herriott, Director of Investor Relations at Methanex]

In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark to market impact on share based compensation and the impact of certain items associated with specific identified events. These items are non GAAP measures and ratios 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 that they are a better measure of underlying operating performance and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. Rich Sumner, for his comments and a question and answer period.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Thank you, Sarah, and good morning, everyone. We appreciate you joining us today as we discuss our Q4 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 in a year of meaningful changes in our operating assets, and these results are a demonstration of the team's commitment to responsible care across the globe. Now turning to the financial and operational review of the company for the Q4.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Our 4th quarter average realized price of $3.70 per tonne and produced sales of approximately 1,500,000 tonnes generated adjusted EBITDA of 2 $24,000,000 and adjusted net income of $1.24 per share. Adjusted EBITDA was higher compared to the Q3 of 2024, primarily due to a higher average realized price and higher produced sales. For the full year of 2024, we had an average realized price of $3.55 produced sales of just over 6,000,000 tonnes and generated adjusted EBITDA of $764,000,000 and adjusted net income of $252,000,000 or $3.72 per share. Now turning to short term methanol pricing and market dynamics. We entered the Q4 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.

[Rich Sumner, President and Chief Executive Officer at Methanex]

In the Pacific Basin, we entered the 4th quarter in a more balanced market with stable production and healthy inventories from lower methanol to olefins operating rates in the Q3. Through the Q4, conditions in the Pacific tightened because of increased operating rates from MTO producers combined with increasing supply constraints, particularly from Iran. Consequently, MTO operating rates decreased late in the Q4 with this trend continuing into the Q1. Overall, tight market conditions globally led to an increased methanol pricing environment in the Q4 and into 2025. Our global average realized price of $3.70 per metric tonne was $14 higher than the previous quarter.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Methanol pricing strength continued into the Q1 of 2025 with our European quarterly price posted at €700 per tonne, representing a €130 per tonne increase from the Q4. Our posted prices for North America and China increased in January and rolled in February. And in Asia Pacific, we increased posted prices in January February. Comparing methanol demand in 2024 to 2023, we estimate global methanol demand increased by approximately 3,000,000 tonnes, which included relatively flat year over year demand for methanol to olefins given supply constraints in the industry. 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.

[Rich Sumner, President and Chief Executive Officer at Methanex]

We expect incremental supply will come from full year production of G3 and from the Malaysian Sarawak plant, which we understand recently started producing methanol. Looking 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. Now turning to our operations. Methanex production in the Q4 was higher compared to the Q3 with higher production from Geismar, Chile, New Zealand and Egypt. Our production was higher than our produced sales in the Q4 of 2024 due to an inventory build that produced methanol from these higher production levels.

[Rich Sumner, President and Chief Executive Officer at Methanex]

In Geismar, production was higher during the Q4 with G3 operating at full rates in October December. In mid November, we took a proactive shutdown of G3 to inspect some of the newly commissioned equipment to ensure reliability. The plant successfully restarted and resumed full operating rates in December and has been operating at high rates since the restart. In Chile, I'm very happy to share that both plants have been operating at full rates and that after a brief maintenance outage in November, we produced 150,000 tonnes of methanol in December, which is the highest monthly level of production we've reached in Chile since 2007. We have gas contracts in place with Chilean and Argentina gas producers until 2030 and 2027, respectively, which underpin approximately 55% of the site's gas requirements year round.

[Rich Sumner, President and Chief Executive Officer at Methanex]

We continue to expect seasonality in production but are seeing positive developments making full gas supply for a 2 plant operation available for longer periods. Based on contracted gas, 2025 production is expected to be between 1,300,000 and 1,400,000 tonnes, which would result in the 4th consecutive annual increase in production from Chile. In Egypt, production increased compared to the 3rd quarter as temperatures moderated, the gas balances in the country stabilized, 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 and demand dynamics. In New Zealand, production in the 4th quarter was higher compared to the 3rd quarter with the restart of our Mata Nui 2 plant in November.

[Rich Sumner, President and Chief Executive Officer at Methanex]

In August, 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. Based on the current outlook from gas suppliers, we expect 500,000 to 700,000 tonnes of production from New Zealand in 2025, which will be dependent on gas availability and any on selling of gas into the electricity market support New Zealand's energy needs. In 2025, we have 3 turnarounds scheduled that will impact our production in the 1st 3 quarters. Our expected equity production guidance for 2025 is approximately 7,500,000 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. Actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages and unanticipated events.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Now turning to our current financial position and outlook. We ended the Q4 with $879,000,000 of our share of cash and continued access to our $500,000,000 undrawn revolving credit facility. During the Q4, we repaid the $300,000,000 bond with cash generated from operations and executed our OCI acquisition financing plan, including issuing a $600,000,000 bond and securing a $650,000,000 term loan A commitment from our banking partners. The completion of these arrangements gives us the financial capacity and flexibility to complete the OCI acquisition and our targeted deleveraging plan. We're continuing to progress the regulatory process as planned.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Looking forward to 2025, our priorities are focused on closing the OCI transaction, safely and efficiently integrating the assets, achieving the identified synergies and reducing leverage by repaying $550,000,000 to $600,000,000 in debt over the next 18 months assuming a $3.50 realized methanol price. 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. With strong free cash flow capability from our existing assets, which we expect to be strengthened by the OCI acquisition, we're positioned to execute a balanced approach that includes deleveraging and shareholder distributions depending on future market conditions and methanol pricing. Based on our Q1 European posted price along with our January February posted prices in North America, China and Asia Pacific, our January February average realized price range is forecasted to be between approximately $3.95 $405 per metric tonne. Based on this higher forecasted average realized price, coupled with our produced sales expected to normalize closer to 4th quarter production levels, we expect significantly higher adjusted EBITDA in the Q1 of 2025 compared to the Q4.

[Rich Sumner, President and Chief Executive Officer at Methanex]

We'd now be happy to answer questions.

[Operator]

Thank

[Operator]

you. Your first question comes from the line of Hamir Patel with CIBC Capital Markets. Please go ahead.

[Hamir Patel, Executive Director - Equity Research at CIBC World Markets]

Hi, good morning.

[Hamir Patel, Executive Director - Equity Research at CIBC World Markets]

Rich, are you able to give us

[Hamir Patel, Executive Director - Equity Research at CIBC World Markets]

an update on how the regulatory approvals for the OCI deal are progressing? And should we still assume a close sometime in the first half?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. It's thanks, Hamre. We're progressing things well as planned, and we're going through the process in both Europe and the U. S. As we discussed previously.

[Rich Sumner, President and Chief Executive Officer at Methanex]

And right now, the expectation is to close in the first half. It's looking like it's going to be looking like it's more Q2 close sometime in the first half of the year, but a Q2 close right now. So we're getting things all prepared for that and starting to plan integration as we get ready for regulatory approval.

[Hamir Patel, Executive Director - Equity Research at CIBC World Markets]

Okay, great. Rick, thanks. And just 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 for further supply disruptions there this year?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. Well, we don't have direct insight, but what we do is track a lot of the flows and import statistics into the mainly into China. And we've seen a significant reduction in imports into China, which is impacting inventory levels there. It would indicate that they you're right, there was not a lot of production coming through in December and likely into January. And I think the energy crisis that Iran is going through is pretty well publicized.

[Rich Sumner, President and Chief Executive Officer at Methanex]

So they're having quite a difficult time just from keeping the residential demand supplied, and that's significantly impacting industry and methanol production. So we think that, that probably leads to constrained supply, particularly through the winter here, but likely, as we saw last year, maybe a more prolonged impact of that through the Q1 and possibly into the Q2. But we're going to continue to monitor it.

[Hamir Patel, Executive Director - Equity Research at CIBC World Markets]

Okay, fair enough. That's all I had. I'll get back in the queue. Thanks.

[Operator]

Your next question comes from the line of Joel Jackson with BMO Capital Markets. Please go ahead.

[Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets]

Good morning, Rich. Just following up on a question I think you just said. So you said I think you said that you expect sales of produced methanol in Q1 to be similar to production levels in Q4. Is that right?

[Rich Sumner, President and Chief Executive Officer at Methanex]

That's correct, yes.

[Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets]

Now does it seem like it would be higher in Q1 because if I take your guidance and I factor in turnarounds, it seems like production should be similar in Q1 versus Q4 and you had 400,000 tons of inventory build in Q4. So can you tell us what would a triple production look like in Q1 versus Q4? And then aren't you drawing down the inventory?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Well, we're I don't think we're going to be dry it's an inventory build of produced product because there's a bit of a change in our system. When we bring in our overall inventory levels are the same, but we're bringing in more produced with more production, which means a change from produced methanol to our own produced methanol, which is a good thing for us. So we've got an inventory build of produce, not an overall inventory build. And so where we are, production should be similar. Where we're operating is consistent with the Q4.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Right now, the assets are running really well. So we would expect a similar production level at this point. But we'll have to 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 our run rate that we would see coming through assuming we keep production levels at really high levels where they are today. Hopefully that answers the question.

[Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets]

Sure. And then I'll follow-up. So your mid cycle methanol, 350 methanol, you talked about before what you want to do as you close the OCI deal and pay down debt before we start buybacks.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes.

[Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets]

I'm sure you saw the sensitivity here. We're not at 350 methanol, we're 400. I mean, can you just give a sense of if it's 400 methanol, not 350, like how many months quicker do you get through that debt repayment? Or how do you think about it? What does 400 methanol versus 350 methanol mean for how fast you could be start buybacks?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. So I think if we look at where we are at Q1, we would be at this methanol price with our assets performing the way they are. We would expect free cash flow in the $150,000,000 or more range. So if you just kind of do the math, this is pre OCI deal with our existing asset base producing where it is, that would be a 12 month time frame. But of course, we're going to plan for a lower methanol price environment, and we've got all the financing in place that we have.

[Rich Sumner, President and Chief Executive Officer at Methanex]

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 close and our starting incremental leverage is going to be a lot lower than when we first came out with the deal announcement. So we're already making our way on our deleveraging as we operate every day in a tight methanol market, and that's what we're going to continue to focus on.

[Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets]

Thank you.

[Operator]

Your next question comes from the line of Ben Isaacson with Scotiabank. Please go ahead.

[Ben Isaacson, Managing Director - Equity Research at Scotiabank]

Thank you and good morning everyone. Two questions. First one is on New Zealand. Rich, 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, were you thinking 500,000 to 700,000 tonnes for the year or is this actually a step worse than you were thinking?

[Ben Isaacson, Managing Director - Equity Research at Scotiabank]

And the reason why I'm asking is what is the risk that we completely lose methanol production in New Zealand in 2 or 3 years?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. So at the time when we were gearing to a one plant operation, we were looking at working with our gas suppliers on the future deliveries of gas. And what we were seeing was enough gas to run a one plant operation. The actual rates were going to be determined on really looking closely at production for the year. And the range we've given also does include potentially some downside in methanol production where we may be on selling some gas into the market.

[Rich Sumner, President and Chief Executive Officer at Methanex]

But Ben, yes, you're right. We do need to see a production and investment going into the upstream in New Zealand from where we are today to continue to support the one plant operation into the future. And that's something that we're going to be working on with gas suppliers as well as with the government who we believe is looking at a lot of the policies that have not been incentivizing the right things for the upstream in the country and we're 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 beyond this year, what is it going to look like and is there risk?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes, there's risk and it's something that we're going to be working to preserve the long term sustainability of our supply into New Zealand. So but we'll continue to give updates. And right now, we do think it's one plant at less than full rates with the potential that some gas gets diverted depending on what happens in the country. And what's happening in the country when there's with the energy crisis is partly because of the lack of upstream and the government today recognizes that. So that's something we think there is a focus on and that's something we'll be working towards.

[Ben Isaacson, Managing Director - Equity Research at Scotiabank]

Perfect. That's helpful. And then my second question is, and I may have missed this when the OCI deal was announced, but does the regional mix shift of sales volume post OCI mean that you'll have a higher ASP all else equal on $3.50 methanol? And if so, does that also mean you'll have a higher margin all else equal?

[Rich Sumner, President and Chief Executive Officer at Methanex]

So just on the ASP, I think the answer is in today's pricing environment where we're seeing premiums in outside of China, I think the answer is yes. A lot of the markets that the markets that we expect to be selling to will probably be mainly Atlantic based. So yes, on the higher realized price. In terms of translating into higher profits. We would have modeled all this into our forecast of earnings and we used everything at a $3.50 price.

[Rich Sumner, President and Chief Executive Officer at Methanex]

So we would expect there to be a higher uplift in ARP. How that models back to our average realized price sort of remains to be seen on how differentials work in the industry. And one of the things that you'll see this year is we've reduced down our sales, and that will probably be showing up mainly in China, but we'll also be reducing down purchases in the region. So net net, it's not a it wasn't a big margin driving part of our business. And 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.

[Ben Isaacson, Managing Director - Equity Research at Scotiabank]

Got it. Thanks so much. Appreciate it.

[Operator]

Your next question comes from the line of Josh Spector with UBS. Please go ahead.

[James Cannon, Equity Research Analyst at UBS Group]

Hey, guys. This is James Cannon on for Josh. I just wanted to double click on one of the earlier questions on 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 based on your pure gas supply what the implied production would look like?

[Rich Sumner, President and Chief Executive Officer at Methanex]

I think right now on gas, we're probably in the middle of that range or somewhere between the $600,000 $700,000 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, it's likely we would be selling into the gas market. I will remind that from a business perspective, when we give it our future forecast on earnings that we do have a few sites, Trinidad and New Zealand, these are from a volume perspective, are still in our numbers. But from an overall earnings perspective and our run rate earnings are now representing a lot smaller proportion. And so right now, we do see a shift with G3 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.

[James Cannon, Equity Research Analyst at UBS Group]

Yes. That makes sense.

[James Cannon, Equity Research Analyst at UBS Group]

And then just one more on the MTO affordability. I don't know if you mentioned that earlier. Could you just remind us where that sits right now?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. Today, we see ethylene and propylene prices at around dollars 8.50 to $900 per tonne, and that translates into around a $300 somewhere between $280,000 $300 MTO affordability, but that's at a C2, C3 level. They also have integrated, Downstream. And when you factor in the integrated Downstream, it's slightly higher or slightly could be at slightly lower depending on where they're going. So we do think that we've seen pricing above that level in China, which is indicating that Methane markets are tight and that we're we've seen it pushing to above right up to their highest kind of affordability for coastal MTO producers at that 310,310, 320 level.

[James Cannon, Equity Research Analyst at UBS Group]

Got it. Thank you very much.

[Operator]

Thanks. Your next question comes from the line of Hassan Ahmed with Alembic Global. Please go ahead.

[Hassan Ahmed, Co-founder, Head of Research at Alembic Global Advisors]

Good morning, Rich. A question on pricing. Obviously, there's been a fair degree of buoyancy 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 think about the delta between those 2?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Thanks, Hassan. I think right now we see there are some more and more of what we'd say on the existing supply. There's more and more well, there's temporal constraints on supply and then there's more structural constraints on supply. And so we saw the Atlantic markets getting a lot firmer because of European pressure on European producers. We've also seen Venezuela operating at low rates.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Trinidad ourselves reduced production in Trinidad by 1,000,000 tonnes. 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 in particularly into Europe being under pressure. And there isn't a lot of free flows that are from maybe the Middle East that might balance the market because there's pressure on the trade.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Firstly, there's not a lot of uncontracted volume. And secondly, the trade routes through the Red Sea is effectively no one wants to take the risk to move product there. So we do think that these forces are in place for at least now and we're going to have to see how balance comes back into the markets as some of these temporal things change. But there is structural forces that we think are in place that aren't going to ease in any kind of short time frame. So we do think that these premiums that we're seeing in the Atlantic is likely to be there for at least into the near to medium term here.

[Rich Sumner, President and Chief Executive Officer at Methanex]

And then I think the we have seen premiums in Asia Pacific outside of China as well. The Asia market is probably trading at a $20 to $30 premium above China. So today that's sort of what we've seen and that tightness in the market sort of remains. And as we look forward, demand continues to grow and these supply constraints, we'll have to see how much actually gets into the market. And then also, geopolitical forces could put increased pressure on some of the supply into the industry as we see what impact the new U.

[Rich Sumner, President and Chief Executive Officer at Methanex]

S. Administration is going to have in certain jurisdictions as well.

[Hassan Ahmed, Co-founder, Head of Research at Alembic Global Advisors]

Understood. Very helpful. And as a follow-up, I guess, like a 2 part thing on the North American sort of gas situation. I mean, obviously, Henry Hub prices are up meaningfully over the last several months. And obviously you guys are doubling down on your North American capacity with the whole OCI acquisition.

[Hassan Ahmed, Co-founder, Head of Research at Alembic Global Advisors]

So how are you guys thinking about the hedging strategy as it exists today? Will there be any changes to that? And then sort of moving slightly away from the gas side, just I mean, obviously, a lot of noise around Canada tariffs and the like. How are you thinking about that? And I mean, would that have any if at all there were any Canadian sort of tariffs imposed, would that have any impact on your trade flows and earnings?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. Thanks, Hessam. So I'll start with the gas side. We have seen spikes in the kind of what I call the short end of the spot pricing, which we think spot pricing is heavily impacted by weather and inventory levels. And so from that perspective, we expect volatility in the short term and we our hedging strategy is to be 70% hedged and have the flexibility to participate in the market in that volatility and we do take the risk in a short term that we see spikes, but we also get the benefit when it's below the forward curve.

[Rich Sumner, President and Chief Executive Officer at Methanex]

When we look at the forward curve, the forward curve stayed more steady, which is an indication even we have even seen it coming down a little bit, which is an indication that the supply and demand balances look healthy from a supply perspective and from a cost structure perspective for us. So we're we like the North American gas market and that was clearly something we took a very close look at when we did the OCI deal. And we like the structural forces there. And so I think this new administration is also looking for to increase supply across the oil and gas industry, which is a positive, and there's other things that will obviously factor in there. But we like long term North American gas.

[Rich Sumner, President and Chief Executive Officer at Methanex]

When we look at trade policy and we think about tariffs, obviously, the big ones that are being discussed is Canada, Mexico and then China. For us, as a the acute business impact is pretty marginal. We have, do have some products 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 we have if that cost is difficult to recover, 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.

[Rich Sumner, President and Chief Executive Officer at Methanex]

So not a concern from that perspective. I think for us, we are now going to be a very big U. S. Producer. And so we'll add an exporter out of the U.

[Rich Sumner, President and Chief Executive Officer at Methanex]

S. And we'll have to really carefully look at potentially retaliatory tariffs. We don't have any U. S. Product going to China right now because there's already a tariff on methanol and but it's something we'll be following really closely, but don't really see any acute impact to our business.

[Hassan Ahmed, Co-founder, Head of Research at Alembic Global Advisors]

Very helpful, Rich. Thank you so much.

[Operator]

Your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Yes, good morning guys. Now that the Societe transaction seems to be drawing closer and likely moves ahead as 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 mechanism or team that you've got in place. I mean, what do you need to do to be ready to take on all these tonnes as the transaction grows closer?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Thanks, Steve. We're busy doing a lot of integration planning right now. We're obviously still going through the regulatory process. So for us, it's being ready on day 1. And we've got a great team in place on our side, across all the functions, looking at the integration and it's a huge priority for the company right now.

[Rich Sumner, President and Chief Executive Officer at Methanex]

We're going to be the big thing is a safe and reliable integration and doing that as quickly as we can, but doing it safely and reliably. And we've got all of our teams looking at it. I don't for us right now, there's a big thing about can we process and operate the business on day 1, and we're spending a lot of time trying to figure out, make sure that we're ready and well planned for the closing. So right now, when you think about marketing and logistics, yes, we understand the market and the supply chains well, and we don't see any big complications there, but we're going to be thinking through everything really carefully as we go to execute this safely and reliably and efficiently as soon as we possibly can.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Okay, helpful. Thanks. And I just wanted to go back to the inventory question that was raised earlier by Joel. I think I understand the context around increasing your company produced product in inventory. That sounds the reason to me.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

But it was still a big number, the $440,000 or whatever it was. How should we think about inventory levels of produced products going forward? Maybe as it may be the question, just in the sense that do we expect some of that to draw down through the period in the first half of this year? How do we think about that level changing over time?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. I mean, it's hard I guess hard to say. Overall inventory levels, we don't think when we finish the year, are necessarily high for our supply chain. So the mix between purchased and produced inventory, we think probably stays about the same and it should be around 80% produced and 20% purchased. That's if we have our supply chain is kind of steady.

[Rich Sumner, President and Chief Executive Officer at Methanex]

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 we went from we weren't operating in New Zealand. We were operating one plant in Chile. We didn't have G3 operating and Egypt was operating lower.

[Rich Sumner, President and Chief Executive Officer at Methanex]

So it's a significant build in the quarter to a more structural kind of inventory position at the end of the year, if that helps.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

No, that's actually very helpful. And just one last one, if I may, is just around the court decision that you referenced in the release. And just so we all understand it, this is really around the ability for you to market the product coming off the Natgasoline plant. I think that was sort of the core of that legal case. And if you can confirm that, maybe just that's actually the question.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Could you confirm that so we can understand how you'll be marketing those tonnes?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. It was the dispute was around the transferability of of the joint venture partners' rights, and that's rights for everything, operational decisions, financial decisions and marketing decisions. And so right now, we believe that that is of now $50,000,000 the decision is that those rights all transfer to a purchaser and that's been that's the judgment of the court. And so that's exactly what we'd expect as those rights are now transferring on sale. Of course, there is an appeal process that we're not aware of what will happen there.

[Rich Sumner, President and Chief Executive Officer at Methanex]

And so something we still have to track. And we'll update you as things progress there.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Okay, very helpful. Thank you.

[Operator]

Your next question comes from the line of Kevin Istow with Jefferies. Please go ahead.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

Hey, guys. Thank you for taking my question. Just back on MTO operating rates, I know there's been some fluctuation in the back half of the year, I think like Q3, maybe they're around like 60%, 65% and then around 85 percent in Q4. I guess where do they currently stand, as of like early January or currently? Just want to build out some assumptions here.

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. Right now, we think that the operating rates are in the low 70s. And there's probably going to be increased pressure. There's a bit of a lag impact with Iran as Iran's operating rates, they sort of show up about 30 to 45 days after the production impact. So we do expect that imports into China continue to be under pressure and MTO is a big, big buyer of Iranian imports.

[Rich Sumner, President and Chief Executive Officer at Methanex]

So with that in the 70s 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. It's really a supply driven operating rate because there's just not enough supply available for them to run consistently. So in a lot of ways, the lower operating rates are indicative of a tight supply market.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

Okay. Thank you. 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?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Well, I think we probably haven't given guidance on discount rates. I do think what you will see is a higher percentage of Atlantic based sales, which should result in a higher discount rate, than 2024 on average. But it also translates, as we discussed earlier on the call, into a higher average realized price just given the markets that we're selling and these are higher netback markets. So I think the higher discount is probably not the area to look at. It's probably the fact that we're realizing actually a higher price in our network.

[Kevin Estok, Equity Research Senior Associate at Jefferies LLC]

Got it. Okay. Thank you. Appreciate it.

[Operator]

Your next question comes from the line of Matthew Blair with TPH. Please go ahead.

[Matthew Blair, Managing Director at TPH&Co]

Thank you and good morning. Maybe sticking on the discount rates, As we think about the discount for 2025, is anything changing regarding how you're negotiating new methanol contracts for this year? And in particular, should we expect discount rates to generally increase as the year progresses?

[Rich Sumner, President and Chief Executive Officer at Methanex]

I think what we're seeing is the Atlantic markets have been pretty constrained on supply. I think we I don't think we you should expect a big deterioration in discount rates, but you given the higher proportion of sales, our average discount may go up, but not that's not the result of the big deterioration in discount rates. Again, I think that translates into a higher pricing for the business, which is a positive.

[Matthew Blair, Managing Director at TPH&Co]

Sounds good. And then, was there another New Zealand gas diversion benefit in the 4th quarter? And if so, what was the EBITDA impact there?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes, there was. And we were diverting it up until the end of October. The number is around, I believe, is around $30,000,000 but that obviously needs to be offset with that doesn't include the loss margin of not producing methanol, right? So we going forward, we'll be producing methanol and won't have the margin on the gas sales. And so all that needs to be factored in as we move forward.

[Matthew Blair, Managing Director at TPH&Co]

Sounds good. Thank you.

[Operator]

Your next question comes from the line of Nelson Ng with RBC Capital Markets. Please go ahead.

[Nelson Ng, Vice President & Equity Analyst at RBC Capital Markets]

Great, thanks. Just a quick follow-up on Hassan's question on North American gas hedges. So I think prior to the OCI acquisition, you had plans to hedge around 70% of North American production. And I believe you're buying the OCI plants without any gas hedges.

[Rich Sumner, President and Chief Executive Officer at Methanex]

That's correct.

[Nelson Ng, Vice President & Equity Analyst at RBC Capital Markets]

So going forward, is that 70% the right level and meaning you'll enter into a bunch of hedges later this year?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes. That will be today, we like our gas strategy. And again, it's usually we're about 70% hedged in the 1st 3 years and then a little less in the 3 to 5 year period and then less again beyond the 5 year period. So and then we need to opportunistically layer in more hedging as we get expiries as time passes. And that strategy has worked well for us.

[Rich Sumner, President and Chief Executive Officer at Methanex]

And right now, obviously, we're taking a close look at our hedging strategy as we planned for integration and closing of the OCI deal. But so we won't we haven't layered anything in, in anticipation of that, and we'll be starting to do that as we get closer to the closing and bringing those assets into that same strategy.

[Nelson Ng, Vice President & Equity Analyst at RBC Capital Markets]

Great. And then just one last one. Another clarification on the whole tariff situation with the U. S. So you mentioned that there is very limited trade between Canada and the U.

[Nelson Ng, Vice President & Equity Analyst at RBC Capital Markets]

S, no exports from U. S. To China. Does any methanol go to Mexico?

[Rich Sumner, President and Chief Executive Officer at Methanex]

No, not in our system. And there is very little there is some domestic actual production in Mexico with some demand there, but it's not a big methanol market.

[Nelson Ng, Vice President & Equity Analyst at RBC Capital Markets]

Okay. So any tariffs would mainly be just the indirect impact of a slowdown in, I guess, domestic consumption or even global consumption, right?

[Rich Sumner, President and Chief Executive Officer at Methanex]

Yes, that's right. I think the one we watch for sure is on China 10% tariffs. That one of the where methanol is consumed in China is for export manufacturing. So we will look closely and if that impacts demand in China for manufacturing of export goods that would be going to the United States. And obviously, what is the roll on impact?

[Rich Sumner, President and Chief Executive Officer at Methanex]

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 in terms of incremental costs or any risks there that we see today.

[Nelson Ng, Vice President & Equity Analyst at RBC Capital Markets]

Great, thanks. That's all for me.

[Operator]

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

[Rich Sumner, President and Chief Executive Officer at Methanex]

Well, thank you for your questions and interest in our company. We hope you'll join us in April when we update you on our Q1 results.

[Operator]

This concludes today's conference call. You may now disconnect.

Participants

Executives

• Sarah Herriott, Director of Investor Relations
• Rich Sumner, President and Chief Executive Officer

Analysts

• Hamir Patel, Executive Director - Equity Research at CIBC World Markets
• Joel Jackson, Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets
• Ben Isaacson, Managing Director - Equity Research at Scotiabank
• James Cannon, Equity Research Analyst at UBS Group
• Hassan Ahmed, Co-founder, Head of Research at Alembic Global Advisors
• Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial
• Kevin Estok, Equity Research Senior Associate at Jefferies LLC
• Matthew Blair, Managing Director at TPH&Co
• Nelson Ng, Vice President & Equity Analyst at RBC Capital Markets