Methanex Corporation (USA) (MEOH): Why Methanol May Be the Next Big Chemical Story

Page 1 of 2

Chemical producers don’t get much airtime on CNBC, and investors are generally less excited by aldehydes than they are about the latest smartphone app. But behind such off-putting, intimidating names as amorphous polyolefins and polyethylene terephthalate lie some extraordinary and extraordinarily profitable businesses.

Methanex Corporation (USA) (NASDAQ:MEOH)Chemical companies have a long history of responding to industry demands with ever more innovative solutions, and of managing their resources responsibly to provide value to their shareholders.

3-year return 10-year return Dividend Yield
Eastman Chemical (NYSE:EMN) 148% 357% 1.62%
PPG Industries 122% 185% 1.69%
Celanese Corp (NYSE:CE). 65% 209% 0.61%
Dow Chemical 14% 16% 3.94%
Methanex (NASDAQ:MEOH) 55% 638% 2.16%

Why Investors Have Methanol on Their Minds

Due to changes in the global supply/demand balance and the increasing popularity of this versatile chemical in Asia, industry insiders expect a positive pricing environment for methanol into 2015 and beyond.  Approximately two-thirds of the world’s methanol production is converted to formaldehyde used in building materials, such as plywood, foams and paints.  The remaining third of the supply has a role in home heating and cooking, as a fuel additive, and as a feedstock for plastic production.

While the revival of the homebuilding sector across the US should drive demand for methanol over the remainder of the business cycle, the greatest pricing pressure should come from Chinese buyers hoping to cushion the blow of high crude oil costs and to feed the nation’s many newly constructed methanol-to-olefins (MTO) plants.

Methanol Makes Sense as a Fuel Additive … in China

China consumes 40% of the global methanol supply and is also the world’s the largest user of methanol as a fuel.  While the Chinese government approves its use as an additive to gasoline and even offers some tax incentives to motorists, methanol (unlike ethanol) is economical as an additive without government support or subsidies.  Private fuel stations sell methanol blends in eight Chinese provinces today, and several auto manufacturers now make Flexible Fuel Vehicles (FFVs) that run on fuel with a high methanol content.  Methanol as an additive is particularly appealing to bus and taxi drivers looking to save on their gasoline costs.

According to the China Association of Alcohol and Ether Clean Fuels, 7 million tonnes of methanol were used in fuels in 2011 – a figure expected to double by 2015.  Methanol’s cost advantages over ethanol and its ability to reduce CO2 emissions have led to predictions that its use as a transportation fuel will grow to rival its role in the manufacture of building materials and various chemical commodities.

In the US, however, methanol has largely been abandoned as a transportation fuel, either due to risks of groundwater contamination or the political momentum of the ethanol lobby (depending on whose blog you read).

China Is Finding Other Uses for Methanol

Simply put, methanol-to-olefins (MTO) is a process that converts methanol to the building blocks of plastics.  The commodity produced then becomes plastic for films and packaging.  From 2012 to 2015, 16 methanol-to-olefins and methanol-to-propylene (MTP) plants are scheduled to come on stream in China, requiring an estimated 8 million tonnes of methanol every year.  Considering a global market of only 50 million tonnes annually, these new projects should have a material impact on spot and contract prices for methanol.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!