Natural Gas Is a Feedstock for Methanol Production
Although methanol can be made from multiple feedstocks, producers clearly prefer natural gas to coal. In fact, Chinese producers have found it so uneconomic to make methanol from the country’s plentiful coal reserves that China has become a net importer of methanol. Historically, methanol prices have closely tracked crude oil because high gasoline prices tend to encourage more fuel blending. Natural gas, on the other hand, appears to have permanently decoupled from oil, and natural gas is the principal feedstock for methanol production in North America. This means that input costs for domestic methanol companies could remain stable and reasonable as long as gas can be sourced from shale.
Methanol Makes a Comeback in North America
As is typical in the chemical industry, much of the methanol manufactured worldwide is consumed by the industry itself. Eastman Chemical, for example, produces methanol though its chemicals-from-coal plant in Tennessee to use in its own plastics products, such as packaging and toothbrush handles. Many producers also contract to supply methanol to other chemical companies, including competitors who sometimes re-sell at higher prices. In addition, rival companies often “swap and toll” or trade raw materials in informal transactions. These factors, and the large number of private players in the space, make it difficult for investors to identify who will benefit most from higher methanol prices.
However, projects slated to come on-stream in the next few years indicate that the methanol industry is experiencing a rebirth in North America. Canada’s Methanex Corporation (USA) (NASDAQ:MEOH) is taking advantage of low natural gas prices by moving a methanol facility from Chile to Louisiana, and LyondellBasell Industries NV (NYSE:LYB) plans to restart an idled Texas plant sometime in 2013. Celanese, which uses methanol to create acetic acid (the company’s core product), also expects a new 1.3 million tonne plant to come online in 2015. While the Celanese plant will provide feedstock for internal use, offtake agreements are in place with partners to purchase excess production, giving Celanese a chance to profit from improved methanol prices.
A Go-To Name for Methanol
Vancouver-based Methanex Corporation (USA) (NASDAQ:MEOH) is the worlds’ largest supplier of methanol, with 15% of global market share. Methanex supplies markets in Asia, North America, Europe and Latin America through an extensive network of shipping and storage facilities. Although it competes directly with privately-held giants Methanol Holdings Trinidad and Southern Chemical Corporation, Methanex remains the only public pure-play on methanol. Investors who have faith in the China growth story and the sustainability of current natural gas prices should consider this under-the-radar stock.
The article Why Methanol May Be the Next Big Chemical Story originally appeared on Fool.com and is written by Paula Wendland.
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