Methanex Corp (MEOH) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation fourth-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded on Thursday, January 27, 2005. I would now like to turn the conference call over to Ms. Wendy Bach, Director of Investor Relations.

Thank you very much, Brenda. Good morning, ladies and gentlemen. Before we begin today, I'd like to just take a minute to introduce myself. My name is Wendy Bach. As Brenda mentioned, I'm the new Director of Investor Relations. I've just taken over from Chris Cook, who I'm sure you'll all remember. Chris has moved on to a marketing position in our organization.

I'd like to remind our listeners that our comments and answers to your questions 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. Please refer to the bottom of our latest news release and to our 2003 annual report for more information. I'd now like to turn the call over to Methanex's President and CEO, Mr. Bruce Aitken, for his comments..

Thank you, Wendy. Good morning, everyone, and welcome to Methanex's conference call. I'm in Vancouver and have a number of colleagues with me in the room.

2004 was an outstanding year for us. Let me start with just a few highlights. We produced a net income of $236 million, which is the highest level of net income in the last decade. We sold a record volume of methanol during the year. We produced a record volume of methanol in the fourth quarter. We started up the largest methanol plant in the world in mid year. We repaid $182 million of debt and invested $134 million in new low-cost methanol efforts. We returned about $119 million to shareholders in the form of dividends and share repurchases, and our stock was a 62 percent year over year. All in all, by any definition, we had a great year.

I commented during our last conference call that our earnings in Q4 2004 would be just a little less than what we achieved in Q3, and this was what happened. Our fourth-quarter net income was $66 million or 55 cents per share. Our realized selling price was slightly higher in the fourth quarter at $248 per ton, as compared to 245 in the third quarter, And our sales volumes were also higher. However, as I also indicated in our last conference call, there are a number of factors that are influencing our results.

I've mentioned in prior calls about fixed price and cost-of-service methanol sales contracts. With the Atlas plant in Trinidad now successfully operating, all of these types of contracts are now operational. For those of you that analyze our numbers, you will note that our (indiscernible) discount between our notes, referenced prices, and our realized prices has increased. This is mostly the effect of fixed price and cost-of-service contracts in the current high-price environment. In a lower pricing environment, this discount will actually shrink.

A second factor that is influencing our results is accounting for stock-based compensation. In 2004, the mark-to-market for restrictive stock units and deferred stock units increased by $6 million relative to 2003. This charge is a function of the increase in our stock price, which I'm sure shareholders are grateful for. I hope that shareholders will see mark-to-market charge every quarter as we enjoy further stock prices increases.

The third factor that I've also mentioned before is an increase in our costs in New Zealand. During the quarter we substantially downsized our organization in that country and now have a capability to produce up to 0.5 million tonnes during 2005. I should say that while our cost structure has deteriorated in New Zealand, we still make solid earnings and cash flows and will continue to operate this site for as long as it makes economic sense.

Moving now to the state of our industry, we continue to operate in a very positive environment. Demand growth in 2004 was stronger than we had anticipated. Demand growth was more than 5 percent, which compares to our forecasted demand growth at only about half that rate. The supply side of our industry continues to operate under some stress.

Despite the fact we started up 1.7 million-tonne Atlas plant and that there were 2 new 1 million-tonne plants in Iran and Saudi Arabia that started up during 2004, the industry continues to be very tight and remains short of inventory. Methanol plant owners have had every incentive to run their plants as hard as possible over recent years, and one consequence in this environment is that we're now seeing significant unplanned plant outages, which also influence the supply side of our industry. We estimate that since the fourth quarter of 2003, about 1.3 million tonnes of inventory have been drawn down, and there is no inventory rebuild taking place in the current environment.

The high spot price of methanol in all of the major markets of the world today does tend to suggest that our analysis of supply and demand and inventories is correct. Methanol reference prices in all major markets are currently about $300 per tonne. Prices continue to be underpinned by high energy costs that impact many of our competitors and by the tight balance between demand and supply.

We do not foresee any reason for price weakness during the first quarter of 2005 and expect slightly higher price realizations to those that we achieved in the fourth quarter.

Our project in Chile IV continues to make good progress and is nearing completion. We are on schedule to start up the plant late in the first quarter and will be shipping product to customers in the second quarter. Just to remind listeners, this is an 840,000-tonne plant, and we've removed about 600,000 tonnes of supply from our New Zealand plants from the beginning of 2005. So, the Chile IV plant represents only a small amount of additional global supply.

The only other world-scale plant that is due to start up during 2005 is the M-5000 plant in Trinidad. This is 1.8 million-metric-tonne plant, and we understand that it's expected to make its first shipments to the market in the third quarter of this year. The owners of this plant have announced an arrangement with Celanese, which we would expect would result in the shutdown of two Celanese-owned methanol plants in North America. The capacity of these two plants is about 1.1 million metric tonnes. So, again there is only a modest incremental supply delta.

Beyond 2005, there's only one other methanol plant we know of that is actually under construction, and this is another plant in Iran. This has been announced to start up in 2006, and given the Iranian experience, we would not expect this plant to influence world markets until towards the end of that year.

I'd like to emphasize the point that beyond this plant, there are no other plants under construction today. And given that a construction schedule for a methanol plant is at least 30 months, it does suggest there will be a period in '06 and '07 when new capacity cannot keep up with historic demand growth. I should reiterate again, as I did in our last conference call, that I have not addressed plants in China in this analysis. This is an area of industry analysis where we differ from other commentators who analyze world methanol markets.

As I noted in October, many of the new plants in China are in remote locations. They are not world-scale. They are high-cost, and typically they satisfy local demand and, therefore, have little impact on global balances.

While I'm hesitant to make a forecast of methanol prices, we continue to operate in an environment with a supportive of above-average prices. We expect the results for the first quarter of 2005 to be better than for the fourth quarter of 2004. A slightly higher price realization will lead to a small improvement in results, and we will not incur a number of the one-off charges that affected our fourth quarter results. This latter effect alone should add about 5 cents per share to our net income.

Perhaps before taking some questions, I should make some comments around cash. We ended the year with $210 million of cash on our balance sheet and undrawn credit lines of $250 million. 2004 has been another year in which we have applied our balanced approach to cash. Just to remind you, we like to maintain a balance between reinvesting in the methanol industry to enhance our leadership position, returning excess cash to shareholders, and maintaining a prudent balance sheet.

I will repeat some of the numbers I mentioned earlier that illustrate this balance. During '04, we repaid $182 million of debt. We returned 119 million to shareholders and invested 134 million in new assets.

Looking forward, we will continue to maintain this balanced approach. We've almost completed the capital spending program for our Chile IV project, and while we are working on a potential new project in Egypt, we do not expect to commit significant capital to this opportunity during the project development phase in 2005. We are also working on a couple of corporate development initiatives that are aimed at maintaining and enhancing our leadership position in the methanol industry.

When looking at our balance sheet, we have bond issue of $250 million that is due for repayment in August of this year. We are considering to repay a portion of this debt and to refinance the balance. We've not decided this at this stage, how much we will commit to debt repayment. And we will continue to distribute excess cash to shareholders. Early in 2005, we continue to execute our normal course issuer bid. Until yesterday, we have repurchased a few more than 6.2 million shares, and have a further 5.9 million shares that we are able to purchase under this bid. As the year progresses, we will continue to review both dividends and share repurchases with our Board of Directors.

In summary, I'm sure that you can see that we're committed to our balanced approach to cash management. So, this is probably a good point to stop and open up the lines to some questions, operator.

Thank you. (OPERATOR INSTRUCTIONS) Peter Butler, Glenhill Investment Research.

I had a bunch of miscellaneous questions. Let me ask a couple and then get back queue and see if I can get in line. On the corporate development, you mentioned almost last, Bruce, obviously, there's a lot more room to go on consolidations in North America and in Europe -- I guess even more so in Europe. If the new story is that gas and oil are going to stay very high, what could you see coming out of the industry in the next two years, and do you hear any vibes on who and where and when?

Yes, Peter. Today, there are still more than 3 million tonnes of methanol capacity in North America, subjected to North American natural gas prices. So, this is a 33 odd-million-tonne industry. So, about 9% of the industry is still Western North America. I mentioned that probably 1.1 million of that will disappear when the Trinidad plant starts up, which still leaves almost 2 million tonnes in North America. There's still a residual that is dependent on North American natural gas prices.

We've talked on prior calls about the high cost structure of plants in China, and in China, historically, we've seen behavior where the plants that are close to the coast that compete with imports can moderate their behavior, and they tend operating rates down when prices are based on their cash costs. Those plants have a very high cash cost, particularly in an environment of high energy prices. So, we see China as being another part of the world where we will see variability of operating rights in different pricing environments.

And then, you mentioned Europe. There are plants in Europe which do buy natural gas based on a crude oil price linkage, and I see oil, this morning, is up again over $49. In the current methanol pricing environment, I think those plants make some money -- not much, but some money. In any sort of softness, those plants are going to be under great pressure. But I don't have any vibes to offer you, Peter, any observations.

Okay. Where do you see the industry operating right now with and without Methanex in there? It looks to me like there's a lot of pressure on these operators, particularly in the Middle East third-world countries, to retain good operators because of terrorism or whatever, and there's obviously some room here, with them running their plants full-out, that you're going to get a lot of breakdown. So, I'm wondering how that supply/demand might affect your outlook for pricing. You said up slightly Q4 to Q1.

We think the operating rate over the last 6 months has been relatively low, and that's mainly because of unplanned outages. There was a plant in Iran that started up in May of this year and shut down in October and was down for 3 months after that. So, you are right. Those plants in the Middle East have a patchy record of operating, and I did note in my comments that methanol plant operators have had every incentive to run their plants flat-out and still only achieve an average rate -- we think in the low 80s. Now, when we cast forward and look at demand and supply in the future, we are forecasting an operating rate that's between 85 and 90 percent, and really that just keeps the industry in some sort of balance. But that is an operating rate where we have typically seen very strong pricing.

Now, is their appetite for further price increases? I don't know, Peter. I think where we are today, the market is quite accepting of prices. I don't know that there is a lot of momentum for further price increases, but that's a function really of the continuing tightness.

Well, Bruce, it used to be Methanex would say that they thought over time that 84 percent was sort of an industry-sustainable operating rate, and I'm wondering how you can forecast or project 85 to 90 in an environment where you're probably going to have more rather than less industry outages.

The comment we made historically is 85 percent. Above 85 percent, the market is tight and typically cannot sustain that level for any period of time. So, you are right, we are forecasting a period of strong operating rates, which is suggestive of continued high pricing.

Okay. I will get back in line. Thanks for the help.

Robert Hastings, Canaccord Capital.

Hey, Bruce. Good results. Two questions I want to focus in on now. One is corporate development that you mentioned, and I was wondering what exactly were you doing. I know you have been out looking at plants after Australia didn't happen, and in a lot of countries where you might operate, you might have to sort of accept lesser ownership terms or different structures than you have. Can you sort of get into that -- what you might be looking at or what you are willing to accept?

Well, I mentioned that Egypt -- and you might have noticed the number of comments around Egypt in the media over the last 3 or 4 months, as people have picked up that we've been active in that country. We are developing a project there; it's a joint venture with a group called EKEM, who are a state-owned part of the energy ministry in Egypt. We have a mandate to develop a petrochemicals business in that country. So, we have a joint venture with them. We are making, I think, very good progress. But we'll allow the water to flow under the bridge before we make a firm decision on it.

And as I mentioned in my call, not much money being spent in 2005. There may be, at the very most, probably $20 million but probably somewhat less than that. So, certainly, no commitments of large amounts of capital to pursue that initiative in '05. We're really in a development phase on that.

I think as a general comment, Bob, it's becoming more and more difficult to find places in the world where you can find low-cost gas, where you can build at the right sort of capital costs, and you've got good logistics to customers. And those are the three key elements that you need to make a good methanol project. I think competition from LNG for natural gas has driven up the value of remote gas. And I think that makes it very tough for us to find locations; I think it's very tough for our competitors as well.

So, one observation I would make is while often people have announced new projects, you don't see a lot of progress being made. And I expect that people are really struggling with finding that balance of capital costs, gas costs, and logistics. To get that just right and to be sure that you've got a robust project in this industry, I think, is quite a difficult thing.

I guess other than that, I did refer to corporate development initiatives, and we've done, I think, plenty in the last year or so, which have been aimed at industry restructuring and announcing our leadership position in this industry. So, we have always got a few irons in the fire, and we continue to pursue opportunities to restructure and demonstrate our leadership in the methanol industry.

I had heard the rumors and seen some of the press on Egypt, but I guess I was wondering, too, is a plant in that country meaning that you would be going to 50-50?

In this particular case, it would be somewhere between 60 percent and 75 percent for Methanex. So, there's some variability in our current arrangement, but it will be in that range.

You don't have to turn the keys to the plant over after 20 years or anything like that?

No, not in Egypt. It's a rather more robust relationship than some of other countries in the Middle East.

Jacob Bout, CIBC World Markets.

Yes, a couple of questions. You notice the production was down at Titan. Can you just expand a little further -- what happened in the quarter and what the implications might be going forward? And then just with Kitimat, what your plants are there, once we start getting into the 2006-2007 timeframe?

Sure. Titan was due to have a planned turnaround in August of this year, and we've really been struggling for supply throughout the whole second half of 2004. And I think, for those of you who would recall, on the second-quarter conference call, I talked about our inventories down at 700,000 tonnes, which is really a completely unsustainable level of inventory for us. We were really scrambling to keep customers (indiscernible). So, the Titan plant was due for turnaround in August, and we made a decision that we knew it was a bit of a gamble to defer that turnaround and try and push it off into early '05.

With the wisdom of hindsight, I'm not sure it was the smart thing to do, but that's what we did. And I think we've suffered little bit of the consequences. We've had some unreliability at that plant. So that's been the cause of it; there have been a number of small things that have broken -- equipment failures, the sort of things that you would hope to pick up during a turnaround at a major plant like that.

That plant is now scheduled for turnaround in April. It has been going quite well in the last month. So we have our fingers crossed, and our team down there is doing an outstanding job in keeping it together. But there is a little bit of vulnerability.

As far as Kitimat is concerned, you've been aware that we pay North American gas prices. And our Kitimat plant, the good news today is we're buying most of our gas -- the majority of our gas -- based on these (indiscernible) prices, which are considerably cheaper -- or probably a dollar (indiscernible) cheaper than NYMEX, but today, we're paying in the mid $5 range for the majority of our gas. So we are making a small positive cash margin in Kitimat, and I think for the whole of '04, we were about breakeven at that plant. So, it has cost us nothing in what probably is making a small positive cash margin.

So, we're really continuing to review that option as we go forward. By the end of 2005, our obligations to the ammonia producer on that site and our obligations to transport gas are somewhat less than they are today, but we have a lot more flexibility in '06 to change our mode of operations. So, our operation is very much like our plant in New Zealand. It will be dependent upon the economic environment that we are in. As long as we are making positive cash margins, we will have every incentive to continue to operate those plants.

If we see that the market is changing and would be better off without that capacity, then we will take that decision as well. So, it's very much a flexible outlook.

Brian MacArthur, UBS.

A couple questions. First of all, can you comment on the impact of your transportation costs? Now, you've taken New Zealand down from 1.1 million tonnes to 0.5 million tonnes. Obviously, you will serve Asia from Trinidad, Chile or the purchase market, but I'm just curious whether that's having impact on your transportation costs, even though you do have larger ships.

And secondly, just what sort of assumptions have you made in your supply demand for -- obviously the MTBE situation in California is pretty well done, but what assumptions you have made for phasing out in other states in U.S. and your supply and demand in the near-term?

Okay. Our transportation costs remarkably keep coming down, and I think it's a testament to our group in the Company here, who run our shipping company. They have a very thoughtful approach to how we manage shipping. We have continually upgraded and increased the size of our vessels. We have the largest chemical carrier in the world in our fleet, 100,000- tonne vessel. Just by way of interest, we're transferring from running in the Atlantic to running in the Pacific, and we will be doing that some time in the next 2 or 3 months. So, it will run on a Chile-to-Korea route, 100,000-tonne vessel.

We have a lot more 45,000-tonne vessels than we had 2 or 3 years ago and a lot less small vessels. So, really, we've really changed our vessel mix and look to continue to improve efficiency and drive down costs. So, I would say, on average, our costs continue to decline for shipping methanol product to customers.

We've also spent a lot of time trying to optimize how we can get more product from Chile into Asia, and I would say that very openly, 3 or 4 years ago, we thought we could probably do about 1 million tonnes out of Chile into Asia efficiently. We are now thinking that we can do to 2.5 to 3 million tonnes. We've expanded the size our terminal in Yosu and Korea. That's due for completion in another 2 or 3 months, and that allows us to bring bigger ships into the part of the world.

So, we think that by the time we've got all these new ships in place and our terminals in place, our shipping costs from Chile into Asia, we think, are about the same as Middle Eastern to Asia. So, that's what we're really focused on. We want to be competitive with Middle Eastern producers, and that's key for us.

So, moving on to MTBE. you are right, MTBE has been removed from the gasoline in California, New York and Connecticut. We certainly observed, I think, higher demand for MTBE in the United States in 2004 than we expected. We thought there would be a greater decline. I think, again, in an environment of high energy prices, MTBE became a very profitable and economic gasoline additive. Some of the emotion around it perhaps had less of an influence than the economics.

As far as going forward is concerned, we continue to assume it will be phased out in 2007, I think. I'm just looking at the table to see if there is any -- I think that by the end of 2007 or maybe into 2008 in the United States. I think that looks like a very conservative forecast. Certainly, in talking to our customers, we have several very large MTBE customers, and they are planning to continue running their plants through the next couple of years. We have just signed a sales contract with one of them that goes out to the end 2007, and they have no plans to change their operating rates or their MTBEs consumed within North America, within the United States.

So, I would just reiterate that I think our demand forecast -- which we look at global demand and think of 2-to-3-percent demand growth overall. I think it is very conservative on MTBE.

Right, so in a sense, you have phased another 2 million tonnes in demand over the next two years in your assumption. So obviously, if that stays there, basically, it's the equivalent of all those new plants coming on.

Oh,it certainly is, and it puts a bit of a hole in the supply side. Again, that's correct.

Just back to transportation for a minute, too, then. Obviously, with New Zealand going down, Asia's supply was the concern, and there was some feeling for a while that it would be ideal to have a plant well suited in that part of the world to serve that market. It made economic sense to do that. Do you feel so comfortable now in supplying it from Chile that -- let's say you have a plant that's cheaper now and call it the Caribbean versus, say, Australia -- that if Carribean is cheaper than Australia -- you can buy even a small percentage -- you would be willing to build it there ahead of Australia because you don't feel you need that transportation advantage anymore?

I think that's exactly right, Brian. In its really one of the conclusions we've reached. We spent a lot of time looking at natural gas around the world and looking for locations where you can build methanol plants, and we've convinced ourselves that building in Egypt and using our supply chain to get methanol from Chile into Asia is, by far, the best outcome, even relative to trying to build in Australia or Southeast Asia. In those places, what you're reading is a very difficult political environment, natural gas costs have increased substantially, or capital costs are outrageous. So -- very difficult to find any place that's really, really close to the market.

When we think about our Yosu terminal -- the way we describe it to our customers, it's like a big methanol plant that sitting in the market. It has nearly 200,000 tonnes, -- 180,000 tonnes of inventory, I think, at maximum capacity, which is within 1 or 2 days sailing from our customers. So, it's a very, very good supply position to provide real reliability to our customer base, and that's part of what distinguishes us as a marketer in this business. We want sail reliability.

Greg Goodnight, UBS.

On today's conference call, Dow Chemical mentioned their previously announced project, where they were considering building and olefins plant in China, based on coal. Although they didn't specify the technology, obviously, one way to do this is through methanol. So, I really have two questions for you. Number 1 is what would you consider the competitiveness of methanol from coal in China to be? And number two is, there were some announced plants using coal in China to produce methanol. Do you have any feeling for the status of these announced projects?

Yes, sure. I was aware that Dow had been looking at a methanol-to-olefins plants in China, based on coal. Did they announce that they are going ahead or not going ahead?

No, that they announced that were studying the project and were in preliminary stages, with no further announcement than that.

That's the status I understood as well. And more of my understanding is that it's based on a plant that would be located basically on top of the coal fields, and I guess in going to olefins -- and I'm assuming polyolefins as well -- that the economics down that chain are somewhat different than just methanol. When you go from coal to methanol, you are making a bulk, basically low-value liquid that you've then got to transport somewhere. And I guess the comparison of going from coal to polyolefins is you are making a much higher-value product, and transportation is much less of an issue.

So, I don't know whether coal to polyolefins makes sense, and they are much more sure and more competent at making that decision than I am in speculating about it. But I think that if it does make sense, it would be part of the reason that transportation is a lesser issue for the final end product.

Our observation on plants in China -- and we've visited quite a few of them in different parts -- those that are based near the coal fields tend to have quite cheap coal. I did mention during my earlier comments that they are typically very small. They are sub scale. Their 100 to 200,000 tonnes are large ones, and there are numbers that are smaller than that. So, they are relatively cheap at the plant gate, but then they're very expensive by the time they get to the market.

Transportation in China is strict, and I think the priority for transporting commodities, such as chemicals, is quite a low priority. So what tends to happen is when those small plants are built in remote locations, the methanol tends to stay in that local market. We are aware that a lot of methanol has ended up in gasoline, and you can't add 5 to 10 percent of methanol to gasoline without really any implications for most motor vehicles. We understand that is happening in China. So, that is where a lot of the methanol made in remote locations seems to disappear to.

Now, I will say, in making any of these comments, that getting intelligence out China is extraordinarily difficult. As I say, we have an office in Shanghai. We have a couple of people there. We visit the markets frequently. So, I think we've got good intelligence, but I don't think we have the same picture and same understandings we would have in North America or Europe, for example.

As far some of the announcements, there was a long list of announced plants in China, and if you look at the map, most of them are in inland areas and remote locations. Some of them are near the coast. There's one on Hainan Island in the South, and I understand it's under construction. What the schedule is and when it will start up, I don't have any intelligence on that.

(OPERATOR INSTRUCTIONS) Peter Butler, Glenhill Investment Research.

A couple of cash flow/balance sheet items. I thought I understood your thinking on dividends and cash flow, but apparently, one of your Canadian brokers was around this week talking in New York about you guys are going to pay a special dividend. I was wondering where they got that crazy idea.

(LAUGHTER) (indiscernible).

You did introduce a new phrase in your verbage in your press releases on the uses of cash. You inserted, this time, "the prudent balance sheet", and I take it to mean that's a signal that you're going to do something with the debt in the third quarter, but does it mean anything else?

No. I would dispute that that's a new phrase. I think we've always talked about that's our third leg of the balanced approach, making sure that we don't (indiscernible) our balance and it's in good shape throughout the cycle. So, it's always looking at debt and equity and the balance between those.

We did pay back some debt. I want to remind you that we paid back some project debt, $182 million early last year, and I talked a little bit about our bonds coming up. And we certainly have a mind to repay some of our bonds and refinance some of that bond. Quite what balance, I'm not sure. But that's what we're talking about. There's nothing else behind that.

Okay.

Concerning special dividends -- and it's a bit my personal view. What I've learned in talking to shareholders is there's not a lot of appetite for special dividends. Most shareholders would prefer either an increase in their regular dividends or some sort of share purchase, as it makes sense. And I guess that's our bias, but, as I say, we continue to review this with our board, and we continue to look at the opportunities through what is the best way to return excess cash to shareholders.

You guys must be a great supplier. Here, you have your customers beating down your doors, and your receivables go up by 72 million last year. Why are you being so charitable?

Well, a lot of our sales contract are long-term sales contracts, and a lot of them are for 100 percent supply to our customers. So, the increase in receivables is a reflection of the price of methanol. So, we're not being more generous as creditors. We're are selling at a higher price, and, therefore, receivables go up.

Well, I would have thought that despite the increase in the price of methanol, in this world you would be exercising a little more discipline with these customers of yours.

We love our customers, Peter!

Okay. Great numbers again. Thanks for the help.

Sam Kanes, Scotia Capital.

Before I ask my question, I'd like to venture into the generality that in Canada, at least, your shareholders are probably biased more towards special dividends than in America. I will leave it at that. Purchased product -- could you give us some idea. I was a little surprised to see that your losses moved up a bit with flat pricing. You had slightly less purchased product in Q4. I know it's not much of a difference, but it what was on the margin, at least. With your plant about to run full-out in Chile here in a matter of months, what would your general policy be with purchased product going forward? Because obviously, you're filling in your produced product quite nicely?

Yes. The increase in loss in Q4 was quite modest, and in fact, it's mostly allocated costs. So, one of the accounting practices, if you like, of accounting for purchased product is to allocate some fixed costs against any product we've purchased. So, most of our losses are allocated fixed costs that we would incur whether we purchased product or not.

One of the consequences of the outages at the Titan plant that I mentioned earlier was that we needed to buy more spot product than we perhaps thought we needed to. And I think the fact that we had to pay more for it is, again, an indicator of how tight the market is. So that would be the second reason why purchased product losses increased -- simply, that we bought more than we thought we had to, and we probably had to pay a little bit more for it because the market is so tight.

On a go-forward basis, I like the fact we participate in the spot market, and I think we will always do that, both on the buy and sell side. I think it's part of being a leader in this industry -- of understanding exactly how long or short the spot market is, whether there is product available, and what the trend on pricing is. So, we will always participate, and I guess we will always participate at the margin. I guess as long as we are allocating costs to it, we might always be reporting modest losses, but our objective is to make incremental cash. And I think we probably didn't do that this year, but we've been close to it.

And our final question today, Eva Sudal (ph), Capital Guardian.

Can I ask a quick question on your cost trends? It looks like you had a couple of quarters of slightly, but just a bit higher, cost growth per tonne than revenue growth. What do you expect for 2005? What level of costs should we be looking for?

I will make some general comments, Eva, and then, I might just ask Ian Cameron to take care of things of that sort as our CFO. One of things that has really impacted our costs, particularly in the fourth quarter, is New Zealand. We had a very favorable foreign currency hedge operating in that country until September end?

Yes.

So, when that expired, we were exposed to the full re-evaluation of the New Zealand dollar, and that's had quite a jump in our cost structure. And we've also started to produce less methanol in this zone. So, we then don't have as much capacity to spread our fixed costs over. I would emphasize we've restructured in New Zealand. We've taken out a lot of people, so we continue to reduce the size of that organization. But without doubt, our cost structure in New Zealand has increased quite dramatically, relative to Q3 and earlier.

As for as the future is concerned, our Chile IV plant is coming up. I think it will begin to impact results in the second quarter, and that is another increment of low-cost capacity that will have delivered cash costs in the current environment. I don't have the number exactly, but it will be around $100 per tonne on top of that order. So, that will dramatically lower our cost as soon as Chile IV is available.

We will continue to run, as I mentioned earlier, New Zealand and Kitimat. So, they are both high-cost plants. They both have cash costs of about $200 per tonne, and we will continue to run them as long as it makes economic sense. So, they will impact our cost structure, but we regard -- certainly in New Zealand, this year, as flexible and Kitimat, next year, as flexible. So, those are some general comments. Ian, is there anything to add to that?

I don't have anything to add -- just to reiterate what Bruce said in a slightly different way. I look at our asset portfolio as having two buckets -- one a low-cost strategic bucket. We've been working hard on building that low-cost portfolio. We are continuing to add to it and will add to the Chile IV plant at the end of the first quarter. So, that means that we are lowering our cost structure. And then we have our high-cost flexible assets, which are Kitimat and New Zealand, and those assets are staying static. We will operate them if they continue to have margin, and we won't if they don't.

So, I think from a strategic long-term point of view, we're lowering our cost structure. And that's our way of looking at our asset portfolio.

I think it is quite complicated, I'm sure, for analysts to analyze our cost structure at the moment, and it's actually very difficult for us to -- one of the struggles we have is forecasting earnings quarter to quarter, mainly because we're not quite sure where the volume is coming from. Is it coming out of inventory and from our high-cost assets or rather inventory from our low-cost assets? And that's a huge difference to our earnings. So we've been really struggling ourselves in coming up with right numbers. I'm sympathetic to the predicament of the analyst community to the extent that we do try and help with guidance, as I have done this morning.

Okay. Well, thank you, everybody, for your participation this morning. Methanex is superbly positioned to continue producing excellent results for our shareholders. During 2005, we will have all of our low-cost assets operating, and we continue to operate in a very positive environment for our industry. So, thank you for your support, and good morning.

This concludes the Methanex Corporation fourth-quarter earnings conference call.