Methanex Corp (MEOH) 2008 Q3 法說會逐字稿

Thank you for standing by. Welcome to the Methanex Corporation third quarter 2008 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 October 23, 2008. I would now like to turn the conference call over to Mr. Jason Chesko, Director of Investor Relations. Please go ahead.

Good morning ladies and gentlemen. I would 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 stated outcomes to differ materially from the actual outcome. Certain 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 the bottom of our latest news release and to our 2007 annual report for more information.

I would now like to turn the call over to Methanex's President and CEO, Mr. Bruce Aitken, for his comments.

Thank you Jason, and good morning everyone, and welcome to Methanex's third quarter conference call. I have a number of colleagues with me here in the room, and they will be available to help answer questions a little later on.

I'm pleased to report that we've completed another really good quarter and [dependent] by a strong methanol price environment we generated EBITDA of $140 million and net income of $71 million or $0.75 per share. Our earnings were up significantly over last quarter, purchased methanol margins improved as a result of the stable methanol price environment.

As I've mentioned on previous occasions, in a stable price environment we do not expect purchased methanol margins to have a significant impact on earnings, and this was the case in the third quarter.

The other main factors positively impacting our earnings in Q3 compared to Q2 included higher sales of produced methanol and reduced stock compensation, as a result of our large share price.

The earnings improvement was achieved despite the loss of about 50,000 tonnes of sales in late September to customers whose businesses were disrupted by Hurricane Ike.

I'll comment more on the industry environment, fourth quarter pricing, and our earnings expectations later in the call, but first I'd like to provide you with an update on our operations.

Productions from our large low-cost plants in Trinidad during the quarter continue to be excellent. We produced a total of 484,000 tonnes, which is about the same as design capacity for those plants. Our site in Chile continued to operate at about 25% of capacity during the quarter, with gas supply from Chile, and we produced 246,000 tonnes of methanol. I'll comment more on our outlook for natural gas through our plants in Chile in just a few moments.

Our Waitara Valley plant in New Zealand operated near capacity during the quarter and produced 126,000 tonnes of methanol. We completed the restart of our larger 900,000 tonne plant at the nearby Motunui location at the beginning of this month, and it is now operating close to capacity.

We have secured gas supply, which will allow us to operate the larger Motunui plant until at least the middle of 2010. We shut down our smaller 500,000 tonne Waitara Valley plant in October, so this shift to our larger plant has added about 400,000 tonnes annually to our supply chain.

Based on the improved outlook for gas supply in New Zealand, we're currently assessing the possibility of restarting the Waitara Valley plant sometime next year.

We are very pleased with the incremental production from New Zealand and what it has added to our supply chain, and the significant value it's created for our shareholders. Our Waitara Valley plant has generated in excess of $100 million of EBITDA over the last couple of years, and now with the outlook for our plant production out of New Zealand we are very well positioned to profitably grow our important Asian customer base.

I'll switch topics now and address the industry and pricing outlook. Pricing has been relatively stable over the last couple of quarters, with the average long discounted prices across the various global regions averaging around $500 per tonne in both Q2 and Q3. As we enter the fourth quarter, pricing has moderated. Our average non-discounted price for October is seeing around $450 per tonne.

However, the global financial crisis is negatively impacting the methanol industry. In the last week or so prices in China declined sharply. However, we believe this movement was, in part, caused by traders who were forced to liquidate inventories as letters of credit came to maturity. This has caused prices in China to move below the cost structure of high cost producers in that country, and we have already seen a number of producers shutting down for economic reasons.

We have also seen producers in Europe shut down for economic reasons and some unplanned outages. In recent weeks there has been some softness in the demand for methanol in some derivatives related to weakening economic conditions. We have also recently seen some variability around demand for some energy derivatives such as DME in China. But for the outset of winter we expect DME demand in China to increase.

Longer term the growth prospects for new energy applications in China continues to be excellent. Government policy in that country is supporting growth for these new energy initiatives as they are an important part of their goal to become more energy self sufficient. We understand that before the end of this year a national fuel blending standard for M85 methanol and gasoline will be published, which we expect will provide further momentum for growth of methanol fuel blending.

And earlier this year the government of China implemented a tax reduction for DME producers to improve their cost position and stimulate more growth for DME in China.

It was interesting to observe the most recent forecast of one industry analyst for methanol demand into DME, fuel blending and biodiesel, which projects total global demand under these applications will grow from about six million tonnes in 2008 to close to 20 million tonnes in 2013.

The greatest immediate uncertainty for us is whether the coordinated actions of governments around the world are successful in returning confidence to our financial system. As an example of the lack of confidence we have seen in recent days, customers who are in a strong financial position being unable to raise letters of credit. If this sort of situation persists commerce will inevitably contract. However if the financial system and economic activity returns to a more normal state, then we think demand and supply for methanol is quite balanced, and that prices will be determined by the behaviors of high cost producers.

I'll switch topic now and talk about some of the opportunities and challenges that we face. Firstly natural gas supplies to our plants in Chile; we continue to operate our site in Chile at about 25% to 30% of capacity based on gas supplied exclusively from Chile. As I've commented on previous occasions, the solution to our gas supply challenge is to source more natural gas from Chile. We're continuing to see positive results from our initiatives with GeoPark in the Fell block and with the ENAP in the Dorado Riquelme block.

Over the last quarter we received increased gas deliveries from these initiatives, and together these two blocks are providing natural gas at levels that allow us to produce more than 300,000 tonnes of methanol on an annualized basis, or about 8% of our total gas needs in Chile. The ultimate goal for GeoPark and ENAP is that these two blocks alone have the potential to supply us about 40% of our total gas requirements.

Planning activities have also commenced in the mine exploration blocks that the government of Chile awarded to several international oil and gas companies earlier this year under the international bidding round.

When we add up all the initiatives in southern Chile we estimate that about $650 million will be spent by a variety of oil and gas companies on gas exploration and development between 2008 and 2010. To add further perspective, we estimate that over 90 wells will be drilled in 2008 and 2009 in southern Chile in comparison with only 13 wells in 2007. And our experience so far has been that when exploration activity has occurred and capital is being spent, then gas has been found.

So based on the significant activity occurring in that part of the country we continue to be optimistic regarding the prospects of sourcing more gas in Chile and returning our site to a full plant operation. However, as I've commented before, this will be a gradual process. I expect our operating rate in Chile to be similar next year to the rate that we are experiencing this year, and that it will take a couple of years before we see a significant improvement to our operating rate.

The next opportunity I want to provide you an update on is our new methanol project in Egypt. The project is progressing well. It is now about 55% complete and continues to be on budget and on schedule for start up in early 2010. Engineering is nearing completion, almost all equipment and materials have been committed, and construction of the plant and infrastructure is progressing. Installation of structural steel and foundations are well advanced, pipe fabrication and installation is under way, and the first items of major equipment are expected on site in November. Our joint venture DME project in Egypt also continues to progress well, with the engineering of the project currently being addressed.

I'll change topic now and make a few comments about our liquidity. As we have consistently demonstrated in the past, we believe that it is sensible to maintain a strong balance sheet in the commodity industry, and in today's economic environment we believe this is of particular importance. Currently with $358 million of cash on our balance sheet and a $250 million undrawn credit facility, low leverage and no near-term refinancing requirements, we continue to be in a strong financial position.

We have also continued to generate good cash flows during the third quarter, with cash flow from operating activities, after changes in working capital, of $129 million. We have two top priorities for the use of our cash, firstly we have the cash in hand to meet all of our commitments on the Egypt project; and secondly, we will continue to focus on opportunities to accelerate gas development in southern Chile and to improve the security of natural gas supply to our Chilean plants. We are well positioned to satisfy these priorities and believe that we will be able to continue to deliver on our commitment to return excess cash to shareholders.

Before stopping for questions I'll make a few comments regarding the future. However I must say that in the current environment of uncertainty and volatility it is difficult to provide too much precision short-term.

As mentioned earlier, methanol prices have moderated in October, so we would expect our average realized price in Q4 to be lower than Q3. We are planning sales volumes around 1.6 million tonnes for the quarter, which represents an increase in sales volumes compared to Q3. However the achievement of this target is a little dependent on the evolution of the financial crisis and its impact on economic activities in the current weeks.

So for the short-term I don't expect you'll find the comments extremely helpful. However, medium to long-term I think that Methanex is superbly positioned. As I mentioned earlier, we have a healthy balance sheet that continues to allow us to invest in improvements to our core business. Over the next few years there are a number of positive developments that could be expected to improve our earnings capability. There will be incremental production from our New Zealand assets. We will steadily recover capacity in Chile. We will start up our large plant in Egypt. We will see substantial growth in methanol as an energy product. And, on a topic we don't talk about too often, we will see a decline in sales volumes sold under fixed price or cost of service arrangements.

To provide some flavor to this last point, we had historically guided to about 20% of our sales being made under these sorts of arrangements. Over the next two years we expect this level to decrease by more than half, and this will be reflected in a decline and apparent discount between our posted and realized prices.

All of these factors speak to an improvement in the quality of our business, and I'm confident that we will emerge from the current uncertainty with a very strong company. So at this point I'm happy to stop and I'll take any questions that you might have.

Are you with us operator?

I am yes, thank you very much.

(OPERATOR INSTRUCTIONS) We do have our first question and it is coming from Jacob Bout from CIBC World, please go ahead.

Good morning.

Good morning Jacob.

Can you comment first on global methanol inventory levels? And then maybe talk a little bit about your inventory levels as well. In the quarter obviously your sales volumes were 90 million tonnes more than what you actually produced.

Sure. I'll comment on our inventory levels and I have John Floren, who is our Senior VP of Global Marketing and Logistics with us, so I'll ask John to comment on his views around global inventory levels.

Our inventory level has declined in the quarter and that's a very intentional strategy. We are endeavoring to manage our inventories at minimum levels in the current environment of uncertainty. They would, in fact, have been lower. I mentioned in the comments, Jacob, that we lost 50,000 tonnes of sales as a result of Hurricane Ike, late in September. So, had the quarter evolved as we had originally planned, inventories would've been even lower.

So, we are working hard on our supply chain to manage our inventories at a minimum level. I think you'll see another decline occurring in Q4. So, I'll hand over to John and ask him to make some comments on global inventory levels.

Good morning. I guess it depends on what region of the world you're talking about. Currently, right now in China and Korea, we're seeing inventories on the high side. In the US Gulf, as well as Europe, inventories are on the medium to low side and that's really as a result of some of the unplanned outages that have occurred, as well as some of the planned outages. Some of those outages, the producers were a little late coming back from their targeted date, so we see a mix around the world, Jacob.

Okay and then, while I've got you on the line, you know, that presentation that you made in Trinidad, you were talking about the market being balanced, essentially, through 2011. Has your thinking changed there at all? And, I guess, especially on the demand profile over the next four years. I know when I looked at it, it seemed like the growth in global demand seemed relatively aggressive.

Yes, a few comments; of course, we said in Trinidad that growth on the traditional derivatives are driven by IP Industrial production and GDP growth and we're seeing revisions downward in every market on almost a daily basis. Of course, we would expect that to impact the traditional demand growth.

On the energy side, we're still quite optimistic about energy growth. It's not just an economic incentive; there are also clean energy considerations and government policies coming into play. So, we're still pretty optimistic about energy growth.

As far as other markets for energy, we would still expect China to lead the way and very little development other than what we're doing in Egypt at this time.

So at this point forward, the traditional demand, I think you're looking for a small increase kind of '08, '09. You are actually looking for a decrease at this point?

Well, again, the numbers being revised daily on IP and GDP and I think, you know, we're seeing flat growth in the western markets. But, you know, China's still planning to grow at around 9% to 10%, GDP, IP. So, we would expect to see traditional derivatives grow there.

And the other comment, Jacob that I made a little earlier is that we see a lot of supply rationalization. So we've already, quite quickly, seen high cost capacity in China shutting down. We've see some high cost capacity in Europe shutting down. And, of course, there've been some quite large, unplanned outages.

So, we would think, if normality returns and who knows what that means and how long it's going to take, then we think the market is quite tight. But, of course, we're faced, in this current environment, with a lot of uncertainty, going forward. So, it's really hard to call the next few months. But it doesn't seem to us that the market's particularly long.

Can you quantify what the shutdowns in Europe and China have been?

Yes. We're tracking the plants. Right now, we've seen between seven and 10 plants in China shut down and, on a monthly basis, it represents about 140,000 tonnes of production. In Europe, the [BMCN] plant, the [Lindawa] plant and one of the Romanian plants are shut down.

Okay and then, the last question here, just a comment on freight rates. I mean, obviously they have come down, quite substantially, I think, down to, I think, levels around 2005. You have your own fleet of leased ships and I'm just wondering how competitive are you right now? Are there any longer-term contracts you've gotten yourself into that would actually put you at a disadvantage, as far as transportation costs?

No. I think what we've said all along is we bought most o four ships or time chartered them at the low end of the cycle. We're still not back to the low, low end of the cycle. Our advantage is probably not as good as it was six months ago.

Having said that, bunkers are about half price what they were at their peak. So you should see quite a change in our own freight rates as a result of lower bunkers in the fourth quarter.

You know, while tankers are coming down, they don't seem to have come down anything like bulk rates have. It seems that rates for bulk carriers have collapsed, whereas, tankers are a hell of a lot better, albeit they are coming down.

Okay. I guess what I'm getting at here, does this change your, you know, the competitive dynamic into, say, Asian markets for yourself?

I don't think so, Jacob. I think, as John said, we've thought, over the last few years, we've had a significant competitive advantage. We're certainly not at a competitive disadvantage and I think we continue to ship at a lower cost than our competitors in the Middle East, as an example.

Just to add to that, we've got 500,000 more tonnes in New Zealand, as of this quarter. And the freight from New Zealand to the markets we serve is much more attractive than, say, Chile, as an example.

All right, thank you very much.

Thank you. Our next question comes from Sam Kanes, with Scotia Capital. Please go ahead.

Thank you. I guess I have to deal with credit. Our clients certainly are and we ought to be careful. Could you elaborate bit more on where you're holding your cash, what type of instruments, to the limited recourse detail of your Egyptian financing and any counter party risk awareness that has risen lately?

Okay. I'll ask Ian Cameron, our CFO, to comment on that, Sam.

Okay.

Yes, good morning, Sam.

Good morning.

In terms of cash, I think we've been, you know, the Company, ahead of the curve and have had quite prudent policies all along, in terms of investing cash. For example, we have never invested in asset-backed commercial paper. And so, we've never experienced any issues related to that type of instrument. And I think over the last few months, we've become even more conservative, like every company. And I would say that we feel very comfortable around our cash resources. And that's reflected with, you know, lower yields have resulted, taking less risk.

The second question around Egypt financing, and our credit lines in general, we feel quite comfortable. We've done, obviously, like all companies, a lot of work recently, assessing this type of risk. And, overall, I think we are quite comfortable that those facilities are in good shape.

Any counter parties, so far, of any receivables, any type of issues?

No.

You mentioned LCs, of course, across the board.

No and that's the thing we've shown. All of our products in Latin America, and a lot of it in Asia, are on LCs. So, we take no credit risk on those. In North America and Europe, we do sell a lot on account terms and we've been working very closely with our customers. It's certainly a concern, Sam, and we're paying a lot of attention to it. But we've had no losses.

And, you know, I expect we can continue to manage through this. But this is part of the uncertainty that all companies are living with today.

I appreciate that. Switching to your energy opportunity growth down the road and how remarkably stable methanol realized prices were quarter-over-quarter, we went from $147 oil to $67. And you had flat pricing. But, obviously, DME, I guess, is weakening now as that is the most sensitive interconnect to --.

Yes.

-- diesel, or LPG. Can you talk, I guess, of the market in China, its vulnerability to DME, at the moment, I guess, relative to other things happening there?

Yes. There might be a few comments, a few numbers that might be helpful to you, Sam. When we calculate crude between $60 and $70 a barrel, it equates to methanol prices between about $300 and $350 a tonne. Now that's on an energy basis.

In China, methanol has been sold into the gasoline market, more on a volume [interim] basis, which more or less doubles those numbers. So, from an affordability point of view, methanol's still very affordable into gasoline blending in China.

Another factor in China, the gasoline prices have been regulated and they have not reduced as a result of declining crude prices. So, of course, refinery margins are very high in that country, at the moment. But it certainly creates more headroom for methanol/gasoline; it continues to make it a very attractive economic proposition. So, we are quite bullish on what's occurred and the immediate potential for continued gasoline blending.

Both John and I were in China last week, attending an international symposium on alcohol fuels. And the sense we get is that China is not only doing this for economic reasons. There is an energy strategy here that's all about diversity and reducing China's dependency on crude oil. And it's about finding clean alternatives and they have chosen methanol, very much as the US did in the 1980s as the best option to meet all of those objectives.

Turning to alternative DME, as you asked that question as well and, certainly, that is less attractive today. Again, giving some of the numbers between $60 and $70 a barrel, the affordability of methanol to DME is between $250 and $300 a tonne. So it's roughly around where today's spot methanol price is in that country.

Again, it's not quite as simple as that. The market is regulated. We've also seen a lot of LPG coming out of the refining industry, because of -- the comment I made a little earlier, because refining spreads are so high. So, the market has been quite volatile and there have been months where a lot of methanol flowed into DME and other months when not so much has.

Our own facility in [Xing Jighao] has continued to run pretty well at capacity. And we've sold a little of our DME into the local markets. Now, that's been a very profitable investment for us and I think it's a little testament to the fact that we've got a very solid partner, who has access to the market. And I think we are in a privileged position in that industry, relative to a lot of other investors.

Thank you for all that.

Okay.

Thank you. Our next question comes from Robert Hastings with Canaccord. Please go ahead.

Hi, thank you. A couple of questions; one is, when we look at Chile, you're still waiting for approvals from the government there. When do you expect them and is there some reason for the delay?

No, we'd always expected them in Q1, Bob. So, we're making good progress. We've wanted to sign a joint operating agreement at the same time so we've been working our way through the terms of the joint operating agreement as well as the contract.

The contract with the state, in fact, is in the final draft form and we don't expect any issues with it. It's in a very similar form to all the contracts that have already been signed with the state.

So, the delay, to the extent that there is one, is just in working on the details of how the block will be operated.

Okay. And the reasons for the lower production there in the quarter, is it just the winter season?

That's right; it's winter and it was a particularly cold winter. I've seen some statistics of temperatures this year compared to the last few years. And this year stands out as being particularly cold.

Okay and moving over to New Zealand, can you -- now that you've got the plant restarted, can you give us an idea as to what the cost was and, including the cost -- including the cost of closing down Waitara?

Yes, we spent about $70 million in capital to restart that plant. So, compared to building a new plant, this was a very cheap methanol capacity. Cost of shutting down Waitara is almost nothing. We've, in fact, used a lot of our Chilean staff, who allowed us to continue operating Waitara while New Zealand staff concentrated on starting up the big plant.

So, we've now transferred the Chileans back to Chile again and they're working on projects in that country. So, I think we've really utilized our own internal resources very efficiently to start this plant up. And, we've left Waitara in a state that we can start it up again at very short notice with very little cost.

Great. Now, was that cost higher than originally expected? I thought --.

A little bit; I think our original budget was $56 million. You know, I liken this to renovating a house. You know, every time you take something off, you find something else that needs to be repaired. And while you're there repairing it, you might as well do it properly. So, I think our team did a first class job.

The plant started up on October the third. It's run continuously ever since then. It's running today, between 2,100 and 2,200 tonnes a day. And we expect we're going to get some higher CO2 gas into that plant towards the end of this month, which allows us to get up about 2,500 tonnes a day.

So, you know, I think they've done a good, fast job in getting the plant in a condition that it can run with the sort of reliability that we want.

That sounds like a pretty good start up. How did -- out of curiosity, I mean obviously you're not sure how long this plant's going to last, it's looking more optimistic and it seems like you've got gas now through to 2010. How do you structure your labor agreements in there to give yourself flexibility?

Well we've retrained our staff right through so we've now moved staff from Waitara Valley to Motunui, and as I say we transitioned through that phase with staff from Chile, which has worked really well for us. So it's really been not much change. We've employed a few additional people for the larger plant, but very few, so we've now got 400,000 tonnes with not too much additional fixed cost.

Okay. So if you want to open up Waitara again next year there's no issue in terms of getting people?

Well we would need to employ more people, so that is clearly, that will be one of the things that we need to manage. And we haven't quite decided how to do that. We think that people are, the resources are available, but clearly we would need to make a reasonable term commitment before we go out and employ people.

Okay, good, thank you very much.

Okay.

Thank you. Our next question comes from Brian MacArthur with UBS Securities. Please go ahead.

Hi, good morning. I just wanted to go back to Jason's question a little bit more and flush out the details. As far as drawing down your own inventories, obviously in Q1 you didn't sell very much company produced material and built up some inventory. And you sort of implied you could take the extra 50,000 tonnes out this quarter if you wanted to on your (inaudible). But how much more, like where are your inventory levels and how far down do you think you could draw them and still keep if functioning? Because I assume it's going to change a little bit too now that you have New Zealand opening and you can redeploy tonnes from there into Asia than say from Chile.

Yes, that's true. I think there is -- we don't typically disclose volumes. I think what I talked about before, Brian, is that when our tanks are full we have somewhere over 1 million tonnes of inventory. When we are running on empty they're about 800,000 tonnes. So there's not a lot of difference between empty and full and we're trying to manage around the 800,000 tonnes. So at the end of Q1 we're a bit higher than that, I'm sorry, the end of Q3 we're a bit higher than that. But our objective is to manage toward the bottom level of that range rather than the top.

But would it be fair to say -- you sort of built up and yes, we could go back a long time and go through it, but it looks like you built up a couple of hundred thousand tonnes in Q1 just because of selling less company product. And yes, maybe we were a bit low then and we kind of gave back 100,000 over the last two quarters. Does that mean you probably have another 100,000 tonnes to go just to get back to 800?

Well a little less than that. But remember in Q4 last year we had a very high price environment and we were really concerned about our ability to continue to supply our customers. So we did purchase reasonably aggressively in Q4 last year with the objective of keeping our customers, and that ended up costing us something in Q1. But in the long term we think it was still an investment in goodwill with our customers. John, do you have any additional comments?

No. All I would say is that with our change in our own situation we're purchasing quite a bit more product on the market, and when we are purchasing we usually do it much closer to where we need it. So the amount of product, for example, on the water is much less under the current environment than under a normal state. So we really look at the inventory place near the customer that's available for sale, and those levels don't change that much. It's really what's at the plant and what's on the water, and we have quite a bit of flexibility because on our purchase side about half is on an off take basis and half is on a spot. So if we do see any downturn in our sales we just reduce our spot purchasing, which is on a short-term basis. We do have quite a bit of flexibility to insure we hit our inventory targets.

Great, thank you very much, that's very helpful.

I think way it is we try and buy in the cheapest market and we sell in the highest market. So I think we're able to take advantage of any dislocations in pricing around the world.

Right and I assume just getting that extra 400,000 tonnes back out of New Zealand --

It's very helpful, yes.

That's kind of what I was looking for. It looks to me like whatever you had before you should be able to get it down, theoretically, even a little lower.

That's correct.

Okay, great, thank you.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is coming from Adam Comora with Entrust Capital, please go ahead.

Yes, thanks. Just a quick question. It looks like our share repurchase activity in the quarter was down to about 600,000 shares. Just curious if you see that pace accelerating here given where the stock has gone, and any kind of current updates you could give us, what you've done so far in the fourth quarter would be great.

We started the program quite slowly, Adam, and we've done that every year for the last few years. We always start with the intention of buying back our 10% of the float and we do that this year as well. But we typically try and start slowly and then accelerate. So we have begun to accelerate our repurchases, twice in the last month or six weeks, Ian, we've increased the number of shares we're buying per day. We reviewed yesterday with our audit committee our strategy and we're committed to continuing to buy back shares. I think I commented earlier however you look at the valuation of our stock it looks incredibly cheap. So there's no better investment today that we can make than buying back our shares.

So we're committed to do that, but we need to do it in a careful fashion that allows us to preserve liquidity. Because getting new liquidity in the current environment is a difficult thing to do as I'm sure you appreciate, Adam.

So in theory if we look out 12 months the shares outstanding should go from 93 million down to 84 million?

May next year is the expiry of our normal course issuer bid and it's always out intention to complete that bid.

Okay. And could you just give us a sense for 2009 CapEx what the total will be, and if you can, just break out the major buckets?

We do have two quite large turnarounds in our plants in Trinidad next year, so both the Atlas plant and the Titan plant will be in turn around. So I think they are about $20 million for the two of them. And just looking at Jason here I think there's another $25 million odd dollars, so I think it's probably around $50 million. $50 million to $60 million is our CapEx for next year. There's also a little, we're doing a small de-bottleneck of the Atlas plant as well, which gives us some additional capacity, and it's very cheap incremental capacity. So even in the current strict environment it makes a lot of sense to carry out that small de-bottleneck project.

Okay so it's $50 million to $60 million on the existing plants and then how much else are we spending on Egypt next year and investing in Chile?

We'll have about $100 million to go on Egypt.

Probably a little less, but around 100, maybe $80 million to $100 million on Egypt and then of course we're spending a little bit of money developing gas and sort of helping develop gas in southern Chile and that's probably $60 million to $70 million.

Okay, thanks a lot. Oh and last question is on the supply side of how the current financial issues that are facing the world, have you seen any affects yet in terms of plants either looks like maybe potentially could get delayed? Or is it too soon to start seeing that in terms of how the credit crunch is impacting other supply?

I think it's too soon, we haven't seen anything Adam, but in our own case in Egypt, Ian answered the question a little before about counter phase, so we're being very careful and going through all the counter parties we have and understanding their credit positions to be sure that we don't get caught with something. So I would expect that all projects around the world have to do the same thing and there will be some disruptions somewhere. But we're really positioning ourselves to be sure that we can start our plant up on plan, which is a very important objective for the company, and we're putting a lot of effort into insuring that we do that.

Okay, thanks a lot.

Thank you. Our next question comes from Robert Hastings with Canaccord, please go ahead.

Thanks. Bruce with all of the changes that are going on with currency out there, maybe this is actually a question for Ian. There are a lot of rapid changes; can you remind us of your FEx positions or sensitivities out there?

Bob I don't have exact numbers, but ballpark I think that we probably have, in terms of foreign currency expenditures, on an operating basis probably $100 million to $150 million. So normally foreign exchange isn't a big issue in terms of our operating expense. But certainly with the appreciation of the US dollar recently that is having a fairly significant impact on our cost structure. And I think as John mentioned earlier bunkers have had a significant impact on our cost structure as well. And of course they've declined by 50% over the recent times. So our cost structure in this environment does go down a little bit.

So that exposure is mostly in Chilean pesos, I don't know if you follow that Bob, but the Chilean peso has cratered in the last three months. It was in the mid 400s a short time ago and how it's in the mid 600s. So that's kind of helpful to our overhead costs in that country. And then most of the rest of our exposure is in Canadian dollars, so we all know what's happened to the Canadian dollar in recent weeks, so that's helpful as well.

I guess not if I'm buying my wine in a Canadian liquor store.

Smuggle it, Bob.

So you really haven't taken on any greater exposures in the foreign exchange stuff, I mean other than the operating side. But you haven't hedged out a lot where we could see some springs coming in the fourth quarter.

No. You know Bob, and I don't know if I'm right on wrong on this, but my philosophy has always been that the foreign exchange does have some kind of correlation to energy prices, so there is sort of a natural hedge there.

Yes. Okay, thank you very much.

Thank you. Our next question comes from Bernard Horn with Polaris Capital, please go ahead.

Hi Bruce. I wonder if you could just comment a little further on the comment you made that you might be seeing lower contract pricing going forward. It looks like it helped you a little bit; it's not clear how much it helped you in the third quarter because you had firm prices as well. But maybe you could just elaborate more on what your strategic objectives are.

If I understand your question Bernard, we've averaged $500 contract prices in Q2 and Q3, October is at $450. We expect November will come down a small amount but we haven't made a decision on that yet. And then, and it's really hard to know what will happen in December and January simply because none of us know where this credit crisis and financial chaos that we currently live in is going to get to.

But directionally this industry has a very steep cost scale as we regularly describe in our investor presentations, and we've begun to see that cost go on in operation with the shutdown of high cost capacity. There's still a lot of capacity with cost structure over $300 a tonne and you never get instantaneous responses so people usually will operate at a cash loss for a period. But longer term we expect the cost curves to hold, which suggests that prices shouldn't go too far below $300 a tonne if demand doesn't completely crater.

All those are a bit vague and there's ifs and buts in those comments there Bernard, but it's really hard to be much more precise than that.

I thought that you said that strategically it sounded like you were interested in having less volume sold under --

Oh sorry I missed the question.

Well it was helpful anyway.

Let me answer that question. We inherited a lot of fixed price and cost of service contracts basically when we acquired the Trinidad assets. And I'm sure in the days when people entered into those, and by the way, it was none of this management team that did that, they might have looked like very sensible commercial arrangements. But as the world has evolved they don't look nearly as sensible as they may have historically. So our resolve is that we're not going to enter into those sorts of agreements in the future. We think, like all commodities, this methanol trade is based on the supply and demand fundamentals and will be priced accordingly, and that's the way we will negotiate with our customers in the future. So we will base our sales contracts on our own price listings, not on any sort of fixed price or cost of service arrangement.

Okay and the roll off on those Trinidad contracts I think you previously discussed, so there's nothing new that would be kind of changing the mix of long-term contracts versus spot selling in the next year or so.

Well these things happen progressively, so the guidance which was provided was over the next two years the level will half. So it will go from 20% of our sales under these sorts of contracts to more like 10% of our sales. That will have quite an impact on the discount between our posted price and our realized price.

Right. Okay, thanks.

Thank you. Our next question comes from Fai Lee with RBC Capital, please go ahead.

Thanks. First I just wondered if you could comment on where we are sitting with respect to the Chinese cost curve and what you estimate to be the (inaudible) cost and the highest cost producers at this point in China.

I'll ask John to take that question Fai.

We're below the cost curve in China at the current point. We have seen prices rapidly decline in China over the last weeks. The bottom was last week and we have seen a correction upward in the last seven days to the tune of about 250 RMB. So we're still below the cost curve at this point, and we think there's a number of reasons for that. Bruce mentioned that the cost curve doesn't get reactive right away, we are starting to see more and more plants shut down, reduce rates or convert to other products like ammonia. And we did have quite a bit of inventory that was brought in, in the summertime, into China from international producers and those were on 60 to 90 day LCs which all expired in early October, so that material also had to be liquidated.

The other factor in China, Bruce mentioned the DME, it's been an unusually warm time of year in China so the amount of DME going in for heating has been less than what we would've forecasted, as well as more LPG is available because of the refining margins, which is showing up in a competitive market.

So, all of those factors have led to higher inventories and liquidating product at below the cost curve numbers.

Right but, I guess, in September you estimated the marginal cost was about $400 per tonne. What's the equivalent number right now?

It's probably $20 to $30 below that and that's really based on demand, some demand destruction and some lowering of coal prices.

Okay, so call it about $370, $380 right now?

$370 is probably a good number.

Okay. And, now, you're well below that, you (inaudible), like, last week, I think, it was down to about $290 or somewhere in that neighborhood. So, we're back to about $300 this week?

Well, it was actually a little lower than that price, so, yes, $300 is probably a pretty good number right now.

Okay and, with respect to additional shutdowns, how do you see that playing down if it's at $300, given this pretty flat cost curve for a significant portion, if I remember correctly?

Well again, it depends on demand. If you get further demand destruction, that shifts the curve. Remember, these curves are dynamic, it's based on supply and demand. So the curves that we would've presented in Trinidad were based on assumptions around demand. Like I mentioned about DME, it's lower than we would've guessed.

We are seeing some weakness in formaldehyde in China. It didn't come back as strong, after the Golden Week, that we would've expected. So, really, you know, the cost curve is made up of two components, the demand and the supply. So, if you get further demand destruction, you're going to work your way down that cost curve.

But, we think there's quite a bit of support in the mid-$300 level, like Bruce mentioned.

Yes, okay. And, how good of a shape, financial shape, are those producers in that middle part of that $350 range?

I don't have any specific information about their financial strength, in China.

Okay, no, I'm just wondering, in terms of how quickly they might want to shut down.

Well, if the past is any prediction, any time they were losing cash for days or weeks, they shut down and that's what we're seeing happen now.

So, I can't predict the future but we do understand the Chinese don't like to lose cash.

Okay and, just turning to New Zealand, your plan is to operate until mid-2010. Is that plan subject to a certain level of methanol prices, in terms of expectations?

Well we have gas supply available until mid-2010. And as we look out to the natural gas demand/supply environment in New Zealand, we think there's a surplus of availability that can easily flow into methanol, out to, probably, 2015. So, we're thinking much longer-term.

But the answer to the second part of your question, really, was that we do have some flexibility that if methanol prices collapse, we have ways of extracting ourselves from those commitments. So, we've retained a lot of the flexibility that we've always had with those plants.

Okay, great. Thank you.

All right? Okay.

Thank you and our last question is coming from Gary [Lenoff] with Iron Works Capital. Please go ahead.

Thank you. Bruce, can you remind us, what is the total cost of the Egyptian plant going to be upon completion?

I've got Michael MacDonald, who's our Senior VP of Corporate Development, who's responsible for this project. I'll ask Michael to make a comment around that.

The engineering and construction contract is a $750 million contract and they will at the [INS] costs and the (inaudible) costs and since developing the project, there was, I think, about another $180 million, $190 million on top of that price.

So, it's a little over $700 per tonne of capacity, as I recall.

Okay and, can you share with us what the -- what was the total cost of the Chilean plant upon completion?

All of our Trinidad and Chilean plants were more like $300 per tonne of capacity. So, this plant has cost more than double on a per-tonne of capacity basis.

So, that is reflective of the increase in capital costs. We've seen some other plants, in other parts of the world, that are getting close to $1,000 per tonne of capacity.

Yes.

And if some of that has now come out of that market, for, I'm not quite aware where this going to settle, nobody knows. But we've observed dramatic changes in recent years, haven't we?

Yes. I'm just guessing, I'm also wondering, at $12.50, or thereabouts today, per share, what's the cost per tonne that that price reflects?

Well, it depends on what sort of assumptions you make around how much capacity we're going to restore in Chile. If we restore all of our capacity in Chile, it represents around $170 a tonne. So, I made the comment before; it doesn't matter how you look at our stock. It looks ridiculously cheap.

Yes.

If you assume that we never get another drop of gas out of Chile, then the number's around $300 a tonne. So, even if you took the middle of that, you'd say, today our assets that are productive, taking a reasonably conservative view of Chilean gas, they're probably worth between $200 and $250 a tonne, based on today's market value, or in today's enterprise value. So, that's incredibly cheap, relative to the replacement costs.

Yes, and I don't know if you have the answer for this but in -- seven years ago, when methanol sold for only $130 a tonne and West Texas Intermediate was trading for $26 a barrel, I know the stock traded, you know, below book value. But do you recall what the value of the company was, on a per-tonne basis, that [was set] below the last cycle?

No, I'm sorry. I don't. I think everyone in this room was doing something else around that time.

Okay, thank you very much.

Okay. Well, thank you, everybody, for your participation on the call. I wanted to leave you with a quotation from the chair of our audit committee when we met yesterday. And, we were chatting about the financial environment and he made the comment that the strong companies will be opportunity. And that Methanex was one of the best positioned [cyclical] plays that he's aware of. And this is a gentleman that I have great respect for his views.

And, I happen to agree with a few completely, that, I think with our strong balance sheet, we have a very good business model; a lot of growth and improvement in the next couple of years, that we're going to emerge from this current cycle just in a great position.

So, thank you for your continuing support and we're going to work hard to get that stock price back to where we think it reflects true value. Good morning to everyone.

This concludes the Methanex Corporation's third quarter, 2008 earnings conference call. Thank you from [Telus].