Methanex Corp (MEOH) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Methanex Corporation second-quarter results conference call. I would now like to turn the conference call over to Ms. Sandra Daycock, Director of Investor Relations. Please go ahead.

Good morning, ladies and gentlemen. Welcome to our second quarter results conference call. Our 2013 second quarter report, along with presentation slides summarizing the Q2 results can be accessed at our website at www.methanex.com. I would like to remind our listeners, that our comments and answers to questions today may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ manually 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 our latest MD&A and to our 2012 annual report for more information.

For clarification, any references to EBITDA, cash flows or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility, and our 60% economic interest in the Egypt facility. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact of share-based compensation and other non-operating items. We report our results in this way to make them a better measure of underlying operating performance, and we encourage analysts covering the Company to report their results in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. John Floren for his comments and a question-and-answer period.

Hi, good morning. As you can see, we have had a solid quarter, with EBITDA up 5%, and adjusted earnings up 12% from Q1 2013. We are making very good progress on our growth initiatives to increase operating capacity by 6%, or 3 million tonnes over the next few years, which offers significant upside to our cash flow and earnings generations. Long-term industry outlook is very positive, with solid demand growth, and limited new supply to what -- despite widespread economic concerns and uncertainty in the global financial markets, demand has been good in all regions, and was up 4% in Q2 versus Q1 2013.

The healthy demand for methanol in energy applications, in particular methanol fuel blending, MTB in Europe -- as many plants have switched from ETBE back to MTBE -- and MTO are driving higher industry growth. Sales for the quarter were over 2 million metric tonnes, and is our highest quarter of sales since 2004. Sales discounts are lower by 1.1%, compared to the same quarter in 2012. Year-to-date logistics costs are lower by $20 million, and compared to the same period in 2012. This is a really nice ongoing trend for the first six months of the year. We rolled our US posted price at $1.60 a gallon, in August from July. Production continued to exceed produced sales volumes in Q2. We also signed an additional gas contract in New Zealand to allow us to produce 600,000 tonnes of methanol over the next three years. In general, we are very encouraged about the prospects from the New Zealand gas market going forward.

We are optimistic that we will be able to restart our Chile I plant later this year, and run it at higher rates than we experienced in the fall of 2012. We operated Egypt plant at 85% rate during Q2, and we continue to run at high rates in July. And we are comfortable with the 70% average operating rate guidance we have indicated for 2013. We lost about 57,000 tonnes of production in Trinidad during Q2 as result of technical issues, which is about half of our lost production. And the balance of our losses was due to gas restrictions. We anticipate further gas restrictions in Q3. These ongoing restrictions are contributing to the tightness of supply in the Atlantic basin. We have commenced legal proceedings against one of the Argentinian gas suppliers who ceased to supply us with natural gas in 2007. This the first step, and we may be taking further action against other gas suppliers in the days and weeks to come.

So I will stop there, and take any questions that may be on the line.

(Operator Instructions)

Our first question is from Ben Isaacson from Scotiabank. Please go ahead.

Thank you very much, and good morning. My first question is on China's re-exporting of methanol, potentially from the Iranian product or potentially not. I was wondering if you could give some color on the pickup that we have seen, and how temporary you think this is going to be?

Yes, we are seeing methanol a re-export from China. Our view is it is mainly Middle Eastern and other Southeast Asian product, as opposed to Chinese product. We have seen inventories in China over the last weeks, almost cut in half on the coast. I think there has been a number of unplanned and planned outages in the region, which is leading to tightness. We continue to see pricing increase in China for R&B product, as well as US dollar CFR product. It is difficult to predict the future, but based on our current view of low inventories, we wouldn't expect to see a lot more product being exported. Because there is not a lot more product there, outside of Chinese product to be re-exported.

Okay, thanks, John. And just my follow-up question. We have seen a couple more projects being announced in North America, whether those are real or not, I guess time will tell. Assuming that they are, and the US becomes a net exporter, how does that potentially impact the economics of G1 and G2?

Well, the G1 and G2, our plan is to keep those molecules in the US market. I think what will happen is, some of the imported material that is coming into North America from Trinidad, or Equatorial Guinea or even Venezuela may have to find a new home. But I think it is early days to predict, what the supply demand balance might look like three or four years from now. And whether these projects get built, or the timing of those projects. So I think it is really again, hard to predict next year, never mind three or four years out, Ben.

Okay. Thanks.

The following question is from Jacob Bout from CIBC. Please go ahead.

Good afternoon. Just a question here on Geismar. Perhaps you can give us an update here on the capital spent to date, and what you are expecting to pay out over the next 12 to 18 months from an expensing perspective? And maybe just give us an update overall, of how many shipments have been made and all of that?

Sure. So I will talk about the progress of the project, then I will turn it over to Ian to talk about the numbers. So the third shipment is just being completed, and on its way to Geismar. So that's three of five. We expect to have all the shipments completed by the end of this quarter. The project is still on time and on budget. And then we started decommissioning the second plant. I will turn it over to Ian for the specific numbers.

Yes. So Jacob, in terms of capital spent to date, it is recorded in the financial statements. But is about $175 million to date, and that includes, and that includes a little bit of capitalized interest. Going forward, we have about an $850 million to go for both G1 and G2. And in terms of spending profile, think of it as about $300 million for the rest of this year. Around $400 million for 2014. And in the remainder will be mostly 2015, but some of it will trickle into 2016.

And how much of that will be expensed?

Of that will be expensed will be about $35 million or so. And that's related to the organizational cost build-up which is a requirement under IFRS.

Jacob, we can get you the more specific numbers off-line if you would like.

Okay. Maybe just a follow-up here. Just a bit more in Geismar II, is there any more wiggle-room in there as far as the startup? I know you are talking about the beginning of 2016. But specifically, what I am getting at here is I think we've seen I think 10 new methanol plans announcements in the US. And I think the latest, the Valero, that 1.6 million tonnes, those are pretty low CapEx numbers that they are throwing out there. Is there any wiggle room, as far as not going ahead with the Geismar II

Besides our project, I am aware of three announcements in the US, Southwest Louisiana, Celanese, and Valero. I mean, the Valero one, we saw what you saw. We have no further information on that. If there is excess hydrogen, obviously, you don't have to build a lot of the kit, if you have excess hydrogen. But I think for us, it is early days to be commenting on that. As far as wiggle-room, from what I understand from our team, there are a lot of one-time learnings, by taking the first one apart and moving it. So is there a chance to improve the schedule? Sure. There is a chance, but I think I am comfortable with the first quarter of 2016.

Okay. Because I think there is another --a number of other integrated producers that are talking about it. And I know about the Valero number, $400 a tonne is pretty low.

You mentioned announcements, right? So there is a lot of speak. But if your talking specifically what has been announced, is South West Louisiana, Celanese and now Valero. That is what has been announced. There is always lots of speculation about projects. How the $400 a tonne number that you quote comes together, I have no idea. I read the same information that you have read. And we will do some more work on it. But I think it is premature to be speculating about other announcements or about capital costs when we don't know the details.

Thank you very much.

Thank you.

(Operator Instructions)

The following question is from Laurence Alexander from Jefferies. Please go ahead.

Hello. I guess two quick questions. One, can you give an update on the timing and magnitude of any significant outages over the next three quarters or so? And secondly, as you look at the way the Chinese MTO capacities coming on stream, are there any changes in how they are building the units that will impact the methanol demand there, or in a way that you think is significant?

Well, the next MTO plant that is coming on, we understand is starting up in August of this year, it is [Weisaw]. It is in Nanjing. It will consume about 800,000 tons of methanol. We have no inside information about how well that start-up may or may not go. Beyond that, we believe there is another couple of plants over the next few years that will be using merchant methanol. The exact timing on those is, it is too early to say. With regard to outages, we don't give guidance on our own planned maintenance programs. Beyond what we said around New Zealand, and the major reset we have there to the reformer on one of the plants in Montunui.

Okay. And then, can you give any incremental detail on how you are thinking around the Canadian, the next projects you are going to do, up in Albert -- in Canada?

Maybe I will turn it over to Mike Herz, our SVP of Corporate Development to talk about that.

Sure, I guess, common knowledge is one of the things we are looking at. And I think we are making good progress. But still a number of things that need to come together to be a successful project, and we are advancing that. I think we will have more to report later this year, early next year.

Thank you.

Thank you. The following question is from Alex Syrnyk from BMO Capital Markets. Please go ahead.

Hi. I was just wondering if you could elaborate on some of the initiatives that were mentioned in the press release, that have led to some of that savings that you have seen. I guess year-to-date on the logistics transportation side?

Sure. We have been looking at our terminal infrastructure globally. We have rationalized it, and we will continue to rationalize it as we look to our supply chain changing quite significantly. As we used to have four plants operating in the southern tip of Chile, shipping that product both to Europe and to Asia. And we have taken some time to rationalize our supply chain. We had access shipping for a lot -- for a number of years, as well as a result of what happened to us in Chile. We have been rationalizing our shipping, especially our big ships over the past few years.

In addition, as we get more production in places like New Zealand, we have a really nice back haul opportunities coming out of Korea, and other parts of Northeast Asia for gasoline, and other clean petroleum products back into New Zealand. I think our waterfront shipping team is really getting quite good at cleaning, which reduces the amount of time that the ship is not available for other cargoes. And they are really getting well-integrated into the global shipping markets for clean petroleum products, to have a relationships, to allow us to leverage the amount of time that we are running both ships with cargoes. I think about 40% of what we carry today on the ships is not methanol. And right now the chemical markets, are clean petroleum markets for liquids is still lower than what we would have seen in a normal cycle.

So I think there is some upside in our shipping backhaul business, as rates get back to more normal types of money that we used to see for clean petroleum products. So I think there is some upside. We will continue to rationalize as we go forward. Having 2 million tonnes in Geismar rate in-market is going to reduce our ocean freight for that portion. But depending, as I mentioned earlier, what happens to the Canadian product and how the markets develop, we may have to ship that a little further. So again, I think the trend is really nice. I think the trend for the next month is going to continue, but predicting out two or three years is pretty difficult.

Okay. Well, that's very helpful. And then just in terms of some of the CapEx that was mentioned in the release. The maintenance CapEx number that was given, I guess it is a guided number through 2014. Would that include any spending to do with, gas exploration in Chile? Or is that something that is --would be above that?

Yes. The gas exploration, any numbers would be excluding that. How you should be thinking of maintenance capital, is for every million tonnes of operating capacity, you should think about $10 million per year. So for operating 5 million tonnes, think of $50 million. If we are operating 8 million tonnes, think of $80 million on average. As far as the upstream spend, we have stopped spending money in the upstream. We have some commitments that we made late last year that we need to fulfill. But beyond that you won't see us spending much more money in the upstream.

Okay, great. That's perfect. Thanks That's it for me.

Thank you. The following question is from Hassan Ahmed from Alembic Global. Please go ahead.

Hi, there, John. Recently, there has been a couple of articles about serious gas sort of curtailments in Trinidad. You have obviously, in your prepared remarks talked a bit about some of the production shortfalls in Trinidad. But these articles were particularly talking about these curtailments happening sometime around September. So just, I guess if you could just maybe give us some sort of guidance, be it on the operating rates side of things in the near-term? And how we should think about the Trinidad inside of things?

Sure. Again, I think I mentioned in the last call, that Trinidad, one of the major upstream players there, has had its three-year program on maintenance on their platforms, and pipelines. And this is the third year of that program. That large supplier is going to take out a large platform in September for maintenance. And we understand another suppliers also planning on doing some maintenance in the same period. So there is a pinch point in September.

The downstream, at the same time is looking to do a bunch of its maintenance in the same month. So we have had some planned maintenance there on Titan, and we are looking to coincide that maintenance with the time the upstream is doing their maintenance. So I think it is a very delicate balance that is on right now, between upstream and the downstream. And for the rest of 2013, we do expect to see ongoing restrictions as result of the maintenance. We will have a look at 2014. We understand the maintenance on the upstream will be completed by 2014. But I think even then it is going to be a very tight supply and demand balance, until we get some more gas into the system. Which I understand is quite likely in a second half, but it is early days to be definitive about it.

Fair enough. And on the pricing side of things, one of the sort of recurring questions that I get from investors is around just, this disconnect or large disconnect between call it, quoted North American prices and Chinese spot prices. I mean, I would love to hear your thoughts about that side of things. Is this sort of a signal that there may be some imminent pricing downside?

Or pricing upside.

Exactly, right. Could work either way.

I think what happened is that the Atlantic basin and the Pacific basin used to be quite similar, let's say $20 to $30 difference. And there was large Middle Eastern producer used to be able to swing their spot molecules, between the European market and the Southeast Asian market. As a result of restrictions, they are really limited to selling in India and China. And that's putting downward pressure on those markets, So the only real today's spot molecules that are available to field this arbitrage gap would be from China. And as I mentioned earlier, most of what we are seeing being re-exported is actually Middle Eastern or Southeast Asian molecules, as opposed to Chinese.

But when you look at the amount of money needed to make that work, you are talking freights, and export and import duties, as well as terminals. So you are excess of $100 of a tonne. So unless something was to change, where there would be more spot molecules available, and able to swing from the Middle East or Europe, we would expect this differential to continue. So depending on, I would say what happens in pricing in the Chinese market -- and as I mentioned earlier, we have seen prices increase in the last weeks. Then the differential will continue, and prices may go higher, may go lower depending on what happens in China.

Very good. Thanks so much, John.

Thank you.

(Operator Instructions)

The following question is from Chris McDougall from Westlake Securities. Please go ahead.

Hello, John. Thanks for the update. So I want to talk about the produced methanol. We have seen a number of quarters here of good price increases. And you take title to the significant amount of produced methanol. So I would imagine there is a little bit of an uplift, since prices have been rising or steady during that period. And I would love to understand, how big of an impact that is on the financials? Can -- and if there is any downside there, if we were to see prices roll over a bit?

Chris, are you talking about purchased or produced?

Oh, I am sorry. Perhaps I spoke wrong, I meant the purchased.

Yes, so obviously as prices go up, the carrying cost on our inventory, we do better. And if prices were to go down, we do worse. But it is really an insignificant, when you think about the overall amount of sales. The amount of purchased product in our inventory at any given time is extremely low. And it flows through the inventories in around 30 to 45 days. So I don't think it is a big liability or big upside. I think it just flows, as we need to purchase product around the world.

I would say though, with this big differential between China and the Atlantic basin, we have been able to take advantage of that by purchasing more in China, and even selling some spot product in North America, for example. So we are probably one of the few suppliers globally, that has an integrated supply chain, that can take of advantage of these arbitrage opportunities due to our fantastic supply chain.

Yes, so it does sound like it is helping your financials out a bit right now. Not as much from the uplift as pricing moves, but from the arbitrage. How big of an impact is that on the financials? Is that a few million dollars or tens of millions of dollars or what?

What we have always said about purchased product over the cycle, is you should think of it as neutral. We don't make money, we don't lose money. I would say during the first half of this year, we have made significant amount of money. But if things were to turn around, we could lose money. So I think that I am still comfortable saying that it is a neutral, but during this period we have make good dollars. And we will continue I think, because of the arbitrage to make decent money on the purchased product.

Okay, thanks. And then last thing on the legal proceedings in Argentina. So what is the kind of range of expectations there in timing?

You mean as far as how much money?

Oh well, I guess the -- I suspect the upside is significant. But I am -- but more importantly, I would love to understand the process and timing, going forward for that?

Well, in my experience, Chris, any arbitration takes a lot of time. (Laughter). So we started down the path. We think we have a strong case. We will see how this progresses. You are talking, if you think of all of the gas we haven't got, in both the Argentina and Chile, hundreds of millions of dollars. So we have started one case in arbitration. And over mind, when you do an arbitration, one case doesn't mean that if you are successful, that gets apply to the next case. So each one is individual, and the results of each arbitration aren't known to the other party. So we started one, and we will see how we progress.

Great, thanks a lot.

Thank you. The following question is from Robert Kwan from RBC Capital Markets. Please go ahead.

Good morning. John, you have talked about the future growth initiatives over the next few years. I am just thinking, as you look past that you have made some comments prior calls. But when you look at additional potential relocation out of Chile, greenfield build or even acquisitions, just wondering where you see at least right now in the landscape, where you think the best opportunities will be? Where you are focusing the corporate development activities on a risk/reward basis?

I would say all three. If you look at relocations, there has been some -- as we have mentioned earlier that there has been quite a bit of exploration activity in Chile. And there has been some fairly interesting developments there in the last weeks. We will know a little bit more by the end of August, about the availability of gas from these exploration developments, but we are quite optimistic. So obviously, I have always said keeping two plants in Chile running at full rates is first prize, and that is what we are focused on. If we ever come to the conclusion that best, it is a one plant operation, then we do have a third plant that we could think about moving.

But I will remind you as well, Argentina has started quite a bit of development on their shale gas in Neuquen basin. I think there was an announcement between Argentina and Chevron of over a $1 billion dollars of activity just in that basin. And I think the announcement I saw, allowed Chevron to export about 20% of that production, if successful. So not only is Chile looking more positive, but there is a lot of activity in Argentina. And from what we have seen, and we are doing some work right now with third-party to understand it better, is the reserves in Argentina are quite large, in the formation of the rock et cetera, is quite similar to what we see in North America. So pretty economic to get at that kind of shale gas, but again, we are early days. So I think there is a lot to play out in the southern cone of South America before we think about moving a third plant.

At the same time there is very few acquisition opportunities, because most of our competitors are owned by state-owned companies who are looking to grow their businesses, not to sell parts of their businesses. And new builds are pretty difficult. If you look at the long-term price of methanol, you look at capital of around $1 million a tonne. And even if you are able to secure gas pricing at $450, escalating at 2%, the economics don't give you a return that is anywhere near our hurdle rate. So it is difficult, but we are continuing to progress.

The industry is growing at 3 to 4 million tonnes per year, and I think supply has to grow to meet that demand. And it is going come in North America and other places, and we will progress the opportunities. As we have more and more information, we will make decisions. But it is early days and we have some time to get -- stay focused on these 3 million tonnes that are right in front of us. Get those projects all done well, and safely, in a quality manner, on-time on budget. And we have a team progressing the next new build, which we will look to make a decision sometime next year, and think about 2018, 2019 period for operation.

Great, thanks John. Just the last question I got. You touched on some of the gap supply issues in Trinidad. I am just wondering if there is anything more on Egypt, other than what was in your prepared remarks, specifically any interactions you have had with, I guess the new government regime, and how you might think that might play out?

Again, the world is difficult to predict, the future is difficult to predict. And I think Egypt is even harder to predict. What I would say is, the new energy minister is a good -- is well-known to us. We have been working with him in Egypt for five or six years. We think it is a great move to -- for him to be in that position. I think it is not only a supply-side issue, there is lots of reserves.

It is about unlocking those reserves, through infrastructure, et cetera. And the demand has to be put under control. All I would say is, what we have observed is gas supply is much better since the change in government in Egypt. If you look at diesel and gasoline supply, overnight those lineups went away with the change in government. So that is what we have observed. But what's going to happen tomorrow is, it is very difficult to predict.

Have you just had -- have you had active interactions? Or really have you just been kind of laying low, and letting it play out, given it looks like things have improved a little bit on the gas supply-side?

No, we are very active. We don't lay low. We are trying to influence our future. Again I would remind you, the government through different entities owns a third of the projects. So we are very interactive and active, and looking to make sure that we are securing gas to run that operation as high as possible.

That's great color. Thanks, John.

Thank you. The following question is from Steve Hansen from Raymond James. Please go ahead.

Good morning, everyone, thanks for the time. John, just as a follow-up to some of the earlier US-centered question. I just wanted to get your sense for some of the potential longer-term demand-side issues in US, that might take place offset some of the scalable supply-side that we might see coming on? Do see any potential for, whether it be derivative gasoline blending, or any NPO facilities or anything of that nature that has really stoked the growth that used to eventually take place over here in the west?

Yes, well, first of all, on the traditional chemical derivatives, for the first time in many, many years, we are starting to see announcements of new plants in US for traditional chemical derivatives. Whether it be Huntsman's announcement or [Tomiko's] announcement, and there is even some NTB announcements. So we are starting to see production of derivatives come back. I would say -- and we are not expecting any MTO in the US. I think with T-methane, and abundant ethane, making olefins from ethane still the preferable way.

I would say the methanol to olefins process is competing with naptha, so that is more of an Asia-Europe type function or issue. On the fuel blending, yes, methanol makes a heck of a lot of sense in the US. You are already using ethanol at around 10%, and methanol and ethanol behave very similarly in the fuel pool. And I think there is a bill in front of Congress to allow what we call a GEMF fuel, which is a gasoline-ethanol-methanol mix. Those are the blends that we have been working on in Australia, and in New Zealand and in Iceland. So we think that is the future.

Having said that, is it tomorrow? No. I think Washington is focused on other issues right now. But the economics over time, have a way of prevailing. And the US has a lot of cheap abundant natural gas. And as MIT in their study pointed out the best use of that gas to get into liquid fuels, or the best way of that gas to get into liquid fuels is through methanol. And if the country wants to lower its dependence on foreign oil, natural gas to methanol is one way to do it. This a great book out there called, The [Trapoly], that really outlines the methanol to energy applications focused on the US, which I would highly recommend you reading, Steve, if you want more information.

Okay, that's helpful. My second follow-up question just has to do with the operating leverage potential here, as you prepare to bring on 3 million tonnes. Presumably a lot of these tonnes will be able to leverage your existing fixed asset base. And I am just trying to get a sense if there is a rough rule of thumb, we should be thinking around the fixed costs base in your cost of goods that won't change much, as the incremental tonnes come on?

Yes, we are not guiding to that, Steve. But what I would say is, as we bring a 3 million tonnes we are operating at 5 million today, the number of terminals, the number of ships, the number of railcars, the number of people, will not incrementally go up. So we are not guiding towards that, but you should see our fixed costs as a percent of our overall produced molecules go down.

Okay. Very helpful. Thank you.

Thank you.

(Operator Instructions)

The following question is from Chris Shaw from Moness Crespi. Please go ahead.

Good morning. Is there any update on the progress of getting a longer-term gas contract at Medicine Hat?

So we are pursuing a gas contract for Medicine Hat facility, as well as our G2 or Geismar II facility. I would say we are progressing. We are having talks. When we did secure the 10 year contract with Chesapeake for the Geismar I, when I think the spot price of gas was below $2. If you look at the spot price of gas in Western Canada today, it is probably low to mid $2. So I think our view is the Western Canadian gas is going to be a lot more stranded, than the Gulf Coast gas or Henry Hub going forward. The US still imports about 15% of its gas requirements from Canada. We would expect that over time to reduce. And unless an LNG pipeline gets built from Alberta to the West Coast of British Columbia, unlikely that gas has anywhere to go. So we are pretty optimistic, we will be able to secure something for Medicine Hat and a potential new build in Medicine Hat, but we haven't anything to report today.

Thanks. And then you spoke -- I am a little newer to the story. So you spoke about restrictions, I guess of Middle East products that had -- it basically sounds like it has to go through China. Is that just because -- I mean, in the case of Iran, is Iran methanol -- are you not allowed to sell into Europe or North America?

Yes, traditionally, of the four sanctions, Chris, Iran methanol would sell to Europe and Asia and Korea, Japan, China, India, other places in Southeast Asia. As a result of the sanctions, the only place that they seem to be able to sell methanol today, is in India and China. Sales to Europe, sales to Korea, Japan, et cetera have all dried up as result of the sanctions.

Do you know what the size of the Iranian capacity is, approximately?

Around 3 to 3.5 million tonnes is what --if you look at the last five years, and what they have produced, that is the amount.

Okay. Thanks a lot.

You're welcome.

Thank you. The following question is from Charles Neivert from Cowen and Company. Please go ahead.

Thanks. Two quick questions. On the ETB to MTBE switch, can you approximate or quantify about how much methanol that means, in the total things. And the second question, the follow-on is has China at the national level moved forward at all on creating a national standard for methanol and its fuels? I know it is still a lot on the provincial levels, but have we have seen any forward movement toward a national standard?

Yes. So on the at the ETB to MTBE, don't quote -- in the rough numbers I recall, is around 200,000 to 300,000 tonnes of additional methanol demand, because of that switch on an annual 12 month basis. There ha been a number of players that have switched over the last six or seven months. And we understand there are some more switching to happen. So around 200,000 to 300,000 tonnes. Again, the standard in China, the M15 standard is there. It hasn't been approved, there is progress, but I have been wrong in the past. I am terrible at predicting the future. We do believe it still active, and we are optimistic it will get done. But I would rather not predict a timing into it, Charlie.

Just as a quick follow-on, how many provinces are not using much of any, or if, or much methanol now, and if a national standard came in, would come -- would sort of come under that umbrella that aren't there today?

Yes, again it would be a standard, not a mandate. So I think --

Okay.

So most of the provinces have their own programs. So even if the M15 standard was to pass tomorrow, we wouldn't expect a significant change in the short-term. I think medium-term, if you have a standard, the M15, the other provinces will look at it. And certainly the roadblocks that we have seen from the people that have invested a lot of money in refining capacity would be less. So I think it is more of a medium-term story, Charlie, than a short-term story.

Okay. Great. Thank you.

Thank you. The last question is from Paul D'Amico from TD Securities. Please go ahead.

Hi John, just a few quick questions. First, I don't know if you covered it or not, I might have missed it. But on Trinidad, what sort of operating ratio we you thinking of over the next two quarters? In terms of just try to understand the difficulties that are there still. So there is 57,000 tonnes hold back into Q2, is it sort of like a linear approach to add to the 370,000? Or is there a more general way to look at it right now?

Yes, we haven't added to that Paul. What I -- the 57,000 tonnes that I said was, because of production issues. We wouldn't expect those to be repeated in the third quarter or fourth quarter. But again, how do we know if we are going to have unplanned outage because of some technical issue? The gas restrictions themselves are ongoing, and they are different every day, So again, it really difficult to predict how much. One day we are running at 100, one day we are running a little less. So I think I have said, that we expect maintenance to continue through the second half of this year. And we do expect it to be restricted. Not only us, but the whole estate. And that is leading to some of the tightness we are seeing in the Atlantic basin for molecules. So until we see anything different, it is really difficult to predict what the operating rate will be.

Okay. And lastly, just on directionality. I mean, pricing is looking better than it was on average for Q2. In terms of what Q3 looks like so far. Volume should be better sequentially. So directionally, you should be expecting better earnings versus Q2?

I will comment on that as the call winds up, Paul.

Okay.

Thank you. The last question is from Steve Hansen from Raymond James. Please go ahead.

Sorry, just one last house keeping question on the tax rate. It is been low now for two consecutive quarters, so just wanted to get in outlook for the back half of year?

Sure, I will get that one for you Steve.

Yes, so Steve, previous guidance, 20% to 25%. We have said in the near-term, we would expect it to be a little bit below that. Really it is a bunch of structural issues around supply chain, what is happening in terms of Chile. Chile is shut down right now. And we are doing well in our shipping operation as well. So a bunch of things that are causing the tax rate to be below that 20% rate. We would expect that lower below 20% rate to continue for a couple of quarters. But when we do our sort of mid term intermediate forecasting, we do see the tax rate increasing say, in the next 9 to 12 months into that range of the 20% to 25%.

Okay, great. So stepping up into '14 then certainly.

That's right.

Thank you. Appreciate it.

Thank you. There are no further questions registered at this time. I would like to turn the meeting over to John Floren.

Yes, so thanks for all the questions and interest in the Company. So the long-term industry outlook is very positive, with a solid demand growth and very limited new supply. We are in the great position. We are going to be adding about 3 million tonnes or about 60% of our production over the next 2.5 years. So that would really give us a good position to generate more earnings, and cash for our shareholders. As we look forward to Q3, we a see a stable pricing environment. We see our production environment being very similar. So we would expect earnings in Q3 to be similar to earnings in Q2. Thanks for the interest in Company, and have a great day.

Thank you. That concludes today's conference call. Please disconnect your lines at this time, and we thank you for your participation.