Methanex Corp (MEOH) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation first-quarter 2014 results conference call.

I would now like to turn the conference over to Ms. Sandra Daycock, Director of Investor Relations. Please go ahead, Ms. Daycock.

Thank you. Good morning, ladies and gentlemen. Welcome to our first-quarter 2014 results conference call. Our 2014 first-quarter report, along with presentation slides, summarizing the Q1 results, can be accessed at our website at www.methanex.com.

I would like to remind our listeners that our comments and answers to your 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 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 our latest MD&A and to our 2013 annual report for more information.

For clarification, any references to EBITDA, cash flow, or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility, and our proportionate economic interest in the Egypt facility. On December 9, 2013, we completed the sale of a 10% equity interest in the Egypt facility. Our proportionate interest in the facility was 60% prior to that date and 50% thereafter.

In addition, we report our adjusted EBITDA and our adjusted net income to exclude the mark-to-market impact on share-based compensation and other nonoperating 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 estimates 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.

Thanks, Sandra. Well we had an excellent first quarter of 2014. We achieved adjusted EBITDA of $225 million, and adjusted net income of $160 million, or $1.65 per share on a diluted basis. We also sold 2.178 million metric tonnes of methanol, which is an all-time record for the Company in the quarter.

We're pleased to announce a 25% increase in our dividend from $0.20 to $0.25 a share. We strive for a meaningful, sustainable and growing dividend. This is the tenth time we have increased our dividend since its inception in 2002. Our increase in operating capacity of approximately 1 million tonnes in 2013 supports a higher dividend that can be sustained at a lower methanol pricing.

We are also excited to announce a 5% normal course issuer bid to purchase up to 4.8 million shares. This announcement reflects our balanced approach to the utilization of cash and builds on our long track record of returning excess cash to shareholders. Since 2000, we have repurchased approximately 45% of the Company's shares.

Late in Q1, we saw a sharp drop in pricing, particularly in Asia. The decline came as several idle plants resumed operations that eased Asian supply constraints. While a price decline was essentially supply-driven, demand was also slightly lower in Q1, due to seasonal Chinese New Year slowdown, coupled with lower DME demand and MTO maintenance. Traditional demand outside of China grew during the quarter.

Pricing has moderated to levels seen prior to Q4 major supplier disruptions. The Atlantic-Pacific price differential continues at approximately $100 a tonne. We've just announced our May contract pricing, which moved slightly lower in the US to $565 a tonne and a decrease of $20 a tonne in Asia to $460 a tonne. We believe spot prices in China have stabilized at current levels.

In the quarter, we made solid progress on our Geismar relocation projects. We are targeting to start up Geismar 1 at the end of the year. The bulk of the dismantling of Geismar 2 is complete and the first shipment is on its way to Louisiana. We expect all modules of Geismar 2 to be on site later this year.

Achieving the budget for the two relocations remains challenging, as we are seeing pressure on both project scope and wages. During the first quarter of 2014, capital expenditures related to the Geismar projects were $130 million. The remaining budgeted capital expenditures related to Geismar are $505 million.

In the first quarter, we produced 1.226 million metric tonnes of methanol compared with 1.194 metric tonnes during the fourth quarter of 2013. We ran our Egypt plant at 87% operating rate, in Q1 based on gas availability. I'm still comfortable with the 75% to 80% operating rate guidance for 2014, as we might see lower operating rates than 87% as the year progresses, as a result of less gas availability in the summer period when electricity demand increases. In Trinidad, we experienced gas restrictions in Q1 2014 at a rate which was about the same as Q4 2013.

We estimate that we'll incur about a $10 million negative impact on margins related to inventory on hand at the end of Q1, based on our current view of pricing in Q2.

Our average discount in Q1 was 14.5%. This significant increase from Q4 2013 discount was as a result of rapid decline in our -- in the spot market, especially in Asia, where we chose to adjust our pricing and discounts on a temporary basis. We expect our discount to improve in Q2 based on our current expectation for Q2 prices. Our current operating Chile plant is expected to be idle early in May and we are targeting to start the plant up later this year.

I'll now stop and take your questions.

(Operator Instructions)

The first question is from Ben Isaacson of Scotiabank. Please go ahead.

Thank you very much. Hi, John. Just on China, can you talk a little bit about the import/export dynamic in Q1 and how you see that playing out over the next 12, 18 months?

Yes, hi, Ben. I think in Q1, there wasn't a lot of product to import, as quite a few of the plants in Southeast Asia and Iran were having production issues. So we did see higher rates in China with locally produced product. And we did see quite a bit of exports. It wasn't really Chinese product.

It was more likely product that had been imported from the Middle East or other locations, going to Southeast Asia and Korea to really fill in the gap that was present because of the outages in the region. And going forward, we would expect imports to go back to more normal levels, 4 million to 5 million tonnes per year. So 1 million tonnes a quarter, give or take.

Perfect. Then my second question is on Geismar 2. Where are you in terms of negotiations for a gas contract? Looking at the forward curve, are you still comfortable there, being spot?

Yes, we're comfortable with where we see the forward curve and we're comfortable based on the amount of gas reserves that are being reported increasing all the time.

Our current view on gas for the next 5 years to 10 years in the US is between $4 and $6. And we're very comfortable at that range. We certainly see that many people that are drilling today have got their cost structures down to the $4 to $4.50 range and get a return at those numbers. So we're comfortable that the gas price will allow us to produce at very high rates for a long time.

Having said that, we'd certainly like to underpin that million tonnes by a long-term gas contract. Our team's working hard. I think we had a couple things go against us in the quarter. We had gas prices themselves go up to $4.50 and we saw even spot prices on a day basis hit $20, $30 because of the extremely cold winter we experienced in North America.

Now with methanol prices falling, people looking at a forward curve versus a methanol, let's say, related formula, it's not as attractive today as it would have been a few months ago.

Great. Thank you very much.

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

Good morning, John.

Good morning.

Was taking a look at the sequential swing between Q4 and Q1 in EBITDA. It seems that there was a $25 million hit on higher costs in the produced methanol side of things. So I was just trying to get a sense of how much of that $25 million was from the margin sharing side of things versus actual production costs going up?

Our cost structure really hasn't changed, Hassan. We can get into the details with you offline. But you'll remember in our gas contracts, there is a lag, as the price goes up, there is a bit of a lag on the gas. We share on average globally 1/3 of any increase in methanol with the gas suppliers. And I mentioned there is a lag.

Prices came off in the quarter pretty quickly in Asia late in the quarter. So you would've seen some pricing that was -- or sales pricing would have been lower. But our cost structure really hasn't changed at all. We've seen this before, as you have prices go up rapidly or prices go down rapidly, that it's really inventory flows that affect (multiple speakers)

But, I mean this year only exposed to sort of non-longer-term contract prices on the Chilean and the Medicine Hat side of things. Obviously, Chilean production came down, so it's not that costs would have gone up there. So it's not that costs skyrocketed in Medicine Hat.

Well we did have some increases in Medicine Hat because some of our contracted gas was -- we weren't 100% contracted and we did see spot prices in the gas market in Medicine Hat go up in the quarter quite substantially. Really, nothing's changed in our cost structure. It's really inventory flows that, that we've seen in the past.

Sure. And as a follow-up, a busy yesterday. Westlake Chemical announced that they were dropping some assets into an MLP. There's clearly some debate in terms of some delays associated with the approval process and the like.

So where do you stand with regards to your thought process, with regards to an MLP? And just some color on potential timing, if you were to go through with it?

Sure. Well, we have a team looking at MLPs for our Geismar 1 and 2 assets. We don't have to make a decision on that till later this year, early next year.

We'd like to be operating for a period of time. I don't know, a quarter, six months before we'd have cash flows that we could show the market to drop into an MLP. We're studying the pros and cons. Certainly Westlake got a nice bump yesterday because of their MLP announcement.

We have time to look at this issue and there's a lot of things to consider, not just the distributions of the cash. It's how does it impact your operations of your whole Company, your ability to grow the Company, et cetera. So we have the pleasure and luxury of some time to look at it.

I've said before and I'll say again, if we think it's accretive value to shareholders, then we'll seriously look at doing it. But it's early days for us to make that decision. I think as well, you'd have to look at what the market looked like at the time you were thinking of dropping your assets into an MLP. What's the methanol price, what's the forecast; that would have a big impact on the valuations.

Sure thing. And from a regulatory perspective, you don't expect any sort of pushback or delays or whatever, if you decide to sort of go through with it?

Well, again, those are things we're working through. We saw the letters have been suspended for now. But one of our competitors dropped their asset into an MLP with no issues. So assuming the rules don't change, we wouldn't expect that to be an impediment.

Very good. Thank you so much, John.

Thank you. (Operator Instructions)

The following question is from Joel Jackson of BMO Capital Markets. Please go ahead.

Thank you very much. Good morning. John, maybe you could elaborate on what was going on with New Zealand on the maintenance, on the gas platform in the quarter, how you see that playing out across Q2 in the second half of the year, please?

Yes, that was a one-time maintenance on the big Maui field that Shell operates there in New Zealand. It was a fairly major maintenance and we don't expect that to continue throughout the year.

Okay, and you talked about how Chinese prices seemed to have hit bottoms here, east China prices. Maybe you could talk about where you see Atlantic basin, some North American, European prices coming to -- where will the floors be with sort of what premiums to China Thanks.

It's tough to predict the future on pricing. I think we've said in the last call and I'll say it again, we're probably as soon as you have supply and demand getting more in balance, which they seem to be today, it will return to pricing levels we saw in Q4. That seems to be where we are today. We do expect that $100 differential to continue for the foreseeable future.

Thank you.

Thank you. (Operator Instructions) The following question is from Jacob Bout of CIBC. Please go ahead.

Good afternoon. Wanted to get your opinion on buying existing methanol assets? So say, for example, if the MHTL assets were to come up for sale, how would you look at that?

Well, I think we like to grow our Company, Jacob, and one of the ways to grow it is to buy existing assets. First of all, they'd have to be up for sale. That's the first. There's not a lot of people that are looking to sell their assets today.

Second of all, wherever we look to buy assets, we'd have to think of concentration risk. If you think of MHTL, we already are pretty exposed in Trinidad, so we'd have to take that into consideration. But if we found assets for sale that met our criteria of returns and we could get comfortable with the associated country risk, then, yes, we'd be buyers.

Okay. Maybe just my follow-up here. Just on the MLP structure. So we saw the announcement out of Westlake yesterday, but also we've seen others, like CF and Potash that have walked away from this type of structure. Logically in your mind, what are the machinations that you're going through as you think about either one plant or two plants?

(multiple speakers) think we'd -- well, we're looking at one plant first, because that's what's in front of us. And there's a lot of things to consider. It's simplified sometimes in some of the writings that you read. But we're learning, we're going through to understand all the implications on our business. And see, are the returns that we're seeing, are they sustainable, will the -- could the rules change? If the rules change, how does that impact maybe the structure we set up?

If we set up an MLP structure, what other things are we not able to do? So it's quite complicated set of analysis that we have to do because we are a single-product commodity chemical Company running a global supply chain that's integrated. You'd have to wall off that piece of your business. You wouldn't have the EBITDA from that piece to grow if you chose to grow.

You wouldn't have the EBITDA from the MLP piece to sustain a trough in the methanol pricing. So there's a lot of things that we need to examine and take not only our management team through, but our Board through as we look to make the decision.

And I guess the beauty is we do have time because we won't be in a position to drop Geismar 1 into an MLP until sometime next year.

All right. Appreciate the candor.

Thanks, Jacob.

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

Hello. I guess two quick questions. First, can you give an update on your thinking around other potential projects, either a second plant in Medicine Hat or another project or projects in Chile? What's your thinking about in terms of doing if either on your own or bringing in other partners and the time line for a decision there?

Then secondly, can you walk through a little bit of how to think about the average discounts? They were up quite a bit quarter over quarter. Is this sort of a good run rate for the balance of the year, or how do you see it going to evolve going forward?

As far as new projects beyond Geismar 1 and 2?

Correct, yes.

Yes.

Moving a third plant from Chile to the US or doing a new project in Medicine Hat.

Yes, we continue to have two teams working on those projects. So there's a team working on a potential third relocation from Chile and there's a team working on a Medicine Hat 2 expansion.

I would say on the Medicine Hat 2 expansion, the capital costs look quite challenging. And the execution risk is quite high due to the inability to get a time and materials type of arrangement with an EPC contractor. Decision-making process there, we're completing a pre-FEED.

We're doing some other work to look at how do we get the product to Asia and what the capital costs might be for a conventional steam reforming 1.3 million tonne plant. We'll probably be in a decision FID by the next 12 months, is the current view. So quite a bit of work to do, but it looks quite challenging based on gas at $4.50, the current capital costs we're seeing, and the long-term methanol price.

As far as a third relocation, obviously using our assets in Chile is the first prize for the Company. So we're still watching what's happening in Chile. It's off of the unconventional drilling. Argentina's busily developing their shale gas assets and we have a team, like I said, looking at a possible third relocation to Geismar.

Things that have to happen probably before we pull the trigger on that, getting Geismar 1 running. Having a gas contract, or some sort of gas certainty for 1 million tonnes in Geismar 2. And we probably need to acquire a little bit of land in the area. So again, a team working on it. I'd say the decision on that's probably in the next nine to 12 months, as well.

And then the second question was on the discounts. The -- I've guided before that we expect our discounts to improve over time, as markets remain tight without a lot of new supply coming on and demand continuing to increase. That guidance hasn't really changed.

In the quarter, we saw discounts go up because we chose to temporarily adjust some pricing based on a real large drop-off in pricing that -- I think what happened was all of the plants that were out, all came back at the same time. A couple of the plants, whether it be Iran or in Malaysia, didn't have all of their molecules contracted. So we saw quite a bit of material come on the spot market in a very short period of time, which led to lower, quite significantly lower spot prices in a matter of weeks.

Thank you.

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

Morning. If I can just get some color and your thoughts on capital allocation. And John, you made some comments around Greenfield/Brownfield growth around Medicine Hat, Chilean relocation, and acquisitions.

Just wondering, when you were looking at sizing the amount of the dividend increase and the decision on the NCIB, were those completely separate decisions? Or did you feel that with the challenging environment out there for Medicine Hat, that it made more sense to basically invest under your own capacity on the share buyback side and maybe give a little bit more on the dividend?

The things we've done with our cash is no different than we've done in the past. We take a balanced approach and there's three pillars to that balanced approach. Grow the Company, have a meaningful growing, sustainable dividend at the bottom end of the cycle, and then return any excess cash to shareholders through share buybacks. That hasn't changed.

So we're preserving the ability to grow the Company, even though we've increased the dividend and the share buyback. I've said before that if we don't have opportunities that make sense to grow the Company, as we get to 8 million tonnes of our own capacity at a $400 realized, which is significantly lower than we're seeing today, we'll be generating over $1 billion in EBITDA, of which $700 million will be free cash. So if that was the situation, we'd be having a lot more consideration with dividend and share buybacks than we announced yesterday.

Okay. And then -- sorry --

I'm just saying we have preserved the ability to grow the Company, despite having increased the dividend by 25% and putting out a normal course of 5%.

So the decision, though, to proceed with an NCIB, because that hasn't been an every-year thing, isn't -- should not be construed as any concerns or change in your thoughts on potential Greenfield/Brownfield growth?

I think it should be construed that we're very positive about the ability of this Company to generate significant cash, despite spending $130 million a quarter on growing the Company by 2 million tonnes.

Got it. Just last kind of question here on the MLPs, you referenced the private letter rulings. Just wondering if you do decide to go ahead, will you be seeking, definitively seeking, private letter ruling or are you happy relying that there's similar assets in MLPs?

We'd seek a private letter ruling.

Okay, great. Thank you.

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

Good morning. On the outages that were out, not yours, but the global outages, you had the big ones in Indonesia. You had the Iranians. There were issues in Oman, issues in Saudi Arabia.

Is everything now back and running effectively? Now are there other turnarounds that are going on now or will be shortly that should be sort of adjusted for or dealt with?

The plants that were down are back and running. The Bruneis, the Malaysians, the Iranians that were restricted on gas and sanctions, they're back and running. There's a couple down right now that are normal maintenance.

You should expect to see normal maintenance in this industry every quarter. So I'd say we're -- the industry right now is running at a pretty good clip.

So what we're saying is basically everything that was unscheduled and sort of -- that was offline is now back and pricing is now stabilizing around that level?

That's what (multiple speakers)

Around the level we're seeing, with basically everyone out there running.

Yes.

Do you have any ideas going forward on what -- I think you had said that gas curtailments in Trinidad are going to sort of replicate what they have for the last couple quarters, is that right?

Yes, we're seeing gas restrictions in Trinidad similar this quarter as last quarter.

Okay. Last question is China, have they shut down any of the gas-based production yet in any significant way, or is that something that might still come or where do we stand with that?

Well, it's pretty interesting when you see the prices decline as quickly as they do. You don't get an immediate response. But we are seeing response now where high cost gas-based plants and some coal-based plants have reduced or turned off.

We do believe there's some of the industry below the cash costs. And again, it's not an immediate response. They probably look to see how long they expect the pricing to continue before they turn off. But some have turned off. We would expect others to turn off.

We've seen pricing rebound a little bit in China, the order of $10 a tonne. I think we're at $370 to $375, today. I don't anticipate the future's going to be any different than the past; when the Chinese producers have been losing cash, they've shut down. And that would be my expectation going forward until I see something different.

Okay, great. Thanks very much.

Thank you. (Operator Instructions)

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

Hello, John. Thanks for taking the question. I wanted to understand with the dividend, the substantial increase in the dividend, what sort of stress you go through when evaluating the right level for that?

And if you could give us specific floor methanol price, or any color around that. And then also wanted to understand the expected pace of the share buyback.

Yes, on the dividend, we have three things that we look at when we're thinking about the dividend. We want it to be growing. So we've grown it every single year since 2002, except for the time of the financial crisis, and when we had our assets in Chile become stranded to some extent.

We also like it to be sustainable, like you mentioned. So the last time we saw a real trough in the methanol industry was just after the financial crisis, we saw prices of $200 a tonne. Every one of our plants at that price were still cash-positive and we maintained the dividend. So we do stress test it as we increase it, that we want to be able to maintain it at what we believe is the trough in the cycle.

And then meaningful. So what does meaningful mean? Probably somewhere in the 1.5% to 2% range for a single-product commodity Company, is a meaningful dividend. We don't look at specifically at any given point of the share price. We just look at it usually once a year and make a call, and that's what we've done this year. And I think the yield is probably 1.7% or something, depending on what the stock is doing.

And then on the share buyback. Our philosophy on share buybacks is to be in the market on a daily basis, not to try and time the market to have a standard amount of shares each day that we're looking to buy, to complete the normal course issuer bid in usually a 12-month period.

Okay, great. Thanks for that color. Then shifting gears, on the new demand side. So we've talked before about the ferry application with Stena and then some other kind of energy demand sources. Do you have any updates, generally about kind of the progress of getting new demand to the industry?

Yes, one of the challenges when we saw the fly up in pricing, the energy applications that people are looking to make significant investments in, became less attractive in some cases. So Stena is continuing to pursue a conversion of their first ferry later this year. So that's ongoing. We're building our seven ships that'll be able to run on methanol.

I think the economics for MTO and DME are much better today than they were 60 days ago. Volvo and their truck fleet in the US have a trial going on with Safeway to use DME to run most trucks to replace diesel. These things, again, don't happen overnight. But the trends are there that energy applications continue to grow and continue to drive the growth of the industry.

Okay, great. Thanks a lot.

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

Yes, good morning. Just a quick question here. I was hoping you could clarify or help us better understand the impact of the drag on the quarter associated with the purchased tonne volumes.

And then if you could just reclarify what you thought the inventory drag would be going into Q2, I missed the number? I apologize.

Yes, so we estimate we'll incur about a $10 million negative impact on margins related to inventory on hand at the end of Q1, based on our current view of Q2 pricing. I'd rather not get into the color specifically around what happened in Q1 with purchased product. What I've said over time is on average, you should think of a flat margin on what we've purchased and what we sell. We've done much better than that over the last 12 months, but on average, that's our guidance.

Okay. Understood. And then just maybe one other question as it relates to the spread of the bifurcation between the markets. As I understand it, one of the key issues driving the North American spot market in recent weeks has been some arbitrage or imported tonnes.

So I'm just trying to understand, do you have a sense for, from a market intelligence standpoint, how much of that volume is still left, given the discounts happened there a little bit? Is that largely finished? Should we expect to see that $100 of usage hold pretty firm here?

Yes, we expect the $100 differential between the basis to continue for the foreseeable future. There has been product from Southeast Asia moving into Europe and North America. We understand most of it's sold and placed, so we don't think that's going to have a significant impact on the current spot markets in those regions.

Having said that, I think if the price in North America and Europe is above the $100-tonne differential, you should continue to see cargoes move from Southeast Asia to Europe. So that's what we saw Q4 last year and that's what we expect going forward this year.

Okay, great. That's helpful. Thanks.

Thank you. (Operator Instructions) The following question is from Chris Shaw of Monness Crespi. Please go ahead.

Yes, just a follow-up on the purchased volumes. Just curious, is that sort of more a normal level, do you think, or was that elevated during the quarter? I know you're marketing the Lyondell volumes as well now, but I was just trying to figure out, model for the rest of the year if that seemed like a more normal level.

I think as you see us bring on our own production tonnage the percent of purchased product that we'll be selling will decrease. When we do have our own production issues, we have to go out and buy a little bit more than we're planning, to cover our own shortfall. So I think the answer to the question is really predicated on how well we produce, is how much we're going to purchase.

Okay. Then to that end of it, you mentioned Chile, the plant was going to be shut down for a while, until May or so. What -- exactly what's going on down there? Is that just depending on how much gas Argentina is giving you?

No. I think what we said is in the winter months down there, the gas balances look quite difficult for us to continue to run because the city itself in Chile pulls more gas for heating in their winter. And Argentina's not as receptive to exporting quantities of gas in their wintertime.

So those two, the combination of those two factors makes it difficult for us to run in the wintertime. So the current plan is we'll probably go down in the next week to 10 days and we expect to be operating again later this year. That's our current view.

Okay. Thank you.

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

Hi, again, John. I had a follow-up. You obviously talked about the supply disruption side of things for methanol. But obviously, there were a certain degree of demand disruptions, as well.

You touched on MTO disruptions, covering the asset use chain. There were obviously some VAM and acetic disruptions, as well. So just wanted to get your sense of, what that amounted to roughly in Q1? And are those behind us now, and would that in turn mean demand support, as well, going forward?

Yes, we did see demand decrease globally in Q1 versus Q4 last year by about 150,000 tonnes. So we didn't see growth. We saw a decrease. That has also contributed to the rapid drop in pricing. We didn't see the rebound after Chinese New Year that we would have expected in the traditional demand.

I think pricing, like I mentioned earlier, was pretty high and put pressure on DME and even MTO took maintenance probably for reasons that the economics were not that great. As they were paying $500 a tonne for methanol, give or take. I think those things have corrected that the affordability for DME and MTO is a lot better today than it was 45 days ago.

And we have started to see demand on the traditional derivatives in China rebound. So our expectation is Q2, we will see growth again at more normal levels than we would have saw last year. So I think we said last year the industry grew at 8% on average, so 2% to 3% growth is what we're forecasting globally in Q2.

Perfect. Thanks so much.

Thank you. (Operator Instructions)

The last question is from Laurence Alexander of Jefferies. Please go ahead.

Just want to follow up on the demand question. Do you see the surge of 2% to 3% demand CAGR being sustainable for the next several quarters?

And if so, would that be suffice to get to soft up the new capacity coming on and get to a tight balance in the middle of next year? Or do you think it's going to take a little bit longer than that?

Again, the future is hard to predict. But we've seen 7% to 8% growth in methanol the last few years and that would be our expectation going forward, being driven by the energy applications.

And I think under those conditions, you're going to see snug markets. You're going to see certain times like we saw in the last 30 days where supply is a little bit more than demand, but I think the trends have not changed.

When you look at that compounded annual growth rate of 7% to 8% per year, that's 3 million to 4 million tonnes of new capacity that's needed every year to keep the market balanced. And there's not 3 million to 4 million tonnes of new capacity coming on.

As I've mentioned many times, it takes three to four to five years to build a project from the start of the project to turning off the taps. We have fairly good visibility over the next four or five years. And we still believe that you're going to have a combination of higher cost capacity having to run, to keep the market balanced. As well as some substitution impact based on the affordability for energy applications in methanol.

So our view has not changed at all. I think it's a little interesting. I mentioned on the last call that this is a commodity chemical business like any other. It has a cost curve and you don't stay above the cost curve for any extended period of time, in this case we stayed above it for months, not for days.

And as a result, we were able to generate excellent EBITDA in the quarter, this quarter and last quarter. So we'll take it. We never thought it was sustainable, but I think the fundamentals that we look at is at $400 a tonne realized, as we execute Geismar 1 and 2, we're generating over $1 billion in EBITDA.

That's what gets me excited. We're going to have ups and downs in the pricing. It is a commodity product, depending on supply-demand, but the trends are still there and very solid.

Thank you.

Thank you. I would now like to turn the meeting back over to Mr. Floren.

Well, thanks very much for the questions and the interest in the Company.

Due to the ongoing production issues in April and the anticipated May shutdown of our Chile operation, and the ongoing gas restrictions, our current view is production levels in Q2 will be similar to Q1. In addition, the price of methanol, as mentioned, has moderated to levels we experienced prior to the significant global production outages in Q4. And as a result, we expect earnings and EBITDA to be reduced in Q2 versus Q1 of 2014.

Thanks very much for your time.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.