Methanex Corp (MEOH) 2023 Q4 法說會逐字稿

Good Morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation 2023 fourth quarter results conference call. (Operator Instructions) Thank you. I would now like to turn the conference call over to the Director of Investor Relations at Methanex, Ms. Sarah Harriott. Please go ahead, Ms. Harriott.

Thank you. Good morning, everyone. Welcome to our fourth quarter 2023 results conference. Our 2023 fourth quarter news release, Management's discussion and analysis and financial statements can be accessed from the reports tab of the Investor Relations page on our website at 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 fourth quarter 2023 MD&A and to our 2022 annual report for more information.

I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters.

For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility and our 60% interest in Waterfront Shipping.

In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events. These items are non-GAAP measures and ratios that do not have any standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other companies.

We report these non-GAAP measures in this way because we believe they are 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. Richard Sumner for his comments and a question and answer period.

Thank you, Sarah. And good morning, everyone. We appreciate you joining us today as we discuss our fourth quarter and full year 2023 results. I'm excited to report that the G3 plant is in the process of starting up, and we expect that commercial production is imminent. G3 significantly increases our cash flow generation capability and has one of the lowest emission intensity profiles in the industry.

We're extremely proud of our global team for safely delivering this high-quality addition to our asset portfolio. Turning to our results for the fourth quarter, our average realized price of $322 per ton and produce sales of approximately $1.7 million tons, generated adjusted EBITDA of $148 million and adjusted net income of $0.52 per share.

Adjusted EBITDA was higher compared to the third quarter due to the higher average realized price and higher produce sales. Our global team has delivered a strong year of operating results with a production of 6.6 million equity tonnes.

For the full year 2023, we recorded adjusted EBITDA of $622 million and adjusted net income of $153 million or $2.25 per share. We estimate that global methanol demand increased in 2023 to approximately $91 million tons through the fourth quarter.

Market conditions strengthened with increased demand primarily in China, outpacing an increase in supply, leading to a drawdown on inventories and increasing methanol prices. Global methanol demand grew by over 3% compared to the third quarter with significantly improved operating rates in methanol to olefins and growth in traditional demand in China.

Outside of China, demand for traditional and energy applications remained relatively stable. We estimate MTO operating rates have increased from low 70% in Q3 to mid 80% in Q4, driven by the completion of planned downstream expansions and an improvement in affordability during the quarter.

On the supply side, production increased from coal-based producers in China, which was offset by planned and unplanned outages in the US, Southeast Asia and the Middle East, as well as lower production from natural gas restrictions in Iran and China.

Coal pricing in China was steady during the fourth quarter, ranging from around RMB 950 to RMB 1,000 per ton. We currently estimate the marginal cost of production to be between $280 per ton and $300 per ton based on current coal pricing in China.

Overall, continued high energy pricing, low global inventories and tightening supply demand balances led to higher pricing throughout the fourth quarter and into the first quarter. Our February posted prices in North America, Asia Pacific and China are posted at $570per ton, $390 per ton and $360 per tonne -- per metric ton, respectively.

And our first quarter European price was posted at EUR525 per ton, an increase from Q4 of EUR150. Based on our January and February posted prices, we estimate our global average realized price to be approximately $335 per metric ton to $345 per metric ton for these two months.

Looking forward, we expect 2024 demand growth rates to be similar to 2023 based on current global economic forecasts. Supply additions in 2024 include our G3 plant, a plant in Malaysia, which is expected to start up in the second half of the year and some limited new capacity in China.

We expect to see increased supply from these new capacity additions to be partially offset by the rationalization of existing supply production in Trinidad will be lower by approximately 1 million tons annually beginning in September 2024 when we shut down Atlas and restart Titan.

And we continue to monitor our competitors' operating rates in Trinidad and other factors globally that could further impact supply, such as announced, the announced gas diversion from methanol to LNG in Equatorial Guinea. Beyond 2024, we expect to see continued methanol demand growth and do not see any meaningful supply additions outside of China for the next few years.

Looking at long term demand drivers, ship orders for dual-fuel methanol vessels accelerated at a rapid rate in 2023. This was the first year that the orders for dual-fuel methanol vessels outpaced LNG-powered ships and the current order book for methanol vessels would result in over 250 ships being on the water by the end of 2028.

The momentum for methanol as a green fuel is clearly very strong. And we believe that methanol demand into marine applications will depend on a number of factors, including availability of low-carbon methanol, including green methanol, green fuel regulations and the cost competitiveness of methanol versus other fuels.

Our low-carbon solutions team is in discussions with multiple shipping companies on how we can supply them with methanol as these ships start to come on the water in the 2025 to 2028 period. In the fourth quarter, we had higher production with no scheduled turnarounds and both Chile plants operating at full rates with gas from Argentina.

The Egypt plants had an unplanned outage in mid October due to a mechanical failure in the synthesis gas compressor. The unit was sent to its manufacturer in Germany for repair, and I'm happy to report that it's now back on site and we expect the plant to be able to start up in the first half of February.

The G3 plant is in the process of starting up, and we expect the commercial production is imminent. We expect the plant to ramp up to full rates over the month of February. I want to thank the project team who worked tirelessly to deliver this high-quality project safely.

And we expect the total capital costs to come within the budget of $1.25 billion to $1.3 billion. In 2024 we have one planned turnaround schedules. Our forecasted production for 2024 is approximately 8.1 million equity tons, although actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages and unanticipated events.

In Chile both plants are currently operating at full rates with gas deliveries from Argentina, we estimate production for 2024 will be between 1.1 million to 1.2 million tons, which is underpinned by year-round natural gas supply from Chile for about 30% to 35% of our requirements with the remaining 60% to 65% from Argentina during the non-winter period, allowing us to operate both plants at full rates.

Natural gas development and related infrastructure investments in Argentina continues to progress, and we're working with our natural gas suppliers on extending the period of full gas availability to our plants. In New Zealand, we're expecting lower gas deliveries and lower production in 2024 of 1 million tons to 1.1 million tons.

2024 natural gas supply as expected, demand impacted by a combination of our suppliers planned infrastructure maintenance outages as well as lower than expected output from existing wells. While upstream investment has been made by our gas suppliers in New Zealand over the past few years, recent production results have been lower than originally expected, which has contributed to the revised forecast for lower production in 2024.

We ended the fourth quarter in a strong financial position with $451 million of cash and $300 million of undrawn backup liquidity. Our capital priorities are to pay the remaining G3 capital of approximately $60 million to $110 million in the first two quarters of 2024 and to repay rather than refinance the $300 million bond due at the end of 2024.

Moving forward, we expect to generate strong free cash flow with limited maintenance capital and higher production capability with G3 operating. Looking ahead to the first quarter of 2024, we're expecting slightly higher adjusted EBITDA with a higher realized price and similar produce sales as we will be building produced inventory with the G3 start-up and each of restart.

The G3 expected to ramp up to full rates over the month of February. We expect the second quarter of 2024 to be more representative of our run rate production and cash generation capability. Our priorities for 2024 are to deliver strong operational results from our assets and supply chain, maintain a strong balance sheet, including the repayment of debt and return excess cash to shareholders.

We would now be happy to answer questions.

(Operator Instructions)

Joel Jackson, BMO Capital.

Hi, good morning. When we think about the buyback now you talked about what your capital allocation priorities are to get through the last, I don't know, $80 million or $90 million of spending in G3, put enough cash on the balance sheet to pay back the bond later in the year. When do you think you're in the position to you have enough cash buffer on your balance sheet and you're ready to start buying back stock?

Yes, I think, Joel, we're obviously monitoring the markets, methanol pricing, certainly where it is today. Methanol pricing is we generate strong cash flows at today's methanol price. So it will be a function of our outlook on, firstly is building up the cash for or at least having an outlook on the market by the time, we'd make that decision to maybe open up a bit.

But I wouldn't say we're there yet. We're going to monitor the markets. We'd like to get G3 up and running and focus on getting that up to full rates. And I think if you look forward, you hold pricing where it's at today through Q2 with all of our assets running year, we'll be building cash.

And if we can get confidence of markets holding and then we'll see we don't have to wait until everything's built before we we open up that flexibility, but we're not there yet, but we're going to pay attention really, really closely, to how things build up over the next few quarters here.

Okay, that's helpful. So you know, when G1 and G2 came on across '15 and early '16, there's another plant also in the US that came on I know a lot of pressure on methanol inventories in the States, I think prices were quite low. They bounce back across '16.

You're about to put a bunch of new methanol volume on the market coming out of the States. US is about to go long methanol to a greater amount now. What is the team doing to make sure that you're balancing the market? Are you going to run full rates in a month? How do you make sure you don't hurt the market?

So I mean, Joel, where we've been on a sales perspective, we've really built up sales in advance G3. So when we start up the plant, whether it will be is it will be a displacement of purchase product and like I said, we're already -- we're anticipating and building all everything into our plans that we're getting up to full rates by the end of February.

We plan our supply chain about two to three months out. So we've already pulled back on purchases and market pricing has stayed stable, if not increasing. So I would say a lot of G3 is in the market today without the plan operating.

And you know, part of this is the fact that the timing at which we're doing this is fortunate because the market is typically structurally short with -- in this timeframe. But I would say a big portion of G3 is already in the market because of our supply chain decision making that's already there.

Steven Hansen, Raymond James.

Yeah. Thanks guys. Rich, as you think about the gas opportunity in Argentina to bring on sort of those two plants at full rates full time. What is the timeframe for those discussions with the Argentine gas suppliers and the time to contract all different things you need to do in advance to get to secure supply so that you can run those basically at full rates?

Thanks, Steve. I think when we look at Argentina, it's a real positive story for us right now. And I think just to go back to where is development, how is -- what's the pace of development in that country. Really good progress through 2023 with the tie-ins that they made to the Vaca Muerta.

Just how they're phasing that in the first tie-in happened where it added about, 11 million cubic meters a day of gas into the grid. The compression they're going to add to that pipeline is going to double our capacity that's supposed to happen in the first half of this year.

And then there's a twinning of that, pipeline is going to double all of that. So and that's about a third of the gas supply demand in Argentina, that twinning is supposed to happen through 2025. In addition to that, there's a project that's happening in the southern basin which is Total and Wintershall and others. It's the El Fenix project that's in the south as well.

And that's that gas is meant to come online at the end of 2024 into 2025. So I see it's already positive. We're already seeing more gas availability in the non-winter months, and that's allowed us to operate both plants. What I see is there's going to be a lot more positive developments in the next few years. And what I would say is our goal is to contract on a longer-term basis this full gas in the non-winter periods.

And then over time, we shorten those shoulder periods to the point where we can move towards full gas supply. I can't give you exact timeframe, but I think there's going to be a lot of positive things happening in the next few years. And certainly we're going to be working very closely with our gas suppliers.

Okay. That's great. And then just on your reference to discussions with some of the ship owners around methanol supply arrangement. Is there something you need to do to sort of carve out a new stream of methanol, whether it's RNG-based or some sort of carbon-based, low-carbon based fuel stream to provide that kind of fuel type for the methanol operators? Or are they are just looking for the regular methanol as a starting point?

I would say there's a combination of discussions going on. There's regulations in Europe that are really driving the desire for low carbon or green methanol. And so when we are in discussions with a lot of those shipping companies do focus more into investments in renewable, whether that be RNG or e-methanol -- bio methanol or e-methanol.

And so you know those discussions are ongoing. There's also discussions about conventional methanol happening as well outside of Europe and with other shipping companies. But like I said, there's a number of different factors. I think that the marine industry is working with and that will influence their ultimate choice in fuels.

And certainly, our low carbon solutions team is working right along with them on how we can provide solutions be at investments in green or conventional methanol or both. So I think we're going to have more to report here as we move through this transition to have the ships on the water and it's going to evolve so hard to give you exact time frames and volumes as it relates to methanol, certainly, these are dual-fuel ships and there's options for traditional bunker fuels.

We think that methanol looks is competitive to the alternative low carbon solutions in the diesel space. But again, that's also going to involve.

Hassan Ahmed, Alembic Global.

Good morning, Rich, you guys saw a good bump up in pricing over the last couple of months, particularly in Europe. So my question kind of is around the variances are divergences in pricing. There still seems to be a fairly large delta between, call it US/European pricing and Asian pricing so would love to hear your views around that delta?

Thanks, Hassan. It's I think when we look at the markets, which you know, we tend to start with China. China becomes is the cost- setter in the market. And today we say cost curve is around $280 to $300. And we see MTO affordability, which is a big buyer to the industry kind of in the same range. And so that we've seen that price holding uncovered relatively firm for quite some time.

And then what we see is that depending on the I call the tightness in the market, we see pricing in other regions at a better premium to China which varies depending on supply and demand into those markets and availability of methanol. So if you have unplanned outages in the US and the premium in the US market will go out for a period.

But what we're seeing is things kind of settling in at around on average, we're in this $30 to $50 over China. And like I said first quarter here, we're at $335 per ton to $345 per ton on an average annualized basis with China in that $280 to $300. So we're very happy with the pricing that is happening in the market, which is reflective of a tight market conditions.

Fair enough. And then just moving on to the natural gas side of things, particularly in the US, I mean, I know between last year and this year, we've obviously seen natural gas prices in the US coming down a fair bit. Can you talk a bit about the differences in your hedging strategy between 2023 and '24? Because I know you guys had obviously hedged out a fair amount of US natural gas last year, where does that stand this year?

Yeah. We're -- so our strategy is kind of to have a three to five year rolling hedges and we actually go beyond that, but at a much lower quantities and we target in the near term years to have about 70% of our position in North America hedged. And that's where we're at today with G3 operating at full rates. So we've effectively you could say, we're participating. It will be participating in the spot market at around 30%.

We said that level, based on the minimum operating rates in our plants because we target it delivered cash costs that we're comfortable with to operate at all points in the methanol price cycle. And so we've been successful in putting in those hedges. We're happy with where we are. We're not seeking to hit in the short term to be hedging up beyond that level.

And we continue to be active in the market layering hedges in the outer years as the New Year's roll-in. So hopefully that helps you with that question.

Ben Isaacson with Scotiabank.

Thank you very much and good morning. First question is on New Zealand. Just looking back at my model, I see in 2016, you produced or sold a 2.2 million tons from that region, and now eight years later were down about 50% to 1% to 1.1%.

What should we be modeling as a run rate for New Zealand going forward, not in 2014, but beyond '24? What's the realistic game plan there? And is there an opportunity to monetize an asset that's not being used right now.

So thanks, Ben. For modeling purposes, we are giving guidance right now at one year out. And a lot of this is based off of developments that are happening in the natural gas fields in the Taranaki Basin as well as other factors.

I think what we've seen, if you look at the decline over that time period that you referenced, it's all about what's happening in the different fields in New Zealand. And we did see that there was a revision in reserve estimates of one of the major fields that brought that was quite some time ago that brought production down.

Today I would -- we don't forecast to have Waitara Valley, the smaller plant in our plants. We're really focused on the two Motunui plants and getting gas or for those plants. I think when you look longer term, how do you think longer term for these assets is you have to look at both above-ground and below-ground factors in what I mean by that above-ground, we play a huge role in New Zealand and the natural gas market.

The country uses most of the power. It is renewable power. But natural gas is an important power source when there's intermittent gas, there are intermittent power supply and we it's a low-emission power source. Otherwise, you're dependent on imported coal, we represent 50% of the market and we're the baseload customer for the natural gas industry. So I think that is an important factor.

And the second one is the government. There's just been a new government put in place in New Zealand the center-right coalition. Their platform is much more favorable towards the gas industry in comparison to what we've seen for the last six years and that there is a clear, a clear direction that they've set coming into the power.

So that's positive and then obviously looking at below-ground. Some of the campaigns that have been run for the last year or so. They haven't delivered the results, which is what you see you kind of expect sometimes you're going to have results. Sometimes you won't. These are not deliver results in the wells that have been producing.

We've seen declines happening a little quicker. So we're working with our gas suppliers really closely on the investments they're going to be making to improve the existing wells and also there the impact that has on their future campaign.

So it's difficult to give you, what is that going to result in for a long term run rate. What I can say is our focus is on the two month annuity plan and keeping those trying to improve that production from those assets.

That's super helpful. And then just one more, if I may, and forgive my bad math here, but you said that the world grew at an annualized rate of 3% in Q4. And ex-China, the world was stable or maybe above roughly flat. So does that?

And given that China is roughly half of global demand, does that mean that China really grew at 5% to 6% in Q4? And if you take MTO out what it non MTO trying to do. That's what investors are quite interested in because MTO will fluctuate all the time, but we really want to see demand improvement from underlying China? Thank you.

Ben yeah, so we did see some demand improvement in traditional applications in China as well as MTO and overall growth rates were about 6% in China quarter-over-quarter. Traditional applications obviously it is something that we're watching really closely as well. For the year in China, we saw of about 5% to 10% growth rates in China across all applications.

So that was MTO, other energy applications and traditional chemical applications and traditional chemical applications were supporting industrial production in China increased by over 5% for the year. Export demand was weak, but they were exporting a meaningful amount, especially in comparison to the previous year, where they were in a COVID year.

So in a way, it was had we did we were coming off of a lower base coming into 2023, but 5% to 10% growth rates across all those different applications. When it represents 60% to 65% of your demand, obviously is going to be meaningful for the industry.

Josh Spector, UBS.

Yeah. Hi. Thanks for taking my questions on. First, I just wanted to ask just within Europe and thinking about Red Sea and Middle East disruptions, has that had any impact on the region? I know for some other commodities, you're talking about potentially limiting supply in Europe being upward price and perhaps catalyst. I know methanol floats tend to be in the other direction, but what are you seeing and what do you think plays out here near term there?

That's exactly right. It hasn't been a big impact for us nor for the methanol industry broadly our supply chain. We don't have any product flowing through the Suez and the Red Sea, we would if we were supplying Egypt to Asia but Egypt is really an asset that supplies mostly our Mediterranean customers.

So we're not impact and then the broad industry flows the Middle East have really pulled back over time and are almost negligible. And that's on the basis that there's been a lot of new Atlantic production that's come online over the past in many years. And so it hasn't impacted the methanol pricing or really tightened up the market in Europe.

I would say what we're continuing to monitor, which is a lot everyone will be monitoring is potential escalation in the region. And the Strait of Hormuz is where probably 15% to 20% of supply, because all Middle East supply flows through that region.

And just given recent events with Iran, yeah, something we're watching very closely, but that would impact many, many different commodities. And so we'll continue to monitor that. But so far, the impacts have been pretty muted.

Thanks. Appreciate that. And just a quick one on CapEx, if I could just as G3 wind down, I mean you go more to maintenance levels, but you're talking about a little bit of growth when you think about marine fuel or some other applications what's the range of CapEx you see over the next couple of years on a go-forward?

When we look out, we don't see any real meaningful capital in the next few years. When it comes to either intrinsic organic growth opportunities or low carbon, that's more low-carbon methanol investments. It will take time to develop. We're developing these opportunities, but that will take time so we're not standing still we're developing these.

But in terms of capital spend, we don't see a lot of outflows or outlays being needed in the next few years. So you know, really when we look at free cash flow generation, the focus again is the balance sheet and then excess cash to shareholders, which we've been pretty consistent with over the years.

Nelson Ng, RBC Capital Markets.

Great. Thanks, and good morning. My first question is from in terms of the outage in Egypt. Obviously, you still need to supply Europe. Did you see materially higher transportation costs in Q4 and maybe in Q1? And if so, should we assume that things kind of normalize in Q2?

Yeah, so thanks Nelson. Yes, we did see higher logistics costs. And I would say part of that was because of Egypt. Additionally, it does depend on your supply chain movements with more chilling product in our asset base, we do see more flows from Chile to Asia. So a little lengthening of the supply chain there.

As we move forward in our supply chain, it will be partially linked. And when you with G3. G3 product will be flowing to all different areas within our supply chain, but there will be likely more flows into Asia as well. So hard to say how you model all that, but we expect there could be some slight increases in our ocean freight just on based on shipping days and length and shipping in the supply chain.

Okay. That's good to know. And then just one follow-up on New Zealand. You mentioned the lower supply. I guess is that from a maintenance outage at wells versus generally lower outputs? Would you say that the generally lower trend of output is that the larger factor in terms of your forecast for the large decrease in methanol production in New Zealand or is it specifically like a very big outage or long outage you're expecting for maintenance?

It's about it's about half and half, but I would say for that thing, it's about half because of the outage and half because of lower gas profile.

Okay. And are those outages like every other year or once every several years? Like should we expect these outages to happen again in 2026?

Every few years. Yeah, every two around every two or three years.

Okay. So base cases, we might see as a modest increase in 2025 out of New Zealand. If everything else remains unchanged.

We'll keep updating you on the progress and we're going to work really closely alongside and be able to give you a better view on that as we get closer to next year.

Matthew Blair, TPH.

Hey. Good morning. Thanks for taking my questions. I had a couple of modeling questions for G3. First, are there any significant startup costs on that we need to incorporate in the Q1?

And then second, on this inventory build in Q1, is that going to be like just a permanent part of your working capital or will it be temporary? And if it's temporary, is that something that you think will reverse by the end of '24 or something further out?

Thanks for that. So I can -- first question is about capital. There will be no other P&L kind of start-up costs to it. It would be for us to be focused on everything in terms of starting up and commissioning. The plant is included in our $1.25 billion to $1.3 billion, and that's all included in the numbers, the $60 million to $110 million, including what's in account payable today.

So there's you shouldn't see anything beyond that as it relates to inventories. But I think you will see this year as well. Inventory overall inventory levels likely stay something similar potentially even down like we could see inventories be managed down. We're not significantly increasing our sales. So there isn't a need to increase overall inventory levels, and I would expect to see that these things moderate over time in terms of the produced inventory buildup what you're seeing today.

So I wouldn't I wouldn't be forecasting this to be a permanent. And what we will see is that overall inventories stay the same, but there's sort of a flip between produced inventories and purchased inventories as we'll be buying a lot less proportion of purchased and producing more.

Okay. And then so does that mean that for 2024 that your sales volumes should be pretty close, maybe a little bit less than the 8.1 million ton of production?

Yeah, it will be pretty -- it should be pretty close and it might be slightly lower because of the inventory build.

Got it. And then my follow-up is just around RNG. And can you talk about what percent of your sales were based on a RNG feedstock in 2023? And how might that change in 2024 and beyond? And what kind of customers are interested in methanol from RNG? Is that I'm mostly the shipping or anything changed on the customer front there? Thanks.

Yeah. So I think first and foremost that the overall level is quite small. We really today we have one customer, purchasing bio methanol, but there's lots of interest. So there's lots of interest in and in low-carbon methanol and RNG-based methanol.

I think the challenge is it's about cost and availability of RNG. And RNG has other competitive alternatives that having increased the cost quite significantly and the premiums you need to pay. And so we have worked we are trying to work on arrangements where we can be more favorable price by locking in longer term and then selling into those markets.

And those are the things that we continue to pursue. And it's not just RNG in North America, we're looking at renewable natural gas in all of our jurisdictions to find out where we can source it economically and securely over time.

In terms of the customers at shipping, the shipping customers are interested in RNG, but also traditional chemical applications are also interested. In fact, the one contract we have is into the traditional chemical application. And what it's really customers that are seeking to have a green or bio kind of attached to their end product.

So we're seeing that in certain segments. It's consumer markets, that is where we're seeing it, ultimately landing in consumer markets that would be able to demonstrate, a feedstock that's for lower carbon or green. So we're continuing to develop it. Lots of interest, obviously getting securing long-term affordable renewable natural gas is the key and then working with customers on their willingness to pay.

(Operator Instructions)

Laurence Alexander with Jefferies.

Good morning. Could you give a bit more detail on what you're seeing in China and on DME demand and the industrial boiler applications amount of pull-through?

Yeah, I mean, I'll speak to China a little bit deeper here and maybe across all the applications, in particular, the ones you're focused on. So in other energy applications, we saw growth rates again, 5% to 10%, and that includes MTB, DME and other thermal applications, boilers and kilns as well as fuel -- other fuel applications such as cooking fuels.

So we saw a very strong growth rate across all of those applications. In terms of boilers and kiln, where we see boilers at today is that these are residential and industrial applications. But I would say that originally there was thought that it would replace big industrial boilers.

We haven't seen that where we see as in smaller applications, commercial and smaller industrial changeover, so that it's a decent growth rate, but it's not the some of the projections that were made early. I think in this space, we're quite dramatic, but we are probably seeing 5% to 10% would have seen that this year in that in that segment.

Your question about DME. DME has been relatively flat, right. Because that industry has kind of operated at a certain grade. It isn't growing or expanding the existing industry sort of operates at or around kind of an 80% rate. And so we don't see DME and growing at all. It's really the other applications like cooking fuels, boilers and kilns, M100 vehicles.

Geely is has a fleet of vehicles, but they're also developing heavy duty trucks. And so that's where we see more of the momentum is less. So in the I would call it the older new application DME and more into these newer applications.

And if I may, just one follow-up on that one structural question on with respect to the kind of the frothier, your expectations. I remember in the first industrial boiler discussions happened, a lot of it was about kind of the need for clear policy at the federal level to sort of force or trigger kind of the adoption at the larger sites, did that policy ever gel? Or is the absence of that? And sort of why you're seeing sort of shift in demand, mostly being the small applications?

What happened there was that industrial sites, large industrial sites got connected to the gas grid. So they needed to reduce down, they're powered by coal, and we saw a lot of those as much as possible. Those get those industrial sites have more connected to gas, and we're using that as an alternative versus methanol.

So methanol is actually being developed more in spaces where connecting the gas isn't available and it tend to be in smaller industry or residential commercial applications. So your policy didn't change, but --

Steven Hansen, Raymond James.

Yeah. Thanks, just a quick follow-up. I wanted to circle back on the supply picture. Rich, I think you referenced the Malaysian facility coming on G3, of course, but I don't think you referenced anything out of Iran this year. Just wondering if you've got sort of a view specifically on those facilities that have been sort of used about for some time and whether they're going to be contributing at all to an incremental supply this year. Thanks.

Thanks, Steven. So for Iran it's obviously getting information out of Iran and understanding what's going on there as is often opaque. So we rely mainly on what we hear in the market as well as what we see on trade flows.

The news in the market that potentially the Arion plant that started production sometime this year, we have seen some supply in the winter greater than what we've seen previous years. But we think that's more based on weather it's been a warmer weather than a lot of new supply coming out of new assets.

It's something we continue to watch. We think that the, when we think about Iran, we think the structural constraints are going to be the same which is owners under sanctions environment you have it's difficult to operate these plants. A lot of them have been built with the local EPC resources difficult to run from a technical perspective and the gas grid is constrained for a big part of the year.

So I think we will watch to see what happens when the winter ends and we see potentially more gas availability. And it will tell us whether we see any new incremental supply coming from new plants. But we think those structural constraints are there and they're going to continue. So we don't factor in a big amount of net supply coming out of Iran, irregardless of whether plants startup.

That's helpful. And just the obvious follow-on question is I know G3 is just turning on. So it's probably a bit premature. But but when do you start scoping the next facility, presuming that's probably happening. But when does the actual thought of hard dollars going into the ground. So to enter the equation, are we talking three years out five years out? How do you think about that longer-term? Thanks.

So the phases for us we'll be looking at doing commercial work to really explore options, and it'll be partly commercial, partly technical, looking at our different options that are available. That's where we are today. That process will then be narrowed down into which are the ones you want to progress, then you'll then we would talk about a pre-feed which would be really still fairly limited capital. And then the next step is to move into a feed which you start spending more money.

But still, I don't think is the capital you're talking about, you don't get there until you reach a final investment decision. So we're a ways away from that from and a final investment decision way start turning into spend meaningful capital on a new project.

Josh Spector, UBS.

Yeah, thanks. Just a quick one to clarify. When you're talking about the kind of guide or the walk to first quarter, you said slightly higher sequentially. I guess pricing up is up a decent amount. Understanding G3 is probably not in the math until second quarter, but Egypt was down last quarter.

I guess what's offsetting that when you're expecting Egypt to start is it a big cost of the repair maintenance associated with it or for something else which limits your first quarter increase?

Yeah, I think it's really we're going to be building inventory through the first quarter rather than seeing that product flowing through sales. So I think really when we look at our inventory as we bring G3 and Egypt up our overall produce sales for Q1 are looking really similar to Q4. And really it's about price.

And so I think we're -- when we look at quarter over quarter, it's more of a price story than a seeing that is incremental. And then when we get to Q2 is where you start to see kind of what I would call the run rate production coming through the actual sales and that's why we kind of point to Q2 as being more indicative of our run rate and cash flow capability with all our assets running.

Okay, thank you.

There are no further questions at this time. I will now turn the call back over to Rich Sumner.

All right, all thank you for your questions and interest in our company. We hope you'll join us in April when we update you on our first quarter results.

This concludes today's conference call. Thank you for joining. You may now disconnect.