TD Securities Upgrades Methanex (MEOH) to Buy

TD Securities upgraded Methanex (NASDAQ: MEOH) from Hold to Buy with a price target of $60.00 (from $69.00).

Analyst Cherilyn Radbourne said, "With ~40% of the demand for methanol driven by energy-related applications, we expect lower oil prices to result in lower demand for methanol and lower methanol prices. That said, even though oil prices have declined sharply, a wide spread remains between oil and natural gas prices on an energy-equivalent basis, leading us to believe that the medium- to long-term fundamentals for methanol remain attractive even though the short-term outlook has become less positive."

"The current oil prices in the range of ~$55.00–$60.00/barrel would be consistent with China spot methanol prices in the range of ~$220.00– $240.00/tonne — price levels last seen during the financial crisis; however, we expect the high-end of the industry cost curve in China to provide support — as it did in the spring/summer of 2014 — and prevent a sustained correction below ~$325.00/tonne, which Argus JJ&A estimates is around the cash cost of production for incremental China methanol supply," continued the analyst.

"After accounting for the normal spread between contract and spot pricing, and typical regional differentials, we expect Methanex’ average realized pricing to be in the range of $350.00–$375.00/tonne. We were already modelling 2015 based on an average realized methanol price of ~$375.00. We are now modelling 2016 and beyond based on a $375.00/tonne average realized methanol price (down from $400.00/tonne), and every $25.00 change in our averaged realized price assumption increases/decreases our EBITDA forecast by ~13%," she added.

For an analyst ratings summary and ratings history on Methanex click here. For more ratings news on Methanex click here.

Shares of Methanex closed at $43.23 yesterday.

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