Citi Downgrades Methanex Following Recent Rally

Citi’s Daniel Jester downgraded the rating for Methanex Corporation (USA) MEOH from Buy to Neutral, while raising the price target from $30 to $35. The analyst mentioned that the change in rating followed recent gains in the company’s shares.

Methanex’s shares have gained more than 40 percent since late January. Following the rally, the company’s shares now reflect a more meaningful recovery in methanol prices, while the market appears poised to remain challenging in the first half of 2016, with new US capacity being absorbed.

“At ~$35 we think the shares are factoring in a significant ramp up in methanol prices to above $300/mt in 2017, assuming no major changes in MEOH’s operating conditions. This compares to our 1Q16 realized price forecast of $237/mt and our 2017 forecast of $295/mt. Our base case assumes higher methanol prices from here, but we think the path could be bumpy,” analyst Daniel Jester wrote.

Prospects In 2H16 and 2017

Jester expects methanol prices to gradually recover as the year progresses. The estimates reflect:

1. Higher oil prices
2. Additional MTO demand in China during the back half of 2016
3. Normalization of US-China price spreads with US prices rising

“MEOH will benefit from the start of Geismar 2, although low methanol prices will likely constrain the company’s ability to repurchase shares in the near-term,” the analyst commented.