Earnings Call: Q4 2018

Jan 31, 2019

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q4 2018 Earnings Call. I would now like to turn the conference call over to Ms. Kim Campbell. Please go ahead Ms. Campbell. Thank you. Good morning, everyone. Welcome to our fourth quarter 2018 results conference call. Our 2018 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 outcomes to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections, which are included in the forward looking information. Please refer to our fourth quarter 2018 MD and A and to our 2017 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, cash flow or income made in today's remarks reflect our 63.1 percent economic interest in the Atlas Facility and our 50% economic interest in the Egypt facility. 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. We report these non GAAP measures 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 Florin, for his comments and a question and answer period. Thanks, Kim. Good morning, everybody. 2018 was an excellent year and we are pleased to have achieved record production and sales volume and the highest adjusted EBITDA in the company's history, surpassing the records we set in 2017. For 2018, we achieved adjusted EBITDA of $1,100,000,000 in adjusted net income of $556,000,000. Or $6.87 per share. The investments we have made in our company over the past few years to increase our production capability have substantially improved our earnings power and ability to generate free cash flow at a wide range of methanol prices. When we have a volatile quarter like we did in the fourth quarter, a few different factors can impact our earnings on a quarter over quarter basis. But are less impactful over the long term. Our results in the fourth quarter were impacted by a decrease in our average realized price lower sales of Methanex produced methanol and higher costs compared to the third quarter of 2018. In the fourth quarter, we recorded adjusted EBITDA of $197,000,000 and adjusted net income of $90,000,000 or $1.15 per share. Our average realized price in the fourth quarter declined due to lower posted prices in North America, and Asia for December and higher than normal discount of approximately 17% compared to approximately 15% in the 3rd quarter. When methanol prices decline quickly, our realized discount tends to increase, and the reverse is true in a rising methanol price environment. Our guidance of 15% for Also, we make substantially all of 1,600,000 tons were lower than the 3rd quarter and 286,000 tons lower than the 4th quarter production. Due to the timing of production impacted by outages and inventory flows that impacted our mix of produced versus purchased sales. And a planned inventory build in line with the growth of our business. The lower volume of produced methanol sales in the fourth quarter compared to 3rd quarter resulted in a decrease in adjusted EBITDA of approximately $30,000,000. Finally, our costs in Q4 were higher than in unabsorbed costs, primarily related to the restart and ramp up of our Chile IV facility and turnaround activities on our Weicha Valley plant in New Zealand. Logistics costs were higher in the 4th quarter compared to the 3rd quarter due to trade flows and higher bunker fuel prices. We also recorded higher selling and administrative expenses that included costs for our cloud based system implementation that we are required to expense. As well, in a declining methanol price environment, our margins tend to be lower than in a stable price environment, due to inventory timing differences as a result of the timing of methanol production and purchases versus sales. Generally, the opposite applies when methanol prices are increasing. We saw significant volatility in the methanol pricing in Q4 as prices increased early in the fourth quarter, before declining later in the quarter and the steep decline in oil prices. We are pleased to see some stability in the methanol pricing in recent weeks consistent with higher oil prices. Our average realized price in the 4th quarter decreased to $401 per ton compared to $4.13 per ton in the third quarter. We recently announced our February pricing in North America at $4.32 per ton and in Asia at $3.45 per ton. Our first quarter pricing in Europe is per We estimate the current cost curve to be in the range of $2.80 to $300 per tonne and the current spot prices in China are within this range. Overall, methanol demand grew by 3.5% in 2018. Traditional demand increased by 3 4% year over year despite reduced demand in locations. Methanol to olefins or MTO operating rates were lower in 2018 compared to 2017, as several MTO facilities underwent maintenance activities. We continue to observe steady operating rates for most MTO facilities. We are monitoring the progress of new MTO units that are currently under construction and targeted to We expect 2 MTO plants to be completed over the coming months with the combined capacity to consume annually at full operating rates. Methanol Industry Supply improved in the fourth quarter of 2018 compared to the third quarter, Although we saw natural gas based methanol production in China impacted due to natural gas supply restrictions. Now turning to our operations. In New Zealand, we produced 389,000 tons during the fourth quarter compared to 478,000 tons in Q3. Production was lower in the 4th quarter as we completed a scheduled turnaround at our Wacha Valley site and experienced continued gas constraints from natural gas suppliers completing planned and unplanned maintenance activities. We expect continuing natural gas supply restrictions in New Zealand will impact production in the first quarter of 2019 and potentially at 206,000 tons during the fourth quarter compared to 112,000 tons in Q3, which reflects higher gas deliveries from Chile and Argentina. And the ramp up of our Chile IV plant. We've experienced some ongoing technical issues during the recommissioning of our Chile IV plant. We're optimistic that we will resolve these technical issues in the coming weeks and increase operating rates at our Chile IV facility. We expect that our current gas agreements will allow for a 2 plant operation in Chile during the southern hemisphere summer months with lower operating rates during the winter months when gas deliveries are lower, resulting in an average operating rates of up to 75% of our 2 plant operation in the near term. In Trinidad, we produced 448,000 equity tons in the fourth quarter of 2018, compared to 353,000 equity tons produced in Q3. And expect to receive approximately 85% of our contracted gas supply for the foreseeable future. In Egypt, we continue to receive 100 percent of our gas and the plant continues to operate very reliably. Now turning to our financial results, we ended the quarter with $256,000,000 in cash on the balance sheet. Methanex share of the cash including our proportional share of Atlas at each of cash was $233,000,000. Our balanced approach to capital allocation remains unchanged. We believe we are well positioned to meet our financial commitments, pursue our value adding growth opportunities and return excess cash to shareholders through dividends and share repurchases. Our planned maintenance capital for 2019 is estimated to be approximately $125,000,000 We continue to progress multiple advantaged opportunities to grow our production capacity and further improve our earnings power and cash generation capabilities over the coming years. We anticipate spending $25,000,000 to complete during the southern hemisphere winter months when we receive lower gas deliveries. Based on our ability to secure sufficient long term natural gas, we will complete the 2nd phase progress on debottlenecking opportunities at our Geismar facilities to increase production by approximately 10% or for a few tens of 1,000,000 of dollars of capital. The plan would be to carry out these debottlenecking projects during planned turnarounds over the next few years. Finally, we're continuing the front end engineering and design or FEED phase of the potential Geismar III production facility and to confirm capital significantly advantaged relative to other products being contemplated or under construction in the U. S. Gulf. The location of the facility adjacent to our existing Geismar plants and the technology we would use for the production process reduces both capital and operating costs relative to a standalone project. We expect to spend approximately $45,000,000 in the first consider a final investment decision by midyear. While it is our preference to have an appropriate strategic partner, we believe that'll be It'll be more and more challenging to accomplish in the current geopolitical environment. We repurchased 1,200,000 shares $79,000,000 during the quarter under our share repurchase program and completed the normal course issuer bid for 6,600,000 shares in 2018. In total, we returned $550,000,000 to shareholders through our regular quarterly dividend and share repurchase program in 2018. Looking ahead to our first quarter results, as of January 1, 2019, a significant change to lease accounting standard known as IFRS 16 will have a material impact on the company's financial statements, increasing assets and liabilities while changing the classification of lease costs on the income statement. Based on our current asset portfolio, this change is anticipated to increase annual adjusted EBITDA by approximately $100,000,000, with an offsetting increase to depreciation and finance costs resulting in no material change to net income. More information on the impact is included in our fourth quarter MD and A for your reference. However, I would highlight that IFRS 16 does not change the cash flows or underlying economics of the business. We expect production levels to be similar to than in a stable price environment due to inventory timing differences when we are selling produced and purchased product with a higher cost of sales. Generally, the opposite applies when methanol prices are increasing. As a result, we anticipate that adjusted EBITDA will be lower in Q1 compared to excluding any impact from the IFRS 16 lease accounting change. I would now be happy to respond to any questions. Thank you. You. There will be a brief pause for the participants registered for questions. Thank you for your patience. Our first question is from Mike Louthan with Barclays. Please go ahead. Hi, John. Good morning. Good morning. I guess first, can you just maybe give us a little bit more color on what was driving the inventory build this quarter? And how much of that was simply timing related? And I guess, how should we think about that normalizing as we work through the first half of the year? Our sales in line with our production growth. And we sell about 11,500,000 tons globally now. So I think we were going to carry a little bit more inventory on a forward basis to service our customers even if it's $1,100,000 or $1,200,000, that's really about 10 turns a year. And that's pretty significant when you consider about a third of the inventories at our plant and the thirds on the water at any given time. So it's almost equivalent at 30 turns a year. And I don't know many chemical businesses that do that. So We plan to increase the inventory a little bit. And I think as we've increased it, we're kind of happy where it is right now. It may fluctuate some tens of thousands of tons. Depending on, how product flows in any given quarter. We've seen this before, we saw quite a dramatic drop in pricing in December. And when you see this phenomena like all commodities, consumers tend or tentive delayed purchases thinking the next day or the next week or the next month, prices are going to be a little bit cheaper. So We saw some sales impact in December as a result of the steep decline in pricing. That probably impacted our inventories a little bit as well. But really, I think it's more as a result of our intense bill or intentional build because of our sales being higher and we plan to continue to grow our sales. Got it. That's helpful. And then bigger picture, there's been a number of naphtha and even ethane based ethylene projects I believe announced in China. Over the past 6 months. I was hoping maybe you could talk a bit about what you think the longer term MTO outlook is and whether we should expect MTO growth to remain viable longer term in that region? I guess it really depends on what your outlook for oil and naphtha pricing is, we always said it wasn't going to be an MTO versus NAFTA. We said it's all of the above. Our outlook for oil is still in the $60 to $70 a barrel range. We saw that pricing in 2018. Came off pretty quickly as a result of some issues that politically geopolitical in nature regarding Iran, etcetera. And we would expect to continue to see volatility in oil going forward, but that $60,000,000 to $70,000,000 to still a good range. And at that price, if the relative NAPTA ratios in the past hold in the future then, we would expect some more MTO to be constructed. There's still a number of plants being completed. That second wave, I think, is is going to be a bit delayed because of the uncertainty around naphtha and oil prices. So we would expect to continue outside places like the U. S. And the Middle East where they have ethane to see both MTO and NAFTA based olefins plants being constructed. Great. Thank you. Thank you. Thank you. Our next question is from Chiket Baut with CIBC. Please go ahead. Hi, John. Hey, Jacob. I had some questions on the higher costs in the quarter. So specifically on the logistics and the admin expenses, is this kind of a new run rate higher? And then if we strip out the impact of methanol prices and let's say if methanol prices were flat quarter on quarter, the lower margin, how much of that in your mind was a reflection of more purchase product versus increased logistics and incremental expenses? Yes, nothing's really underlying any change to our cost structure. We've seen these, quarter over quarter differences in the past. I'll remind you that we had our white Trevali turnarounds in the quarter. So we probably moved a little bit more product from the Atlantic Basin to the Pacific Basin than normal bunker prices were higher and that's a good chunk of our freight costs as well. So really nothing quarter over quarter changed. We did sell a little bit more produced, sorry, purchased product than produced. And we've seen that phenomena before, but I would say not to the extent of 2.80 1000 tons. I think the highest we've seen in the past is 100 and change. So that was quite a significant change. And I think as we continue to grow our production and then we'll have the FIFO layers continue to be more complicated. Probably we'll have more volatility in the future, but we really don't know as we wind up the quarter, how things are going to look. But again, long term, nothing's really changed in our cost structure, nothing's really changed in our logistics costs, in fact, on a cost per ton basis, you should expect our logistic costs to stay the same, even though we're seeing inflation. So Nothing's really changed in the underlying cost structure. Okay. And then my second question here, just on G3, where are you at with a partner If you don't have a partner, why is there no interest? Is it the terms or what should we be thinking about? And how are you thinking about funding G3, if you do decide to go ahead with it? Yes. So there was a lot interest in a partner for G III. We always said we wanted to have a strategic partner that brought something more than cash because we liked the project. The initial numbers on the basic engineering package were quite attractive. We're confirming those numbers as we speak. And I'd say the current geopolitical environment has led, some of the people we were talking to to pause. We're not pausing So we're going forward with the project. We want to have the fee completed by mid year and make an investment decision. Not having a partner is just another factor in the investment decision. So we'll have to put that into the decision making tree as far as a bit more risk not having a partner, but we still believe the economics are tremendous. And this is a unique opportunity to add capacity. To our supply chain and this product is being modeled to go to Asia. So we have some work in front of us to confirm the numbers and to get comfortable with the risks. And we'll be going to our board at midyear to make a recommendation on whether to proceed with final investment decision or not. But we have quite a bit of work ahead of us, and we're still optimistic that this project will be a home run for our shareholders and our company. Thank you. Thank you. Our next question is from Hassan Ramid with Alembic Global. Please go ahead. Good morning Ron. Good morning. I wonder where that surname gets from, but I'm Hassan Robin going forward, I guess. Anyway, quick question around China, John. One of the things that boosted utilization rates for be it methanol in a variety of other products was this whole sort of environmental curtailment side of things? Now obviously, the Chinese economy seems a little more shaky So the question is that have you guys seen some of that chartered or curtailed capacity coming back into the market now? Well, last year, at this time, there was quite a bit of industrial production curtailed that was based on coal because of the pollution I'd say this year, we haven't seen quite as much because the temperatures haven't been quite as cold. So when you have colder temperatures, there's more coal being generated for feeding and electricity. Haven't seen the same cold temperatures. So we haven't seen the same, on a short term basis, restrictions that we saw last year. But directionally, nothing's changed. Directionally, the Chinese have been very clear that they want to clean up the environment and especially the air quality on the East Coast. Particulate matter is a big part of that. And, directionally, we would expect more and more industry to to move out of the East Coast to different parts of China and shut down existing capacity. So nothing really has changed say this is more of a short term phenomenon where we haven't seen quite as much restrictions in this quarter, but we are into January. So pretty couple more months of winter to go. So we'll continue to monitor it. Understood. Now sticking to Asia, a question around convention methanol demand. Exceeded margins came under pressure through the course of Q4, particularly in Asia, And at least one large producer recently, talked about shutting some capacity in Asia And so shutting it in Asia and adding some capacity here in the U. S. So the question is, I mean, would that have a material impact for you guys or the global methanol demand picture? Are you continuing to see decent demand from conventional sort of end markets like acetic and formaldehyde in the like? Yes, we've always said conventional demand will grow at GDP IP, we saw 3% growth in 2018 versus 2017. That's pretty solid demand in our view. We're a global company. We'll service people wherever they want to build plants. And if, our customers want to build more capacity in the U. S. As we bring on more capacity in the U. S, it's a perfect marriage. We'll avoid shipping, shiploads of methanol from Geismar to Asia. So we welcome all of our customers to be building lots of new capacity in the United States. It's a great place to do business. And we have a lot of land at our sites. So if anybody wants to think about locating on our site where they could get methanol by pipeline. Please speak to our marketing people. Thank you. Our next question is from Joel Jackson with BMO Capital Markets. Please go ahead. Good morning, Joel. John, I think we've seen that the, North American, so the Atlantic Basin premium, at least North American methanol prices are trading at their highest premiums to China, Asia in the last 4 years. I think that's showing from your February contract price set as well. Do you have any thoughts on that? Is this the right premium we're going to see for 2019 or what do you think? Well, I don't predict the future, especially on pricing and premiums, but we've always said that we expect the premium to hold in the Atlantic Basin versus the Pacific Basin. Under the current supply demand and production models. And that's what we're seeing. So Iran is a bit of a wild card because of sanctions and where they can move their product into Europe or not into Europe. When do those sanctions change, it's really not for me to predict that either. So we're comfortable with where the premium in the Atlantic Basin is today. And I think we've always said that you'd have to see quite a bit more production coming on in the Atlantic Basin and we have today with really no growth in the demand from Ethanol and the Atlantic and we certainly don't see that in the near term. So we would expect to continue to have a premium. How much is anybody's guess? But we've always said on average, it should be the logistics differential from the Middle East to Europe and that's kind of where we're at today. Okay. Maybe a little more color on New Zealand. Is your base case now that you should have more production? Like, I imagine more production in New Zealand, than you did in 'eighteen, maybe you can give a little more color on sort of what are the ranges? Yes. So if you look at New Zealand, we did a lot of maintenance activities in 2018. We had a complex turnaround. We had a big turnaround at one of the Montney plants. We just turned around Waitara Valley. So As far as turnarounds and maintenance, we're we've spent a lot of money and those plans are now able to run at very high rates. Unfortunately, we're seeing some gas issues related to maintenance plan and unplanned in the upstream. So we're busy out there trying to we negotiate for additional gas to run our plants at a high rate. So we haven't secured the high CO2 gas yet. So our run rates you still should be thinking at 2,200,000 tons. But as I said in my verbal comments, we are have been told to expect some planned and unplanned maintenance on the upstream, mainly in the pipeline area. So we're like we don't know today exactly how much we're going to be impacted, but we expect to be impacted in Q1, but we're also trying to buy additional gas from others. So It's really too early for me to give you a specific number, but we would expect, today to run most or get more production out of New Zealand in 29 than we did in 2018 Our next question is from John Roberts with UBS. Please go ahead. Thank you. As you mentioned, a number of chemical supply chains downstream destocked late last year and into early this year. With oil prices moving back up, how quickly would you expect to see some restocking go on that might cause an inflection in the methanol demand? Yes. We've seen some restocking happening in front of Chinese New Year in China. Again, most of our customers don't keep a lot of inventory. So there's not a lot of destock and restocking to go on. Inventories are a little higher on the coast in China, but when you look at the demand, it's really you're talking days, not months. So our current anticipation is that the 2 MTO plants that we've been down for most were all of the 4th quarter in 2018. We'll start to come back up and in this quarter. And, that'll certainly help with the demand side of the equation. We expect another 2 new MTO plants that completed under construct, funded construction completed and commissioning, that consumed 3,600,000 tons at full rates to start up in the next quarter as well. So, we see a healthy demand environment for traditional demand as well as MTO and other energy related derivatives. Great. And then before the next earnings call, we'll anniversary the start of your normal course issuer bid Is a new NCIB on the agenda for the board this quarter? No, we're talking to our board today actually a board meeting right after this meeting. So it's not we've talked to our audit committee, we'll talk to our board about how do we allocate capital for the company? And we've been very consistent what we've been doing. So we've 3 uses for cash, grow the company, which we've done. We spent over $2,000,000,000 growing, doubling our production. We've got some nice opportunities ahead of us with Chile 1 refurbishment, debottlenecking and Geismar and the G III project, which we think are all really home runs. So we'll take some capital work on those projects. Our dividend is 2nd pillar of our capital allocation. We want a meaningful sustainable growing dividend. We've grown it every year, we accept of the financial crisis and one other time. And as we buy back shares, we think there's room to increase the dividend as we've increased our productive capacity as well. So we'll look at that around the AGM in April. That's typically when we look at the dividends. So we think there's room to to grow the dividend. And we'll talk to our board about that in April. And then share buybacks, that's the 3rd way we allocate capital. And we've brought the share count down significantly since the incorporation of the company. We still think, especially in today's environment, a stock price environment. That's a good use of our excess cash to buy back shares. And, we'll talk to the board about what our outlook is and and make a recommendation to them about, the next NCIB. That's our preferred method of buying back shares through an NCIB because it's flexible. And you can increase it or decrease it depending on what's going on in the methanol market. So those discussions are ongoing and Really, it's premature to be signaling anything because we can't issue an NCIB till mid March anyway. So we'll continue to look at the markets. Look at how the methanol price is evolving, how is the G3 project looking and make a call in the early March, evening. So that's our current plan. Thank you. Thank you. Our next question is from Daniel Jester with Citi. Please go ahead. Yes. Hi. Good morning, everyone. So I just wanted to talk or ask about your production plan. Last year, you ran at about 84 percent of your operating capacity. Now that you've restarted Chile IV, you're going to have over 9,000,000 tons of operating capacity. So if you run at a similar level year over year, you could get in the ballpark of maybe 8,000,000 tons of potential Methanex produced methanol sales. I'm just wondering, is that a reasonable trajectory given all the factors that you've talked about today? Or is there something else that could limit how much more Methanex produced methanol you could sell this year? Well, I'll remind you, we have 11 plants running today, which means 2 to 3 turnarounds per year. So that would impact our ability to run at 9.4%. We want to run all of our plants at full rates. That's goal from turnaround to turnaround, 100 percent operating rates, from turnaround to turnaround. So what we're going around the world, I've already mentioned Zealand, where full capacity is 2.4 with the high CO2 gas, 2.2 without it. And we're going to experience some restrictions in Q1. Probably be a little less there. We mentioned Trinidad at 85%. We don't see any change to that guidance. And then I've already guided to you on Chile 75% of a 2 plant operation. Having said that, we're still experiencing some technical issues with Chile Chile 4 startup. So you can run the math. That's our goal. And it'll be it'll depend on how the success we are at running our plants at 100%. Our reliability improved quite substantially in 2018. We were in the 95 and change, haven't seen that for quite some time here at Methanex. Our goal is still 97. And our ultimate goal is to run our plants 100% between turnarounds. So still some work to do, still some low hanging fruit there that I know our operations team are really focused on getting at. And we'll continue to try and improve reliability of our plants. Capacity that started there a few months ago and there's other projects. Can you just give us an update on what you're hearing on that supply thing in the market? Yeah. It's very difficult to get any detailed data out of our end in the current sanctions environment. The margin plan came on in the fourth quarter, delivered some product. We saw it in Asia, which contributed to some of the price volatility that we witnessed in December. It's been down for some weak now and we hear different things about when it might come back up. I really don't know. We heard recently that the Zargos plant went down. 1 of the Zargos plants went down to one point 8,000,000 ton plant. How long? Don't know. And then these plants that have been under construction now for 10 years that the industry experts were forecasting to come up, I think, early last year and here we are and they're still down. So those industry experts are a lot smarter than I am about when these plants are going to come up and we still haven't seen them. So, I've heard it now 2020, but I really don't have any really detailed information. All I would say is in the current environment, it's hard to get financing and parts and shipping and all those things are a bit more difficult sanctions, but I don't really have any significant insight other than what you might read elsewhere. Thank you. Our next question is from Nelson Ng with RBC Capital Markets. Please go ahead. Great. Thanks. So in the MD and A, it mentions like maintenance CapEx of around 125 plus another 45 for G3. Are there any investments earmarked towards like the construction of new ships or investment in ships in 20 seen? Yes, we've ordered a few ships. So there'll be some new ships coming into the fleet. Do you have a rough estimate as to what the, capital investment would be for a new shed? Yes, no cash, no impact on cash flows. Okay. Because there are leases or is that why? I'll let Ian answer. Yes, we have a couple of shifts under construction, but the financing is in place and we have some cash on the balance sheet related to that financing that's in it's sort of entrust dedicated to that, to the construction of those ships. So there will be no impact on cash flow. It doesn't show that this cash is restricted cash is disclosed in other assets. It's not in cash. Okay, got it. The other question I have relates to just the blending of methanol into gasoline. Could you just comment about ethanol versus methanol blending in China and I think there's been some headlines in terms of potentially increases in ethanol blending in China. Could you just comment on how that would impact methanol? Yes. It's kind of old news. Nothing's really happened. That was the story about the corn and converting corn into ethanol and blending in with gasoline. We've said that methanol. There's more than 2,000,000 tons being blended today. The future has always been the high level blends and that's where we've been focused and that's where the industry been focused. So Geely is announcing, again, a lot more Methanol 100 cars in a couple of provinces in China, us. So we see the future in the high level blends and, what they end up doing with the corn and ethanol is a bunch of announcements, not much action. So we'll to monitor it. And, we continue to see methanol being a solution because it's a clean burning product, especially when you use it 100%. And Geely have developed engines and cars that run on 100%. So more and more, you're going to see these cars and taxis launched in China. And that's where we're Our next question is from Jonas Oxgaard with Bernstein. Please go ahead. Good morning. So, John, I have to hand it to you. You did say quite some time ago that you were happy with the premium between U. S. And Asia. And here we are. My question though is we've seen exports out of the U. S. To Asia go up dramatically. It's in the Natgasoline plant came online. How much of that additional volume is yours? Are you deliberately bleeding out North American volume into Asia? And how if so, how about? Well, we said that part of the Geismar II product, we always said half. We were targeting for Asia. So we take a look at our supply chain on a regular basis. We're always optimizing, how much specifically I don't have the number. We probably wouldn't share it if I had it. So, that we are marketing other people's products as well. And we continue to see other other people moving more and more product to Asia with the new nat gas plant, both the, both partners. So that's what we expected to you know, the future is hard to predict as I said, but that's what we see happening. In the fourth quarter specifically though, I'll remind you, our Weicha Valley plant was in turnaround. So we did move more product than normal from, from, the Atlantic Basin to the Pacific Basin to service our customers. Okay. Thank you. Complete a different attack. One of your I don't know if you recall it competitors, but at least one of the other companies in the space, they've embarked on a strategy to, to serve Chinese methanol producers to do the run the gasification for them. And while I can see them having the business model already sort of in their ballpark. It seems to me that you guys would be equally suited for this kind of business opportunity. Is that something you looked into or working on? I'm not sure what you're referring to. Could you give me a bit more detail? Also air products are contracting with Chinese companies who are running coal to methanol and coal to chemicals, to to operate the gasifier for them. Much like Air Products are operating the hydrogen generation for refineries today. So it's an outsourcing business And the idea here is that a cold company doesn't necessarily know how to run a methanol unit, and thus they can outsource it to someone who can do it better. Now as far as I know, there's only one standalone methanol producer in the world who can clearly run methanol plants. So it seems like that could fit with your business model. Yes, I think you're right, but we're into the business of making $150 a ton, not a toll margin of 10% or 12%. So, you look at our return on capital employed, it's much higher than you get in the tolling margins. So if we ever got desperate for opportunities to grow the company, maybe we'd look at it, but this has been going on for some time. And we're really focused on producing methanol, selling methanol and capturing the value between the on the whole chain. So that's our current strategy. I wouldn't expect it to change in the foreseeable future. Our next question is from Matthew Blair with Tudor, Pickering, Holt. Please go ahead. Good morning, John. Good morning. With the higher bunker fuel prices, are you seeing any uptick in interest for methanol as the shipping fuel? Yes, it's not really related to bunker. I'd say it's related to ultra low sulfur diesel. And I read the same stuff you do. You get people saying the refineries are ready. They're going to have all kinds of ultra lowsulfur diesel to service the industry. You got other people saying there's going to be a shortage and prices are going to spike. Well, again, I can't predict the future. What we like about what we've done with our shift is they're flexible. We can run ultralowsulfurdiesel. We can run methanol depending on the relative economics. So we continue to run our our ships that can on methanol, 100% of the time as much as possible on methanol to show that the technology works. I've always said this is probably a next decade opportunity for methanol demand because most shippers are just going to switch to ultra lowsulfur diesel and see what happens. I'd say as the economics play out in the marketplace, we would expect, as people ordering new ships, some to order these flexible fuel ships that are can run on methanol or ultra low sulfur diesel, which gives people flexibility. We've seen quite a bit more interest in nothing all on board ships. We're running trials with the Chinese on fishing vessels. We've seen India now announce some ships to run on methanol. So in a real low oil price environment, I think the traction is a little bit harder than in a $70, $80 oil environment. But we've never ever in our numbers for demand put significant amount for onboard ships in our outlook for the next few years. We probably see it as a mid next decade issue, but nothing out there that we've done on our own ships shows us that it can't work. It doesn't work. And it's and the emissions have been very attractive. So, we think it's a viable option for shippers to consider going forward. Sounds good. And then turning back to the energy demand component and I guess specifically blending methanol into gasoline in China, China vehicle sales were down double digits in Q4. Some concern about the economy going forward and also just concern over underlying China gasoline demand growth. Could you just talk about your expectations for this energy demand component of methanol in 2019? Yes, the growth that we have, as I mentioned earlier, is in the M100. So you would have seen Geely that's available online if you'd just Google in Geely and methanol 100 see there are plans for continuing to roll out methanol 100 cars. The actual low level bending hasn't really changed that much over past few years. So all the focus has been on the high level blends, mainly the M100. So we would continue as those cars get sold and used in either as taxis or Personal automobile to see methanol continue to increase in demand in that application. It's not going to be 1,000,000 and 1,000,000 of times year over year, but we would expect over time as we've seen more and more traction, especially in the high level blends. Thank you. Thank Our next question is from Cherilyn Radbourne with TD Securities. Please go ahead. Thanks very much and good morning. Good morning. Just wondering if you could give us an update on your efforts to secure additional gas in Latin America and the visibility beyond 2020? Yes. So we're getting obviously more gas today than we need because we haven't been able to run our site at full rates. So, I think our visibility is through 2020, but when we talk to suppliers, there's obviously quite a bit of gas available in the Southern cone. And, we can take the gas and as the Neuican Basin in Argentina gets more and more developed, we think that Argentina at one point, the year is it 2, is will become self sufficient in natural gas again. And I think that leads us to believe in the suppliers of gas to us that there'll be more and more for exports throughout, not just in the southern part of Chile, but throughout Chile and other countries. So That's where the countries had it. We pay in U. S. Dollars so that they would like to have more and more U. S. Dollars in Argentina, but said that, it is Argentina and things have changed before and contained in the future. But right now, we're pretty optimistic that we can get economic gas through the medium term to run our site down there at very high operating rates. Okay, great. Separately, thank you for the guidance on IFRS 16. I just wonder if Iain could give us a bit of a feel for the split between depreciation and interest expense in terms of the OpEx that will now show up in those lines. Oh, you don't trust me to do that. I think John can do a pretty good job, but I'll do it. So as John mentioned already, as a result of this change, we think that based on our current lease portfolio, that EBITDA will increase by about $100,000,000. And that will be offset almost exactly. It'll be a little bit around the edges. It'll be different, but by interest expense above $15,000,000, and $15,000,000 to $20,000,000. And then the difference will be depreciation of around $80,000,000. There are no further questions registered at this time. I would like to turn your meeting back over to Mr. Florin. Thank you very much. 2018 was a strong year as we generated the highest adjusted EBITDA in the company's history. I'm very pleased to see the investments we've made in our business to increase production capacity have resulted in a step change in our earnings profile and ability to generate cash flow at a wide range of methanol prices. Our balanced approach to capital allocation remains unchanged. Our priorities are to meet our financial commitments, pursue our value adding growth opportunities and return excess cash to shareholders through dividends and share repurchases. Thank you for the interest in our Please disconnect your lines at this time and we thank you for your participation.