Earnings Call: Q3 2018

Oct 25, 2018

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q3 2018 Earnings Call. I would now like to turn the conference call over to Ms. Kim Campbell. Please go ahead, Ms. Campbell. Good morning, everyone. Welcome to our third quarter 2018 results conference call. Our 2018 third 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 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 forecast or projections, which are included in the forward looking information. Please refer to our third 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 on 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 Floren, for his comments and a question and answer period. Thanks, Kim. Good morning, everybody. We've had an outstanding 1st 3 quarters of the year and we're extremely pleased with our financial performance as we recorded adjusted EBITDA of $874,000,000 in the 1st 9 months of 2018. This is the highest adjusted EBITDA recorded in the company's history and surpasses the record adjusted EBITDA of $838,000,000 that we recorded in the full year of 2017. These results demonstrate the significantly improved earning powers of our business. Our third quarter 2018 results were very strong. Ethanol prices have remained robust in the third quarter and our average realized price increased to $4.13 per tonne compared to our average realized price of $405 per ton in the second quarter. We recorded adjusted EBITDA of $293,000,000, and an adjusted net income of $152,000,000 or $1.92 per share. Our sales volume of 2,900,000 tons was also strong and matched prior records. We believe that methanol prices have remained robust this year due to strong industry fundamentals. Methanol demand in the third quarter of 2018 was strong. Methanol to olefin or MTO operating rates rebounded in the third quarter as several facilities resume production following planned maintenance activities in the second quarter and the first half of the third quarter. We continue to observe high operating rates for most MTO facilities. We continue to monitor the progress of new MTO units and that are currently under construction and targeted to come online in the near to medium term. Methanol industry supply increased marginally in the 3rd quarter as new supply from the Natgasoline plant in the United States was offset by various production outages globally, which sustained tight market conditions. As we enter the fourth quarter, the Marjan plant in Iran had started producing methanol, although rate of production remains uncertain. We continue to monitor the enforcement of China's environmental regulations and the potential curtailment of methanol production in China as the winter season approaches. New supply from the U. S. And Iran and the startup of our own Chile floor plant will help to fulfill growing methanol demand. Now turning to our operations. Our third quarter production results were impacted by some gas restraints in New Zealand, and some mechanical issues at our Trinidad and Egyptian plants. In New Zealand, we produced 478,000 tons and during the third quarter compared to 252,000 tons in Q2. Production was higher in the 3rd quarter compared to the 2nd quarter as a major turnaround activities were completed at the end of June. However, production was impacted gas restraints resulting from natural gas suppliers completing planned and unplanned maintenance activities. We expect the gas constraints to be resolved in the fourth quarter. In Trinidad, we produced 353,000 equity tons in the third quarter of 2018 compared to 442,000 equity tons in Q2. Our production results were lower compared to the second quarter, primarily due to mechanical issues, power outages and an earthquake. These mechanical issues have now been resolved. We continue to experience gas restrictions and expect to receive approximately 85 of our contracted gas supply for the foreseeable future. In Egypt, reproduced 128,000 equity tons in the third quarter of 2018 compared to 65,000 equity tons in Q2. Our production results were lower compared to the second quarter, primarily due to mechanical issues related to supply of off spec natural gas when the natural gas from the Zohr field was introduced to the grid. Continue to receive 100 percent of our contracted gas supply and reiterate our updated guidance that we expect to operate at close to full operating rates annually for the foreseeable future. In Chile, we produced 112,000 tons during the third quarter compared to 128,000 tons in Q2. Reflecting lower gas deliveries during the Southern Hemisphere winter months. We are very pleased to announce earlier this month that we restarted in produced methanol from our Chile IV plant for the first time since 2007 and began to receive contracted natural gas from Argentina for the first time in 11 years. We expect the plant to ramp up to full production rates over the coming weeks. Our team did an outstanding job of completing project safely on time and on budget. We expect that our current gas agreements will allow for a 2 plant operation in Chile during the Southern Hemisphere summer month and approximately 75% of a 2 plant operation annually until mid-twenty 20. Our production rate in Medicine Hat was impacted in the third quarter as a result of an interruption in the supply of CO2 from our supplier, which was restored late in Q3. Now turning to our financial results. We ended the quarter with $261,000,000 in cash on the balance sheet. During the quarter, our Egypt entity distributed $80,000,000 to its shareholders of which $40,000,000 is attributable to Methanex. Methanix share of cash, including our proportional share of Atlas and Egypt cash, was $249,000,000. 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 from October 1, 2018 to the end of 2019 is estimated to be approximately $175,000,000. 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 an additional $50,000,000 to refurbish our Tilly 1 plant over the coming years to ensure the long term reliability of the plant. The timing of this investment will be dependent on our progress to secure sufficient gas without seasonal restrictions to underpin a continuous two plant operation. Our team is continuing to make progress on a potential project that would allow us to debottleneck our existing Geismar assets by approximately 10% 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've begun the front end engineering and design or FEED phase for the potential Geismar III production facility. We expect this process will continue over the We expect to spend approximately $50,000,000 to $60,000,000 Our preference remains to have a partner that can add significant strategic value 6,000,000 shares for $113,000,000 during the quarter under our share repurchase program. Up to October 24th, we've repurchased 5,800,000 shares or 88 percent of the 6,600,000 shares approved under the current normal course issuer bid. In total, we returned $139,000,000 to shareholders through our regular quarterly dividend and share repurchase program in the third quarter. Our outlook for the fourth quarter is positive. Methanol prices continue to be strong and we expect our production levels to be higher. In the fourth quarter of 2018 compared to the third quarter. As a result, we expect adjusted EBITDA to be slightly higher in 4th quarter compared to the third quarter of 20 team. The first question is from Mike Leithead of Barclays. Please go ahead. Good morning, John. I guess if I could start by looking at your cash flow, you guys have been generating annual EBITDA north of $1,000,000,000, your dividends about $100,000,000 annually and your guiding CapEx to about $2.30 through the end of 2019. So it seems like should have a fair amount of excess cash available, particularly if you have about 1,000,000 shares left in your buyback through March. So can you help frame how we should think about the deployment of that cash? And if we should expect the special dividend or some other method of distribution? Yes, really no change to our philosophy. So three pillars of that is to grow the company and we have some very interesting low cost projects to do so and we'll be pursuing those between the debottlenecks and the feet on Chile sorry Geismar III and the Chile refurbishment over the next couple of years, you're talking $150,000,000 give or take maybe a little less than that. Our 2nd pillar is dividend. So we have a dividend policy that's sustainable growing and meaningful. So yield target of 1.5 to 2.5 kind of range. We'd like to grow at each and every year, which we've done, except for the financial crisis. And as we buy back shares, we can grow the dividend without really a lot of additional cash outlay because we will have to be able to grow it without spending any more cash. Our 3rd pillar is share repurchase. We prefer the NCIB, normal course issuer bid, up to 10% of the shares per year. Gives us tremendous flexibility. We are in a commodity business. We see volatility as we've seen here in the stock markets here in the last few days. So it gives us tremendous flexibility to increase or decrease depending on what's happening in the market. So that's our preferred way return money to shareholders through repurchases on the NCIB. Having said that, you're right to point out at current prices, we generate a heck of a lot of cash. And what we've always said and nothing's changed is that if we need about $200,000,000 to $250,000,000 at these kind of prices to run the business as prices are higher. We need a bit more working capital. If we're fortunate enough to have an excess 300 above that and we can't do an NCIB. Then we've always said we consider a substantial issuer bid. So nothing's really changed. Those are the 3 pillars of what we do. And that's how you should expect us to move forward. Great. And then on G III, you've undergone much of the initial work so far on your own. Is it fair to presume the hurdle would be higher for a partner to sign on today relative to maybe 6 months ago? And is there any sort of drop dead date in your mind in terms of going solo versus a partnership? Well, we've always said we're looking for a strategic partner not looking for cash. And we've said that there's a significant amount of brownfield advantages to that project that, of course, we would want to be compensated for by any partner. So that's part of the negotiations is what we call a buy in fee, which is not insignificant. If you look at all of the advantages that project has with the existing plants and the brownfields investments we've already made. You're right to point out as the months go by, the project becomes derisk. So that fee is a bit more firm as I would say, but we don't have a drop dead date. We'd like to a heads of agreement signed by the end of the year, but as long as we're making progress and we see a way to attract and have a strategic partner, that's our preference. But like I've said before, if we're not successful, we think the project is very attractive and we'll look to do it ourselves. Great. Thank you. Thank you. Please go ahead. Hey, John. Hi, Jacob. So a number of production issues in the quarter, maybe talk about what, if any, of these production issues extend into the fourth quarter? Yes, I'd say that we guide the 2 or 3 turnarounds per year. We've done one this year. So you should expect us to be doing a turnaround in the fourth quarter. I'm not going to say where or how long, but you should expect that. We've had these ongoing issues on the gas supply in New Zealand because of some technical concerns with the pipeline. We expect those to be resolved in the fourth quarter, but we would expect our operations to be impacted by the, the gas availability because of these issues in the fourth quarter. The other parts of the world, I don't anticipate any, any, mechanical issues or further restrictions on gas other than what I've guided to in Trinidad. Okay. And then maybe in Argentina, Can you talk about the, the gas supply there? In what some of the terms are? Is it fixed or is there a price participation? And then are there any outstanding litigious issues stemming from what happened 10 years ago. I mean, I imagine some of the suppliers would be the same groups that you've been dealing with, 18 years ago? Yes. The gas from Argentina is interruptible on our choice or their choice, but there's a big want to be selling the excess gas in their summertime to us. We pay in U. S. Dollars and certainly the country wants U. S. Dollars. No, the contracts are all a little different. They do have sharing mechanisms in them. But as far as legal, I mean, we've managed to resolve most of those issues. And really you shouldn't be thinking any legal outstanding legal issues are going to impact our ability to buy gas in Argentina. Over the coming months. The following question is from Joel Jackson of BMO Capital Markets. Please go ahead. Hey, John. John, you bought a lot of capacity on. You've had some better operating rates at different plants, better gas availability, but you're actually doing a lot of purchase methanol still and it was a bit of a drag in this quarter. Can you talk about a little bit maybe why you're doing so much purchase methanol? Did this did last quarter, did you think that you may have had some other production challenges. And so you're doing a little bit more for insurance or maybe just give a little bit of a dynamic. Yes, I'd just point out that our sales continue to increase as we've increased our production, our sales increase and we're up towards the 11,000,000 ton number now. As you do that, you need to increase your inventories. We have a very slight inventory compared to our sales. Traditionally $10,000,000, we've been keeping just around 1,000,000 tons. So we think we need to keep a little bit more inventory in our system to make sure that we can service our customers on time and rely like we always have. So a bit of the build would be related to inventory that we need to run the business as well. We were not planning on some of these issues in the quarter. We had some indication in New Zealand about gas, but we certainly weren't expecting earthquake in Trinidad and off spec gas in Egypt. So that did impact our production. So even though the levels were quite good, we were certainly forecasting for higher production levels than we attained. So it's a combination of those 2 things that, made us have a little bit slightly higher purchase in the quarter, but our guidance is still the same. We want to sell about 80% of our own equity molecules and the other 20% will be part of the offtakes that we have with our partners in Egypt and Trinidad as well as some other offtakes that we have on a medium to longer term basis and then some spot materials. So nothing's really changed, but you should expect quarter over quarter that sometimes will exceed or sometimes will be a little lower than that. But right now, trying to get our inventories up to a state where we have a little bit more security supply for our customers. Okay. Thank you for that. And then maybe just following up on a prior question, do you think like what you know now that Q4 in New Zealand should have higher production in Q3, about the same lower? What would you guess? Well, I don't like to guess. And since I'm not in control of the gas supply situation, I'm not in control of the repairs that they need to make. We're pretty well at the mercy of what they're going to do in the quarter. So I don't like to guess on those things. Okay, thanks. Thank you. The following question is from Daniel Jester of Citi. Please go ahead. Yes, hi, good morning, John. So the last couple of winters in China, you've seen pretty significant disruptions in their domestic and ethanol industry for environmental reasons, natural gas availability issues etcetera. What's your latest take going into the winter this year about what could potentially transpire in China? Well, here I have to put my weather forecasting hat on. And I'm not very good at forecasting weather like most people around the world. But I think last year, we had a pretty cold winter there and certainly they didn't have enough gas imported or domestic to supply all of the needs forget the industrial complex. So we're monitoring the situation pretty closely. We're here in mid to late October, but we really won't know until December, January when the cold weather kicks in. It'll depend on how cold it is. Certainly, I think they've taken steps this year to import more LNG. I think they're the largest import of LNG ahead of Japan now. So they are reacting to what happened last year. But there's certainly not enough gas to satisfy all of the needs of the country. So they're going to have to burn more coal for power and heating. That's our expectation. How much more it depends on the weather. But we would expect natural gas be restricted to make methanol in the winter. And depending on how much coal they need to burn for electricity and heating, could impact the coal based industries like methanol. So it's a bit of a guess, depending on how cold the winter is. All right. Thank you. And then, you mentioned that there was an Iranian plant that started up in the quarter. And is ramping up. Can you just give us your sense of how the moving pieces in Iran work, gas availability versus sanctions and any sort of latest read on the ability of that, to hit the market? Yes. Just to remind everybody, we're precluded from going and doing business and around. So a lot of our information we get is the public information what we've seen in the last years is during their wintertime gas restrictions on the existing methanol production. We're not aware of them having significant infrastructure to gas deliverability improvements over the last 12 months. So If the pass is anything like what the present, then we would expect gas restrictions to industry, including methanol during their winter but again, it's probably dependent on the weather and how cold it is and the sanctions are going to kick in here in early November and how is that going to impact their ability to move methanol. These are all questions that our teams follow on a daily basis, but until things actually happen. It's a little bit hard to forecast, but we would expect Iranian production of methanol and other products in the wintertime to be somewhat restricted because of gas availability during the Thank you. The following question is from Steve Hansen of Raymond James. Please go ahead. John, based on the idea of a potential partner for G3, you've given us a few details, but just can you give us a bit more sense for how many potential parties you might be with at the moment as you look to find somebody by year end? And just the second part of that, what other strategic value might you be looking for other than gas, which seems an obvious one, is there marketing relationships downstream customer demand and what kind of commitments would you be looking for there, if it was something other than gas in terms of firm off take or something there above? Well, as you get close to getting married, you don't want to have 6 or 7 partners. So, you want to have a couple and then choose. So I'd say we're we're down to the getting married stage, and we're close to signing the heads of agreement, which is like a marriage certificate on how things will be conducted over the next 25 years. Things we've said that what we're looking for is somebody that has strategic value. So gas, of course, would have a strategic value somebody that could possibly take methanol in an offtake, so a derivative. So somebody that's producing a derivative somewhere around the world or maybe interested in building on our site where we have significant amount of land that we could have derivatives built on the site. In summary that could maybe help us make sure we have access to markets and access to governments at the highest level. So, those are the kinds of attributes we're looking for in a strategic partner, somebody that understands the business, somebody that is looking to grow their business and somebody that's really wanting to be a partner, but maybe not wanting to operate and understands our efficiencies around Geismar and having us operate could be the right choice for them. So those are some of them. And each partner has different attributes, but we're getting close here. So you shouldn't expect us to be dancing with about six people, maybe 1 or 2. Okay. That's helpful. And just a quick follow-up on the Geismar debottlenecking I think you said a 10% capacity increase is what you're shooting for. And I just wanted to clarify. I think you said a few tens of 1,000,000 of dollars and there was frame that you attached to that as well, but I just want to give it more clarity on exactly when we should expect that debottleneck to push through. Yes, a few tens of 1,000,000 of dollars is our current estimate. There's a few things that have to be done. We have to let's be like tying in what we did in Madison had a CO2 stream into the plants. So that could only really be done around turnaround time. So believe it or not, G1 and G2 are coming up for turnarounds over the next few years. It's already been that long. And at the same time, we have to build a pipeline for CO2. So that would take a bit of time as well. So all that work is ongoing as we speak. So as we do turnarounds, we would put the equipment in place to be able to introduce CO2. And as we complete the pipeline, we would introduce it to G1 and then G2 as we did that turnaround. So that's why we said the next few years. So it's really dependent on the turnaround to tie in the equipment and getting that pipeline built. So just to clarify, it sounds like it's a couple of years out still. It's more like 20 or 2021 event? I would want to get that specific depending on the pipeline and we're doing the work on that right now. And that's kind of the we know when we're going to do the G1 turnaround. We know what we have to do there, but there's a bit of uncertainty on the timing around the pipeline. But it'll be staged to G1 and then G2 is how you should think about it. Thank you. The following question is from John Roberts of UBS. Thank you. John, there's a lot of nervousness about the industrial markets recently. Are you seeing anything in the formaldehyde or chemical derivative markets from Ethanol to give you a sense of where the industrial markets are today? Yes, we're seeing strong growth So, yeah, I've read the same stuff you haven't heard the same stuff you had, but I can only speak for methanol and we're seeing very, very strong growth. And as we go into the fourth quarter, we're seeing solid growth, the GDP IP growth on the traditional chemical derivatives and really strong growth on things like MTO, another there were roughly 8,000,000 tons of new MTO production, that's based on nothing on demand. Over the next 2 to 3 years. So that's those are facilities that are under construction. So we continue to see robust growth on the traditional chemical derivatives and really strong growth on the energy kind of related, including MTO. So we're not seeing the same things as some other companies are seeing doesn't mean I won't be talking next quarter and maybe things have changed, but we can only report what we're seeing and we're very involved in China. So we are the largest importer of methanol to China. We have a large team on the ground there. We watch China really, really closely. And we're not seeing anything today that gives us concern. Maybe a follow-up then on MTO in China. A lot of the MTO in China is for propylene and China also makes propylene from imported propane from the U. S. Do you think MTO during the quarter benefited when the U. S. Propane exports stopped at the start of the quarter? Yes, to remind you, those methanol to propylene plant were shut down in 2016 and never restarted. So all the plants that are using MTO are both ethylene propylene sites and they're mainly integrated. So certainly if there's less PDH and less propane, maybe a bit more demand for domestic, but that these are such integrated plants. It's really you have to look at the derivatives they're producing to really understand the supply demand balances. So unless you had a view and we don't have this view that those methanol to propylene on purpose plants come back, then you might see some impact, but that's not our expectation at this time. Okay. Thank you. Thanks, John. Thank you. The following question is from Hassan Ahmed of Elmbic Global. Please go ahead. Good morning, John. John, question around China. Seem to be sort of mixed messages coming out of China as it pertains to the whole environmental side of things. One side of the story is that the sort of supervision of these environmental sort of regulations and the like will move from the federal side of things to the provincial side of things, which essentially in theory would mean that they become a bit more lax. But the flip side of that is, there's also news that that 2+26 may move to another 11 cities, which in theory could mean more curtailments. So what are you guys seeing on the ground over there? Yes, we see the same thing that you mentioned moving to provincial, but we said directionally, China has been very clear at the central level that they want to reduce emissions. Especially particulate matter, mainly in the east part of China. And that's what we're seeing. That doesn't mean they're going to overnight reduce emissions to 0. They're very serious about cleaning up the air and cleaning up the water. And directionally, that's what see. It doesn't mean they won't take certain decisions on a short term basis, which may be driven by other factors. So but directionally, we would expect over time, less and less coal based industry on the, on the East Coast, and certainly less and less methanol being made from natural gas is they use the natural gas for heating and electricity, which is much cleaner burning than coal. So really no change in our thoughts about the direction, although there may be quarters or months where there are other issues that are driving other behaviors. Understood. Now as a follow-up on the MTO side of things, in the ethylene market, we've obviously seen some choppiness. We had at 10 prices skyrocketing in the U. S, then they've sort of come down as a bit. Obviously, oil is up, naphtha is up, And then, last but not least, you have this whole sort of sanctions and trade tariffs and the like. Coming out of sort of the U. S. And China. I mean with all of this in mind, are you seeing more activity in China on the NTO side. I mean, do you feel that now with all of these sort of cross currents, the Chinese may actually go out and sort of start doubling down on the NTO side of things? We've seen some of that for sure. Like I mentioned earlier, over the next 2 to 3 years, it's going to be 8,000,000 tons more methanol demand for MTO. Laptop about $5,000,000 from my last guidance, but that second wave of $15,000,000, we haven't seen all of that come under construction yet, but that doesn't mean in this environment to get a little bit more, bullish about that. NAFTA is still fairly competitive even at $600,000,000, $700 a ton. I think everybody is in the same position. Well, what's oil going to do and therefore, what what SNAP they're going to do and have a huge investment in a naphtha cracker and if oil goes back to over a 100, then that investment is probably underwater. So everybody's kind of in the same boat and what's going to happen with oil or with Iran sanctions and things in the Middle East. I don't know. But certainly, we've seen an increase here quite substantially in the last 2 years. So I think it's tough to be making significant investments like naphtha crackers in the current environment and MTO is certainly one that requires a lot less capital And then you just have to have a forecast on your methanol price versus other other options. So I think nothing's really changed, but it's a lot harder today. I think pull the trigger on a naphtha cracker than it was a few quarters ago. The following question is from Nelson Ng of RBC Capital Markets. Please go ahead. Great. Thanks. John, I just wanted to follow-up with, about the restrictions in China, I believe, I guess there's some talk about relaxing emissions restrictions this winter to kind of help out the domestic economy. Are you, I guess, the first part of that question are you hearing the same? And I guess if there are less restrictions, is it your view that production curtailments will mainly be based on whether it's a cold winter or mild winter? I haven't heard that about relax relaxing of restrictions. So that's news to me. So I haven't heard that. Depending on what it said and where and how much would could impact the shutdowns of some of the coal based industries, but I'm not aware of that at all. And I think I mentioned earlier the more severe the cold winter is with the more restrictions we would expect. Okay, got it. And then just one last cleanup question. Regarding the 50 to $1,000,000 spend on G3. Will it be expensed or capitalized? I was just wondering whether we should be reducing it from our EBITDA for next. No, it'll be capitalized. Assuming we go forward with the project, it'll be capitalized. Thank you. The following question is from Jonas Osborne of Bernstein. Please go ahead. Could we talk a little bit more about the Iranian sanctions. Like, China has, if I understood it correctly, China has already announced that they plan on continuing importing methanol. But how does that work with the shipping? Are there shippers willing to ship to China even with the sanctions in place how should we think about this, how this evolves? And then I have a follow-up. Yes, I haven't, I have not heard that China has said that they're going to continue to import, methanol from Iran. What I did see this morning is the state owned companies like Petro China indicating they haven't booked any cargoes for oil. In November. So our current view would be if you have international operations that impact the U. S, you're probably not going to import much of anything from Iran. That doesn't mean nothing will get to China because there's a lot of companies in China that don't have international operations and probably would feel comfortable in importing methanol and other products into China. We won't know for sure until the when the sanctions kick in next week. And then we'll certainly monitor it. The last time the sanctions were in place, they did have a hard time getting insurance. They had a hard time getting banking. They had a hard time getting shipping, but I think they found ways around all of those and we did see product flow from Iran into India. And China. That would be our expectation today. But we wouldn't expect state owned companies with international operations to be handling much iranian methanol or oil or other products from Iran. It's our current view, but we're going to watch it like everybody else and see how it evolves. So it sounds like you'd expect some short term disruption but not necessarily long term? That would be our expectation today, unless there's more pressure exerted or other things happen. So We would expect India and China to be continuing to import methanol, but not the state owned companies in China. Okay. And is there any impact on the new projects still coming online? The new projects in the U. S. Or the new projects in Iran? Oh, in Iran? Yes. Again, we don't have a lot of additional information around than anybody else has because we don't we can't go there and we don't go there. So what we've heard is from catalyst suppliers and shipping companies, etcetera, that do do business there that they probably view it be. It's going to be harder to get workers and equipment and spares and catalyst and like I said shipping and insurance. So it'll be harder probably lead to some delays, but we've seen, over times when there's been previous sanctions that these projects do proceed. And like I said, maybe not in the timeline that they originally thought, but eventually they do get completed, and that would be our current expectation as well. Okay. Thank you. Thank you. Thank you. The following question is from Matthew Blair Genering Holt. Please go ahead. Good morning, John. Good morning. You mentioned that methanol demand was strong in I was hoping that you could put a specific number on that. I think in the first half of the year, Methanex talked about 4% global demand growth. So it was Q3 in that same range or stronger or weaker? In that same range, year over year 4% is what we saw. Yes. Sounds good. And then just circling back to the, the comment on inventories, year to date, there's been an inventory draw within your system. Build those inventories in Q4? Well, significantly it's not a word I would use. I'd say throughout the year, we've been trying to build inventories, but we've had really strong sales. And our production has been solid, but maybe a few 100,000 tons less than we had had forecasted for all the reasons that I've mentioned this quarter and a few other quarters. We had significant complex outage in New Zealand Q2, Q3. And so we've been trying to build throughout the year. So I wouldn't use the word significantly. I'd use the word we'd like to have our inventories grow at the same percent as our sales. So we've grown our sales by 1,000,000 tons and probably 100,000 tons in inventories like what we'd like to see it grow by. We haven't been able to do that as you pointed out. So, we're going to continue to try, but I'll tell you, it's very tight out there. We're hot having a hard time finding product at any price. So, whether we're successful or not depends on the supply demand balances around the world. So we're not comfortable with our current inventory level with 11,000,000 tons of sales and we're going to continue to be aggressive in trying to get it to that 1.1% and slightly higher. So we're going to continue to try and do that. And we're hoping for a real solid production quarter from our assets. Like we I said earlier, are really unknown is the gas supply in New Zealand. So we'll see how that turns out. Very helpful. Thank you. Thank you. The following question is from Charles Neiverse of Cowen. Please go ahead. Good morning guys. Just had one quick one. Are you seeing the continuing increase in methanol in the industrial boilers? Are they moving that direction? Do you think there's going to be a bit of an acceleration as you move into the winter as Again, they discourage the use of coal and things of that nature. And where would you put the current demand at the industrial boiler level now and again, do we think it's going to go up during the course of the winter? Yes, it's not really seasonal, Charlie. I mean, these once they make the conversion conversions done. So it's not really a seasonal demand. It's like when you're choosing to get out of coal for boilers, you can use diesel methanol or natural gas and all three are being chosen. It's around 2,000,000 tons now, so we are continuing to see growth in that market. We're doing a lot of work in China with the government on standards and specifications and delivery and all that work has gone really well. So that's been very positive for the industry as well as the coal boiler I'm sorry, the methanol boiler manufacturers who used to make coal boilers as well. So it's headed in the right direction, but our reinforce it's not seasonal. Once somebody decides to switch, they're not going to switch back and it's not really No, it didn't need to imply the seasonality. It was just whether it's a continuing thing and it pushed to get the coal out for environmental. So that's continuing to be the Yes, that trend is continuing. We'd expect it to continue to accelerate. One of the new ones and one of the we had one of our Chinese team members here last week in Vancouver and she brought me a piece of pottery made in a methanol kiln which is pretty cool. So we haven't talked about kilns yet, but that's another very large potential demand for methanol. So they are starting to convert kilns from coal to methanol and got one on my desk. So it was kind of a nice little milestone that we haven't talked about yet, but stay tuned. Okay. And one other question on I know that there's been over time some increase in use of methanol as a cooking fuel. Is that something that's also continuing and where would you sort of lead with that at current levels? Not really a big demand driver, about 1,000,000 tons. We don't see huge growth there, but it's been pretty stable. The last question is from Chris Shaw of Monness Crespi. Please go ahead. Hi, Chris. You mentioned the potential demand for next 2 years from new MTO plants, think around 8,000,000 tons. Can you contrast that with what you see for the supply coming online for next few years? You must have some insight as to what's there. Is most of that coming out of Iran? Yes, that's a good point. There is some additional supply expected out of Iran, a couple more million tons beyond what's under production right now. Towards the end of the plant will start up. That's about 1,000,000 tons. And then we have the Yohang plant in the U. S. They're just signed it part some sort of partnership deal with coke. We don't have the details of that, but that's probably 'twenty one, 'twenty two ish kind of timeframe, and that's about $1,800,000. And then some small more production coming out of China, but we do expect, as I mentioned earlier, some rationalization in China as well. So yeah, you're right to point out there's quite a bit more supply of demand coming on than supply and We can't build it all ourselves, and we do need to see some additional supply to keep the world balanced. So, it'll be really interesting in the next couple of years and we'll see how these projects that are under construction get completed and run. But we're going to need quite a bit of new methanol apply to meet this demand. Then just to clarify, did you say you guys expected production to be up sequentially in the fourth quarter? I said it will be up from the 3rd quarter, yes. That's even that's taking into consideration the turnaround that you suggested would be happening in 4Q? That's right. And we do actually have a question from Cherilyn Radbourne of TD Securities. Please go ahead. Had a couple of quick ones, on South America. First off on Chile, just want to make sure that I understand the plan there. Is your intention to run both Chile 1 and Chile 4 together for some period of time before taking Chile 1 down for refurbishment or What's the plan here? Our plan is to ramp up both plans to full rates as soon as we can. That's the plan. The gas is available and we're ramping up Chile IV as I mentioned earlier. And I'll remind you Chile-one hasn't run at full rates for quite a long time. So current plan would be to ramp up Chile IV stabilize it and then to slowly ramp up Chile 1. And whether we get to full rates or not, we think we can, but maybe 90% we don't know because we haven't run it at full rates for some time. Assuming we secure additional gas, we our plan would be to take Chile I down during their southern hemisphere wintertime to do a refurb about half of the $50,000,000 refurbishment. And assuming we can secure additional gas, we would do the second half of that refurbishment in mid-twenty 20. But during the non winter months down there where our plan is to run both plants at full rates and there's enough gas today to do that. So again, we're not going to spend the money until we secure additional contracted gas. To underpin that plan for, you know, some more years. And then as it relates to Argentina, obviously there's been some political turmoil in that country recently? Are you continuing to see, investment in the Vaca Muerta Shale? Absolutely. I mean, I think part of their solution is to become self sufficient in energy and that's their focus. So they don't import LNG and gas from Bolivia, etcetera, which they have to pay for in U. S. Dollars. So it's strategic for the country to to get sufficient and then to start exporting again. I think that's their goal. Lots of reserves there. There's been lots of work done and they're pretty close back to the production levels they were pre-two thousand and seven. And they've been very clear during their summer months when they have excess gas, they will be looking to export that gas to us and to others. I think over time, as they become more self sufficient, we would expect them to build infrastructure to allow them to export a gas in the form of LNG. That's somewhere down the road. But certainly, there's a lot of gas in that formation. The EIA says 800 Tcf and they're applying the same technology to that basin that we've seen applied in Chile and of course in North America. So lots of activity and and going quite quickly and we're quite optimistic. They'll become self sufficient. And even one day in their wintertime, we'll we'll start to get gas. But I think that's a number of years down the road. Thank you. There are no further questions registered at this time. I'll turn the meeting back over to Ms. Campbell. Okay. Thank you. I'm thrilled with our 2018 performance to date as we've generated record adjusted EBITDA in the 1st 9 months of the year as a result of the investments we have made to grow the production capability and earnings power of our company. 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 time.