Methanol prices hit record levels
B.C. wood exports threatened by lack of key resin component


Michael Kane, Vancouver Sun
Published: Wednesday, August 30, 2006

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A worldwide shortage of methanol has pushed spot prices for the commodity to an all-time high while boosting the bottom line at Vancouver-based Methanex Corp., the world's largest producer.

The shortage has also prompted one major resin supplier to ration deliveries, potentially threatening B.C. wood exports. Methanol is a key component of resin, used in the production of oriented strand board and plywood.

Spot prices for methanol have risen above $650 US a tonne, while Methanex has boosted its posted contract price for September by 29 per cent to $442 US.

Methanex says inventory shortages have arisen around the globe as a result of production shutdowns due to a variety reasons, including scheduled maintenance, mechanical failures, and disruptions in the supply of natural gas.

The shutdowns have reduced output by more than one million tonnes, said Methanex spokeswoman Diana Barkley.

Methanol is an important ingredient in a wide range of industrial and consumer products, ranging from windshield washer fluid to recyclable plastic bottles, plywood floors to paint, and silicone sealants to synthetic fibres.

Higher prices are positive for Methanex "because our cost structure doesn't change and the margin does," Barkley said. Methanex employs about 800 people globally, including 100 in Vancouver and about 30 in Kitimat, down from 127 after the firm closed its Kitimat production facility last November because of high North American gas prices.

While nobody expects Methanex to trade meaningful volumes at current spot prices, analyst Jared Anderson of UBS Securities Canada views the spot prices as a positive indicator for the next move in contract pricing. He has a $28 target for Methanex shares, which closed up 30 cents on the Toronto exchange Tuesday at $26.65.

"I absolutely think that the prices that are in the market today are unsustainable," Anderson said in an interview. "I think, though, that pricing for methanol in the long run is going to be attractive for a company that produces the commodity. And I think the street is underestimating the long-term price of methanol."

In contrast, analyst Fai Lee of RBC Capital Markets in Vancouver, expects Methanex to underperform, although he has increased his target price from $18 to $20.

In a commentary released Tuesday, Lee says he expects methanol market conditions to ease as shutdown facilities resume production and new low-cost capacity in Iran and Oman comes into service later this year or in early 2007.

Last week, methanol shortages prompted Ohio's Hexion Specialty Chemicals, the global leader in thermoset resins, to begin rationing customers, including B.C.-based Ainsworth Lumber, one of the biggest producers of OSB in Western Canada.

Two of Ainsworth's mills in Minnesota are not receiving their full supply of resin, "but we are still producing at full speed at all of our operations," Bruce Rose, Ainsworth's general manager of corporate development, said Tuesday. "We'll just have to see how long this goes on."

Resin shortages could be a blessing in disguise because "any news about reduced OSB production can only improve the margins," said Russ Taylor, publisher of the Wood Markets newsletter in Vancouver. OSB prices have fallen by about one third this year as a result of increased production capacity and the downturn in the U.S. housing market.

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