January 27, 2011 / 2:50 PM / in 7 years

UPDATE 2-Methanex Q4 results, Q1 view weighed by inventory woes

* Sees Q1 lower than Q4

* Q4 EPS $0.30 vs est $0.44

* Q4 rev up 49 pct at $570.4 mln

* Inventories on rise through 2010

* Shares fall about 5 pct (Recasts; adds details, analyst comments, updates shares)

By Arnika Thakur

Bangalore, Jan 27 (Reuters) - Methanex Corp’s (MX.TO) (MEOH.O) quarterly profit missed market estimates by the widest margin in five quarters, weighed down by higher inventories, which is also expected to hurt the current quarter, sending its shares down 5 percent.

Inventories at the world’s largest methanol supplier have been steadily rising over the last year and was $1.60 billion at the end of fiscal 2010 - a rise of more than 60 percent.

The rise in methanol prices led to a higher valuation of the inventory hurting Methanex’s results over the last year.

Spot and contract methanol prices rose in the fourth quarter as tight market conditions and industry-wide planned and unplanned outages could not feed the strong demand.

Methanex expects more demand in 2011 for methanol -- used in windshield washer fluid to recyclable plastic bottles to paint -- fuelled by the use of the chemical to blend with gasoline to use as an alternative fuel. [ID:nLDE6AP0P9]

The company’s methanol production fell 4 percent in the quarter, but total sales volume rose year-over-year as the amount of methanol it purchased to sell almost doubled.

Methanex has been struggling with plant outages. Three of its four plants in Chile are idle due to a shortage of natural gas, which is used to make methanol. An outage at its Trinidad & Tobago plant is also expected to weigh on first quarter.

“We are near the end of an estimated three week outage at our Titan facility which we expect will negatively impact levels of production and sales of produced methanol in the first quarter,” Chief Executive Bruce Aitken said on a conference call.

Methanex started production at a facility in Egypt last week and expects to restart its Alberta plant early in the second quarter.

“The company has enormous untapped earnings potential,” Raymond James analyst Steve Hansen, referring to the three idle plants in Chile.

Hansen, who has an “outperform” rating and a $35 price target on Methanex’s stock, said the energy blending demand coming from China’s automobile sector and the traditional industrial demand look very good.

He expects the supply constraints over the next couple of years to work very well for pricing and see an average American benchmark methanol price of $375 in 2011.

Methanex said the average realized price for methanol rose 38 percent to $348 in the October-December fourth quarter.

Its profit in the quarter rose 8 percent to $27.9 million, or 30 cents a share, but fell short of analysts expectations of 44 cents a share according to Thomson Reuters I/B/E/S.

Revenue rose 49 percent to $570.4 million.

The company’s shares were trading down more than 4 percent at C$28.51 Thursday afternoon on the Toronto Stock Exchange. They touched a low of C$28.43 earlier in the session. (Reporting by Arnika Thakur in Bangalore; Editing by Anne Pallivathuckal and Maju Samuel)

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