Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q1 2017 Earnings Call. I would now like to turn to conference call over to Ms. Sandra Daycock, Director of Investor Relations. Please go ahead Ms. Daycock.

Thank you. Good morning, ladies and gentlemen. Welcome to our First Quarter 2017 Results Conference Call. Our 2017 first quarter news release, management's discussion and analysis and financial statements can be accessed from the Financial Reports tab of the Investor Relations section on our website at www.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 outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections, which are included in the forward-looking information. Please refer to our first quarter MD&A and to our 2016 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% 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 of 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 like to now turn over the call to Methanex's President and CEO, Mr. John Floren, for his comments and a question-and-answer period.

Good morning. Our first quarter of 2017 financial results illustrate the higher earnings power of our business as we continue to achieve company records for production and sales volume. Our EBITDA nearly doubled to $267 million compared to $139 million in the fourth quarter of 2016, and our adjusted net income improved to $140 million compared to $41 million in the fourth quarter. Methanol prices were higher in the quarter and our average realized price is up $87 per tonne to $365 per tonne in Q1 compared to $278 per tonne in Q4. We also achieved sales volumes of 2.6 million tonnes in the quarter, and production was unchanged at a record level of 1.9 million tonnes achieved in Q4 2016. Methanol prices moved up sharply in the first quarter and then reversed direction late in the quarter. This change was primarily the result of improved industry supply and the delay in the restart of a large methanol-to-olefins or MTO facility, Shenghong sailboat, which is capable of consuming up to 2.4 million tonnes of methanol annually. The delay in the sailboat plant restart was reportedly related to technical issues. We expect the plant to restart once the technical issues are resolved. Plants like sailboat that have significant methanol demand are capable of causing large swings in the global supply-and-demand balance, which leads to methanol price volatility as we witnessed in Q1. We lowered our April contract prices in Asia by $110 per tonne to $390 per tonne and in North America by $57 per tonne to $442 per tonne. Yesterday, we announced our contract prices for May for North America and Asia. Our Asia Pacific posted prices down $30 a metric tonne to $360 a metric tonne and our North American posted price is down $33 a metric tonne to…

[Operator Instructions] Our first question is from Steve Hansen with Raymond James. Please go ahead.

John, going back to a question I asked, I think, last quarter as well. I just wanted to get some clarity around the inventory effects that we see quarter-to-quarter here again. Is there some way we should think about the inventory build situation going forward? Do you expect to build more? Should we expect a little bit to bleed off? I think it's about 500,000 tonnes of net inventory that's been built over the past five or six quarters, so just trying to get a sense for how those inventories should go forward on a go-forward basis.

Well, the same answer I gave you last quarter, Steve. Our inventories are going to be a little higher than they have been in the past because our sales are higher. We're at 10 million tonnes of sales now, so we need a little bit more of inventory to service our customers and that's our #1 focus, is making sure our customers get quality, reliable supply. As far as the produced inventory, it's a matter of how it flows through the FIFO systems in the inventory in our system. I still don't completely understand it, but I know we have very smart people that look at this each and every quarter and make the right decisions as far as the inventory flows. So you will see some quarters where we do build some produced inventory and I think you'll see other quarters where we reduce some produced inventory. But the overall levels of inventory that you're witnessing today may fluctuate up and down by 50,000 to 100,000 tonnes, but we're pretty comfortable at the level we're at today.

Okay, helpful. And just one quick follow-up on the Chilean growth situation or growth opportunity. We're late April now, you suggest midyear is when you'd like to make a decision officially on that. Presumably, you've got some visibility at this juncture on gas availability. Could you give us a sense for how confident you are or where you are in that process around securing incremental gas?

Yes, so I think our view today is there's enough gas there for one-plant operation for this foreseeable future. So it's just a matter of a decision, do we invest in starting up the newer plant, Chile IV? Or do we invest in the current plant through a major refurbishment, which means we'd have 90-day lack of operations and therefore less methanol. So we're just going through the process now of looking at plant IV, checking all the equipment, looking at what it would take to restart it on a stand-alone basis, confirming our numbers and we'll make a decision midyear on which direction we head.

Our next question is from Joel Jackson with BMO Capital Markets. Please go ahead.

So first question, John. You referenced how one large MTO plant like a sailboat can do a big swing in terms of the methanol dynamic in China. You gave a bit of commentary on sailboat, but there's a lot of conflicting reports out there, different reports where the sailboat has started up at what rates and some of the downstream derivative plants what's going on there. Can you give a little more color on what you're hearing?

Yes. Well, we speak to them on a regular basis, so we're very in touch with them. What we understand in the process is starting up, the plant. I don't have anything other than that to report today. So assuming the start-up runs smoothly, they should be operating at high rates again, that would be our anticipation.

Okay. And in Egypt, so you have a sense that you might get gas through the summer restriction period or summer irrigation season. Can you give a little more clarity on some of the color of that? And then also, G1, G2 production came down. There wasn't much commentary in the release. Was that a marketing decision? Or was there a week or two of some lower production in the quarter for some reason?

Yes, so Egypt we've been told by the authorities to expect high level of gas deliveries and that's what we're experiencing. So we haven't been told anything different, so we would expect to continue to receive our allocation of gas in Egypt. I think we operated at around a 2-million tonne annualized rate in the quarter, so I think nothing really significant to report there. Maybe a few small issues here and there, but nothing significant.

Thank you. Our next question is from Jacob Bout with CIBC. Please go ahead.

John, I had a question on discount rates. So clearly, methanol price is pretty volatile in the quarter. Maybe just talk a bit about some of the moving parts behind the -- that higher discount rate, certainly higher than what I thought. And then is there anything we should be thinking about the discount rate like is this what we should expect for the second quarter?

Yes, I think, again, in times when prices go up really quick, the discount will narrow. And when it goes down quick, it expands. Going forward, I'd be comfortable in guiding to 15% discount rate on average. Some quarters will be a little better. Some quarters will be a little worse. But I think modeling going forward, 15% is probably a good number.

Maybe a longer-term question here and just talk structurally about how you look at the MTO market and the methanol market in -- under the guise of as we see this U.S. polyethylene capacity ramp, does that change anything in your mind is structurally how this MTO market looks longer term?

Well, I think we would be somewhat concerned more about the naphtha prices than what's being built in the U.S., the stuff being built in the U.S. in our summation based on the data we've seen will probably be absorbed by 2019. I think if you had a view of really low naphtha prices like we're experiencing today, you might see a preference to build naphtha crackers as opposed to more MTO capacities. So that would be more of a concern and that really is a factor of oil price and I don't think anybody really knows where oil price is headed and we haven't seen naphtha crackers being announced to being built. So I think everybody is in the same boat, wait and see. There's another three MTO plants under construction that'll be completed in 2018, and of the 3 million tonnes, beyond that, we have no other visibility of the next wave of production.

Thank you. Our next question is from Cherilyn Radbourne with TD Securities. Please go ahead.

John, I guess I'd be curious on your views about the kind of price volatility that we've experienced for the last 6 months. Do you see that as likely to persist? Or do you see it as quite specific to that point in time?

Well, I think it's not unusual as these large plants that are integrated downstream come up, that they're going to have some technical issues. These are very complicated, integrated plants. What we've seen, and when we've got to test, is we saw pricing almost touch $400 a tonne in China, I think it was in February, we didn't see any of the MTO plants turned down for economic reasons, which was very interesting for us. We wish we tested it a little longer because at that time, we saw not only sailboat, but a few other plants have technical issues. The only plant today that's not operating for technical issues is sailboat. Assuming they come back up and operate well, we would expect to see similar supply-demand fundamentals that we saw early in the quarter, first quarter. So that, to us, is the next milestone, we'll watch it and we're learning as we go here as well about the -- how these operations are going to perform going forward.

Okay. And then just returning to the Egypt plant for a moment. Do you have enough confidence based on what you've seen on the gas supply to alter your guidance that at the near term that plant operates at 50% on average?

Yes, we haven't really officially changed that guidance. I'd like to see the plant continue to operate at high levels. We've had a serious amount of technical issues because of the number of times that plant has been up and down over the past 3 years. So I think maybe next quarter, we might give some guidance. But right now, I'm still comfortable with 50%. We've achieved much better than that. But I'd like to see a few more quarters under our belt and see how the plant operates and see if we continue to get the high gas deliverabilities that we've been told to expect.

Our next question is from John Roberts with UBS. Please go ahead.

Given the experience with sailboat recently, as we ramp more of these MTO units, should we expect structural short-term volatility to go higher because we'll have more opportunities for sailboat-like effects? Or you think they'll average out and volatility kind of goes back to where it was historically?

Well, it's a good question, John, I don't know if I have the answer. We've seen that the other plants, beside sailboat, when they've had technical issues they've been very short term and they come back up and operate at high rates. That's been our experience, so we'll see how this plant operates as they come through their technical issue. The other 3 start-up, assuming normal start-up, we think there's more demand than supply, which should lead to more higher-cost plants operating or higher methanol prices affecting affordability for some of the other energy applications. So it's really hard to predict because a lot of variables that will go in as these other 3 plants start up including what new production is on between then and now, which is a bit of, I guess, at this point.

And then, secondly, outside of MTO, could you talk about any outlier application markets or regions, anything unusually strong or weak in terms of demand outside of MTO?

No, we continue to see very good traditional chemical demand growth, so 4% year-over-year growth in traditional chemicals. And with the exception of DME in China, which is not a new story, we see pretty strong demand growth everywhere. So we're pretty comfortable with what we see around the globe as far as methanol demand.

[Operator Instructions] Our next question is from Hassan Ahmed with Alembic Global. Please go ahead.

John, wanted to revisit some of the comments you made on the demand side of things. In the release, you talked about year-over-year demand growth being around 9%. I mean, obviously, in light of some of these MTO disruptions that we saw, I mean, the numbers seem extremely healthy. So just wanted a little more granularity in terms of where you're seeing above and beyond the MTO side of things this healthy demand growth.

Yes, so MTO is the key change year-over-year despite having those technical issues in Q1 for several plants as well as sailboat. You're right to point out we saw a 9% overall growth year-over-year. I mentioned just earlier that we're seeing about a 4% demand growth year-over-year in the traditional demand. So those 2 are the real drivers of demand. Other applications like fuel blending, et cetera, continue to grow, but the real change driving that 9% growth is the MTO year-over-year growth.

Got it, got it. Now part and parcel with that, so demand growth looks quite good. Supply-demand, fundamentals seem quite snug, particularly as one is going through Q2. But obviously, net, we've seen you guys announce some contract price declines, right? So I'm just trying to get a better sense of nowadays with MTO being as important as it is, we've obviously seen some downside pressure in ethylene pricing, right, in the face of which we had higher methanol pricing. So I guess, the question really is that nowadays, is the true driver of pricing, as you sit there and reset it on a monthly basis, is the true driver of pricing really coming down to MTO economics above and beyond supply/demand?

I think, well, I think what's coming down to is spot pricing in China is an influencer and the basin balances. So those are the 2 things that, I think, are driving pricing, and spot pricing in China is being driven by supply/demand. So MTO has an impact. As I said earlier, we saw prices rise quite quickly in China. When sailboat came up late last year and one other plant and we almost touched $400 a tonne in a very short period of time because demand was outstripping supply. Sailboat comes back up, there's no more new supply that's coming to the market. So is that repeated? Well, time will tell, but the supply-demand fundamentals look really strong for the rest of this year. So there's no new supply coming on and we see a continuing healthy growth in demand, and if sailboat operates and operates well, then we see quite a tight market, which should lead to healthy pricing. I will point out Q2 pricing that we set based on our contract postings is totally going to be very healthy and will generate a heck of amount of cash and EBITDA based on those prices. So we're happy both ways.

Our next question is from Daniel Jester with Citi. Please go ahead.

I just wanted to ask about Trinidad. It seem like the Juniper project is making some progress. I know you haven't changed your kind of outlook officially for Trinidad. But as you think about the risk, is there a risk that Trinidad gas availability starts to improve into 2018 from what you see today?

I think we're comfortable with the guidance we provided at 85%. There are some interesting activities happening in Trinidad. They're probably a bit over due and probably just replaced a client at this time. So I think from my perspective, until we see something more significant to the end of the decade, 85% is probably a fairly good guidance. And if we didn't see these activities, maybe we'd have to revise that guidance downward. So I'm happy with 85%.

Okay. And then just moving back to China. I was just wondering if you can maybe refresh us on what you're coal view is. I think you talked a bit about the cost curve, but just how do you see the market and the cost curve in China evolving from here.

Yes, coal in China, like most energy products, kind of trades in a range of oil. And when the government sets pricing, they start with oil and then they look at gasoline, natural gas, coal, et cetera. So we're experiencing a little higher coal price because oil prices are 50 instead of 40. So I'd say it depends on your view of oil price going forward will certainly impact the coal price in China.

Our next question is from Laurence Alexander with Jefferies. Please go ahead.

Just a couple of odds and ends. First, if you do, do the new Chile plant, any working capital build would be on top of the proposed 50 million expenditure. Is that right?

Any working capital build, Laurence, did you say?

Yes, yes.

Or maintenance capital?

Working capital.

Where we are at this time in our working capital, you shouldn't expect any change. If we do see prices go down, then we'll release some working capital. And if prices go up, then we'd probably be right where we are right now unless price is significant.

No, I just meant to support the new Chile plant if you were to go forward with it.

Not really, Laurence.

Okay. Secondly, can you characterize a little bit your thinking around the Chinese industrial boiler market, what the option trends are, where methanol prices need to be versus other energy prices to accelerate demand?

Yes, so there are about 600,000 of these boilers operating on coal in China. In an effort to clean up the air, the Chinese government is looking to use other clean-burning fuels like methanol. We're working with the Chinese government and the boilermaker to put in standards and handling standards and standards for methanol. So that work's underway. There's already about 1,000 boilers converted to methanol. Each one of these uses about 1,000 tonnes per year, so you can see the impact is quite large even with a small penetration. So we would expect other choices to be made, not just methanol, like natural gas if and where it's available, maybe some diesel. But if we think methanol is a great source of clean-burning energy for these applications and as we go through and work with the government and the boilermaker on standards, we would expect to see even more uptick in this application going forward.

Well, have they shown any sort of price sensitivity? Is it just a direct arbitrage against LNG or...

Well, I think if you have the choice of natural gas, and I'll remind you in China not all -- not everywhere in China has a choice of natural gas, probably natural gas would be choice 1. Methanol and diesel will be the other choices. So we're seeing, like I said, about 1,000 boilers today running on methanol and very effectively.

And then, lastly, can you revisit the landscape for de-captivating or acquiring from other owners other methanol assets and bringing them into your networks because -- just to take advantage of the network effects?

Yes, so most of our competitors are state-owned companies, not really -- their assets aren't for sale. There's a few out there that might be for sale. But every time we've gotten close to looking at an acquisition, the price that they want for their assets versus where we trade at is just a bridge too far. I think assets have been trading -- our last sale was at $,1,200 a tonne in Egypt. And we understand the OCI assets that they sold to CF were in that order of magnitude as well. So when you're trading at where we're trading at half that price, it doesn't make any sense for us to buy other assets as well. The industry is growing, like I said, at 9% year-over-year so we need actually more production and -- in the market. So I think we need to see continued building of plants to meet the demand or else the demand is not going to grow. So I don't think you should expect us to be looking at acquiring any methanol plants in the foreseeable future.

Thank you. Our next question is from Matthew Blair with Tudor, Pickering, Holt. Please go ahead.

It seems like the past six months there's been quite a few methanol production outages and I was just curious to get your thoughts on this. Is this just normal downtime? Or do you think that there might be maybe not enough maintenance CapEx put into these plants and thus we'd be likely to see high levels of unplanned downtime going forward?

Yes, when we looked at the last 3 quarters, I'd say it's normal. Outside China, the operating rates have been normal. You're right to point out there's a lot of unplanned outages in the industry and that's been the case for years. So these plants run at very high temperature, there's lots of things that can go wrong and we do see in our own system volatility in the production at our plants. So we wouldn't expect any change going forward. We invest about $80 million in maintenance cap per year and I'm sure competitors invest as well, but there's just a lot of things that can go wrong and we would expect to continue to see plants going down on an unexpected basis going forward.

Okay. And then on your minimum cash levels, if you take out the Egypt cash, I think you're around like $250 million or $260 million at the end of the first quarter. Is that a good minimum cash balance for you? Or would you feel comfortable going a little bit lower?

We'd be very comfortable going lower. I mean, we think we need about $100 million to run the company. We have these investments possibly in front of us in Chile, so we want to keep a little bit for that and I think we'd be comfortable going lower. So it's really hard quarter-on-quarter to get it exactly at the level, and we generate a lot of cash this quarter and Q2 looks also to be generating a lot of cash. So we'll continue to look at it on a weekly, monthly basis, and we do have our own maintenance to do. I mean, we have $65 million more to spend this year on maintenance, so that tends to be lumpy sometimes. So, but we do you think there's room to go lower on the cash side.

[Operator Instructions] Our next question is from Robert Kwan with RBC Capital Markets. Please go ahead.

Just wondering, John, the discussion that was had around the magnitude of the dividend increase. And can you just talk about the decision to go with the 9% versus something maybe more modest and then allocating the remainder of the capital back to a share buyback?

Well, I think, we look, as we're buying back significant amount of shares, the actual cash outlay is not going to change that much because a 9% increase is around $9 million, give or take. So as we buy back shares, the actual cash outlay won't change. We look at it once a year, I'll remind you, we don't look at it multiple times a year. So we did increase it last year because of the situation of the low price market we were in. So we looked at it around AGM time and made the decision that as we continue to buy back a significant amount of shares, that going to 9% made sense and probably won't affect the amount of cash we're spending as we buy back the shares that we're planning to.

Okay, understood. And then just on Medicine Hat, just a question around the gas hedging. So you've got hedges out to 2022. I'm just wondering, can you give us some granularity as to the percentage and the shape of the hedges between kind of this year and out to 2022 time frame?

Probably take that off-line, Robert. Sandra can provide you that detail. I would just say that the hedges that we have entered into in '21, '22 are less than $2 or around $2. So it may be lower than that at that time, but we're pretty happy to have a cost structure like that into the next decade with our jewel on the prairie.

Our next question is from Charles Neivert with Cowen. Please go ahead.

A couple of quick questions. One, if you get the gas from Argentina and you don't lose anything from Chile from where it is today, would that be enough gas to run or more than run the current operation, the current one plant that you're running now.

Yes, so the deal in Argentina is for quantity of gas and we have the option to take it at a rate based on what we want. So we could technically, if we wanted to, once we get the gas starts flowing, run the plant at full rates.

Okay. Another question is the drop-down or the small drop-down in the Geismar operating rate, is that more a function of catalyst activity just sort of normalizing? Or is that a reasonable..

Yes, catalyst activity does, as the plant's been running for, I guess, one plant almost a couple of years and the other one just over a year, catalyst will degrade over time. We've had a few small issues like I mentioned earlier, so nothing significant. But I think we're pretty pleased with the operating rate of that site. Since it's come up, we're running at over 1 million tonnes per year per plant, which is much higher than we ran them in Chile. So we run them at about 850,000 tonnes. So we're extremely pleased with the operation there and how it's performing, as well we've had an outstanding safety record there. We haven't had a recordable injury down there since we started up. So we're really pleased with that site and how it's performing.

Okay, last question. Are there any maintenance turns the remainder of the year for you guys or into '18? Or do you guys give anything around the schedule of those things coming up?

Well, we have 10 plants operating today with the exclusion of Chile IV. We do turnarounds on our plants every three to four years. So normally, any year, you should expect two to three plants to have a turnaround. We don't advertise when those turnarounds occur for commercial reasons, but on average, you should expect two to three plants being in some sort of turnaround each year.

Okay. Would you go Canada, one?

What I call Canada, one?

The one that you guys had to deal with in the first quarter, would that be -- I know technically it wasn't a turnaround, but did they have the same effect as 1 so are we now sort of 1 down, 2 to go so to speak?

No, it was in a turnaround. That was unplanned because of a technical issue on a piece of equipment design issue. So these are planned well in advance. We have teams that go around the world performing these turnarounds. You get 500, 600 contractors per turnaround. You're doing catalysts. You're doing all the repairs that we've accumulated since the last turnaround for the plant. So these are 30 to 45 days in duration. So these are well planned and well foreseen and it's unlikely we do two at the same time because we don't have enough people.

Right, okay. Last question. On the fuel blending side, you mentioned that certainly it's still partially a driver, but not nearly as strong as it had been in the past. Is the growth there more like the current basic chemical side? Or is it somewhere between the chemicals and the rest of the businesses? I know it's not up with the MTO numbers, but...

Yes, I think that's a good point, Charles, I mean, MTO is dwarfing what we've seen in the other energy applications. As these other 3 plants come up, we're going to being close to 20 million tonnes of demand at full rate. Fuel blending continues to be very solid, growing as the car market in China grows. And I would also emphasize MTBE, which is also a fuel component, is really growing strong, especially in markets like China where they're trying to clean the quality of the air there -- improve the quality of their air. So fuel blending is still one of those products as that grows. And I mentioned in my notes that New Zealand is looking to adopt. So we're pretty -- still pretty excited because that's a very affordable application for methanol at many different oil prices especially at low-level blends and it's very clean-burning. So there's a very environmental, positive impact as well. So it's just that MTO is kind of dwarfing the others at this point.

Thank you. Our next question is from Chris Shaw with Monness, Crespi. Please go ahead.

I just have a couple of easy ones. Is the sailboat MTO play, is that the largest in the world?

Yes, it is.

It's like -- what -- we'll deal with the second largest, and it's actually not that close to, I'm just trying to -- when I hear these in the future, I want to know what that is.

There is a bunch of them that use about 1.8 million tonnes of methanol or 600,000 tonnes of olefins. So I don't think I remember the exact number, but there's 3 or 4 in that kind of scale.

All right. And then on your outlook for future MTO plants, did you increase that by 1 plant? I thought at the last time you might have said it was 2 plants and now is it 3? Or there are some things in between?

Great to see you're paying attention. Yes, it increased by 1 plant.

And is that just because you just got better information on when that was partially being built or something? Or are there a bunch of plants out there that are like in some state that you could actually add them to a list at some point or...

Well, there's a whole second wave of plants that were announced. And until they actually start breaking ground and spending money and erecting steel, we kind of put them in the announced category. This one had been announced some time ago and became under construction this quarter, so we've added it to the one -- the three -- two , now three other construction.

Thank you. Our next question is from Bernard Horn with Polaris Capital Management. Please go ahead.

Just a quick follow-up question on the coal-to-methanol production in China. I think you may have referenced it earlier, but I just wanted to see if you have any further data on any operating rates or tonnes produced and whether or not that's kind of up or down. I know in the release you referenced the restrictions on capacity additions to there. So maybe just comment on that.

Yes, we haven't seen a big change in coal production operating rates in China. The high end of the cost curve is being set by natural gas today. So we continue to see the same amount of operating rate in China on coal that we've seen for the past few quarters. No real change.

There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Floren.

Thank you. Despite some temporary demand shifts related to technical issues in the MTO history, the methanol industry fundamentals remain strong. I'm very pleased with the continued record production and sales results that we've achieved in Q1, and I'm encouraged by the improvements we have seen in the gas availability in Egypt and Chile. In the current methanol price environment, our assets are capable of generating significant cash flows. Our priorities for capital allocation are to meet our financial commitments, meet our near-term growth objectives in Chile and return excess cash to shareholders. Thank you for the interest in our company.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.