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March 2007 Headlines

Rising global inventories, growing spot price pressure and the rapid European Q2 contract price fixture resulted in a widespread contract price drop for April in all markets just after mid-month. While still historically high, methanol pricing will add cost pressure to a select group of marginal producers, potentially resulting in further capacity rationalization in the near-term. The speed and timing of any shutdowns could contribute to some stability prior to the introduction of new supply sources. A series of methanol maintenance programs are still underway and could impact the consuming markets in the coming months. New production is now coming online in Iran, but the impact in the market is yet to be witnessed. New supply volumes are heard loading for early to mid-April delivery.

Methanex Corporation announced this month that it has signed a Memorandum of Understanding (MOU) with Latin American oil and gas company GeoPark Holdings Limited, which includes a 10-year natural gas supply and purchase commitment set to begin in May 2007. The MOU also provides incentives for volume growth up to 100 million cubic feet per day, provisions for development financing and potential joint acquisition of new hydrocarbon blocks in Chile. The agreement is subject to final contract and requisite Chilean government approvals. A day before the announcement was made, Methanex President and CEO Bruce Aitken commented on the natural gas situation in Chile during a recent investor presentation, noting that their major supplier, ENAP, has publicly committed a $115 million USD budget for drilling. Mr. Aitken also alluded to the MOU with GeoPark and mentioned that company's commitment of $100 million USD toward exploration in 2007-2008. GeoPark, which began supplying natural gas to Methanex's Chilean operations in May 2006, is the only private sector oil and gas producer in Chile.

With a global chemical industry meeting occurring at the end of March in North America and little direct price discussions in hand for Europe, some consumers entered the market on 19 March to put forth some discussion levels in an attempt to start contract negotiations. Previous to this, some sellers had loosely positioned some discussions at Q2 levels of €300-330 per tonne. Once the spot T2 price traded down to €250-255 per tonne, it appeared unlikely that the contract price would be fixed above €300. Buyers looked at known Q2 spot strips fixed near €230 per tonne. Several talked of a potential target level for contract of €220-230 per tonne, but spoke of a willingness to accept €250, as sellers countered at €270 per tonne. Very quickly, in less than 24 hours, several major consumers and regional European producers had agreed to €250 per tonne ($334 USD per tonne) for the second quarter. This agreement was a decrease of €170 from Q1 or a 40% drop. Not long after the announcements began rolling in, Methanex posted the €250 per tonne price for their Q2 European Posted Contract Price.

In presentations at two recent investor conferences, Methanex President and CEO Bruce Aitken reaffirmed the company's commitment to rapidly reaching a decision on the Egyptian EMethanex joint venture project. All commercial agreements are in place, with Mr. Aitken commenting that a final decision is expected in the coming weeks. The project appears attractive on a per tonne production basis, but the increasing size of the capital costs, along with further reassurances on guarantees for natural gas supply and cost contracts, appear to be the focus.

Oman Oil Company has granted the engineering, procurement and construction (EPC) contract for its proposed Salalah methanol facility to South Korean firm GS Engineering and Construction Company. In an effort to reduce the unit's ecological footprint, the project will include wastewater treatment and water desalination facilities, as well as captive power generation. The methanol unit will produce 3000 MT/day (1.00 million mtpy), with start-up scheduled for the first half of 2010. According to Oman Oil, the project is estimated to cost approximately 350 million Omani Rials. At the current exchange rate, this cost converts to approximately $905 million USD. Finance negotiations on the project are indicated to be ongoing, with closure anticipated in Q2-Q3.

On 28 March, Jiutian Chemical Group Limited announced that it has formed a joint venture with Anyang Chemical Industry Group Co., Ltd. for the construction of a methanol plant in China's Henan province. Jiutian will have 51% ownership share, with Anyang holding the remaining 49%. The price tag for the whole project, including the 200,000 MT/year methanol plant and associated high pressure steam production and power generation units, is estimated at 600 million Renminbi (approximately $77.6 million USD at current exchange rates). Most of the methanol will be used to feed Jiutian's dimethyl formamide (DMF) production, with the remainder to be sold in the market. Commercial production is scheduled for June 2008.

On 28 March, Celanese Corporation announced the establishment of an exclusive long-term acetyls supply agreement and strategic partnership with Accys Technologies PLC and its wholly owned subsidiary Titan Wood. Under the agreement, Celanese will supply acetyls to licensees of Accys Technologies' proprietary Accoya™ wood acetylation process. According to Accys, this process alters the physical properties of sustainably grown softwoods and non-durable hardwoods to increase their sturdiness and structural stability without making the wood toxic. Earlier this month, Titan Woods successfully began commercial production of Accoya™ wood at its 30,000 m3 facility in Arnhem, the Netherlands. Celanese will also make an equity investment of $29.5 million USD through a purchase of Accys shares, giving them 5.5 % equity, with the option to increase ownership to 29.9%. Celanese also has the option to evaluate and acquire Accsys' proprietary acetic anhydride technology. The deal is subject to Accys' shareholder approval.

In a formal announcement dated 13 March, BP announced its intention to sell its ethyl acetate (ETAC) and vinyl acetate monomer (VAM) production facilities located at Saltend (Hull) in the United Kingdom. The potential deal includes all associated commercial operations and business functions. BP indicates a willingness to remain focused on its existing global acetic acid and acetic anhydride commercial operations. The VAM plant is presently rated at approximately 210,000 mtpy and is supplied feedstock from BP's onsite acetic acid production units. BP is also a joint venture partner in VAM operations in South Korea and has a feedstock supply/profit share agreement with Dow Chemical at their US VAM facility.

In order to reflect its expansion into methanol production, Saudi Formaldehyde Chemical Company Limited (SFCCL) announced this month that it has rebranded itself as Chemanol (Methanol Chemical Company Ltd.; www.chemanol.com). The company also announced a 1.5 billion Saudi Riyal expansion program at its production complex in Al Jubail Industrial City, which they indicate will ultimately give them 1.0 million metric tonnes of methanol-based derivatives by 2008, as well as captive feedstock methanol production. As we reported in August 2006, the company has awarded the EPC contract for their proposed 200,000+ mtpy methanol unit to Larsen & Toubro Limited and Haldor Topsoe AS. Also last year, they began evaluating production of methylamines (50,000 mtpy) and dimethylformamide - DMF (60,000 mtpy).