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July 2005 Headlines

In most regions, things are looking a little more hopeful in terms of the economy. The final estimate of Q1 2005 GDP in the United States was announced at a healthy 3.8% growth, with the advance estimate Q2 GDP slightly slower at 3.4%, this attributed to a decrease in business inventory investment. Meanwhile, the Conference Board's US Consumer Confidence Index shows the public still very wary, with the Index dropping from June's 106.2 to July's 103.2. In their recent GDP forecast release for the euro area, the European Commission quoted a growth range of 0.1-0.5% for Q2 2005 and 0.2-0.6% for Q3. Also, as reported in the July Methanol Business Alert, global manufacturing appears to be improving, with a number of countries reporting stronger PMI. However, a recently released World Bank report noted an economic slowdown in 2005 for the European Union's Eastern European members, this after the strong upturn seen in the period leading up to those countries' inclusion in the EU.

The US Gulf-Houston Ship Channel Natural Gas Index for July was fixed at $6.88 USD/Mbtu, up 11% from last month. The elevated price of associated crude oil and weather-related issues in the US Gulf are affecting prompt gas values. As of close of business on 11th July, the daily US Gulf Henry Hub prompt cash natural gas price was $7.50 USD/Mbtu. Forward monthly gas pricing is mixed, but trending higher. US natural gas stock levels continue to correct slowly toward last year's weekly levels. For the week ending 1st July, US natural gas stocks were at 2186 Bcf (billion cubic feet), a relatively small increase of 63 Bcf from the previous week. Stock levels are still elevated, 12% greater than the 5-year average, but now only 7% greater than the level posted for this week last year.

The July US Gulf-Houston Ship Channel Natural Gas Index rose about 10% to $6.88 USD/MMbtu. Forward gas pricing for the winter period is still strong, but the high premium to the prompt cash and near month gas price is not as elevated as in the past. As of the close of business on 26th July, the daily US Gulf Henry Hub prompt cash natural gas price was $7.52 USD/MMbtu. Record hot US weather, the resulting strong electrical demand and higher prompt natural gas cash pricing combined to slow the US natural gas refill rate. The July 28th release of US natural gas inventory levels, as issued by the US Energy Information Administration for the week ending 22nd July 2005, shows US natural gas stock levels at 2381 Bcf (billion cubic feet), an increase of only 42 Bcf from the previous week and only 4% greater than the level posted for this week last year.

Citing an increase in natural gas supplies at the end of June/early July, Methanex restarted its new Chile IV plant and began producing on spec material at 85%. In their recent earnings announcement, Methanex President and CEO Bruce Aitken commented, "The plant is operating very well and we are currently shipping methanol from Chile IV to our customers." While the gas supply situation remains uncertain, Mr. Aitken stated that the company is devising ways to lessen the impact of further disruptions, including re-scheduling two maintenance shutdowns from the end of the year to the current period. The company completed a two-week shutdown at Chile II, restarting about one week ago. The Chile III plant is now scheduled for a three-week outage in August. The new Chile IV plant was said to have reached operating rates of 100%+ of nameplate capacity by mid-July.

Due to agreements now in place and the support of some key marketers, there is now wide acceptance of the lower Q3 methanol contract price settlement of €220 per tonne, FOB Rotterdam (a USD equivalent of $265 USD/tonne). Spot buying interest remains weak, with individuals describing the market as now entering its quiet summer vacation period.

Minor domestic production issues are still ongoing in Europe, but supplies to consumers do not appear to be an issue. In early July, Mider-Helm's methanol unit in Leuna was down for 5-6 days with mechanical problems, but has since returned to full production. Mechanical issues shut down the Schwarze Pumpe methanol unit for 3-4 days last week, but the plant is now back online. Slovenia's Nafta Lendava plant went down for scheduled maintenance early in the month and restarted slightly ahead of schedule earlier this week. As we go to press, there are indications that one of Methanor's production units might have suffered an outage, but it is expected to be brief. Two of the large Russian facilities are planning maintenance outages to start in August and September, but volumes to contract customers are described as deliverable and are not being withdrawn.

In an announcement dated 29 July, Methanex Corporation reduced its Asian regional non-discounted posted price by $10 USD to the $270 USD/tonne level for August, responding to the pressures on both spot and contract pricing in that region. This is the third consecutive decrease for the company's Asian Posted Contract since May's price of $302 USD/tonne.

Early this month, Lurgi AG was granted engineering, procurement, construction supervision, and commissioning contracts for Petronas' new methanol project in Labuan, Malaysia. Lurgi's MegaMethanol Technology will be used at the 1.75 million tonne/year plant. The unit, Lurgi's second for Petronas, is scheduled to come online at the end of 2007, and will increase total production at the site to approximately 2.4 million tonnes/year. This project joins a growing list of new capacity that is targeting completion in the late 2007/2008 time period.

On 21 July, the Chinese government announced that it was revaluing the Yuan to 8.11 to the US dollar. Further, the Yuan would not longer be linked to the USD, but instead to a basket of foreign currencies, the composition of which was undisclosed. The revaluing had long been sought, particularly by the US, where low prices of Chinese imports have helped inflate the country's trade deficit. Imports from China will now be more expensive, with consumers expected to take a bit of a hit.

After several failed attempts, the US Congress has finally sent comprehensive energy legislation to President George W. Bush for approval. At mid-month, the conference committee to finalize the bill began meetings, completing work on the non-tax section of the legislation on 26 July, with the $14.5 billion USD tax package agreed and attached soon after. The full House of Representatives approved the bill by a vote of 275-156 on 28 July, while the full Senate gave its approval in a 74-26 vote on 29 July. Despite the high price tag and the omission of some key elements he had requested, President Bush is expected to sign the bill in August.

While there is no MTBE ban mandated in the bill, the conference committee failed to negotiate a compromise on the MTBE liability issue, which ended up being dropped entirely from the proposal. Still, conference chairman Rep. Joe Barton (R-Texas), who fought hard for the liability inclusion, did succeed in adding a provision allowing future MTBE liability suits to be sent to federal courts, where cases would have to meet more rigorous standards than in state courts. While environmental groups consider the dropping of the liability protection language to be a victory, many feel that the federal court stipulation is a veiled attempt to somehow shield MTBE producers in such lawsuits. With that major stumbling block out of the way, the conference committee sped through the remaining issues, including the Renewable Fuels Standard (RFS). In its initial proposal, the House had suggested an allotment of 5 billion gallons of ethanol, while the Senate voted for 8 billion gallons. A compromise was reached though, and 7.5 billion gallons of ethanol will be mandated by 2012. Another issue expected to provide a heated contest was drilling in the Arctic National Wildlife Refuge (ANWR), however it was not included in the finalized energy bill, but may be attached as an amendment to other pending legislation.

In July, the European Commission (EC) gave unconditional approval to US investment group Blackstone, which also owns Celanese, to proceed with its purchase of Acetex, finding that "the transaction would not significantly impede effective competition in the European Economic Area or a significant part of it." With all of the regulatory and shareholder approvals in place, Acetex announced on 20 July that the transaction was complete, with Celanese subsidiary HNA Acquisition Inc. purchasing 100% of Acetex's issued and outstanding common shares for C$9.00 per share.