Methanex Corporation (MEOH) is the largest producer of methanol in the world, a cleaner fuel than natural gas that trades closely to oil prices and which is also used in adhesives and other chemical products, as well as a fuel substitute and additive, says Bernard R. Horn Jr., President and Portfolio Manager at Polaris Capital Management, LLC.
“Methanex builds methanol facilities where the low-cost natural gas is in some way stranded or cannot be used in the local economy,” Horn said. “At these plants, methanol is converted to a liquid form that then can be shipped to regions that want cleaner sources of fuel. They arbitrage the difference between low-cost natural gas as a feedstock, and ultimately something that trades a lot closer to oil prices.”
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Horn says MEOH has already done that in Canada, Chile and New Zealand, and they have plants in Egypt and Trinidad and Tobago. He adds that China is also one of the fastest growing users of methanol as a fuel substitute, as the country seeks to enhance environmental conditions.
“Any company that can conduct physical arbitrage between a very low price product and a very high price product is likely to make money. The Fund has had a position in Methanex for years, aware of its business model, customer base, strong management team and healthy assets,” Horn said.
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