Methanex Corp. (TSX:MX; NASDAQ:MEOH) has taken a US$33 million hit as it writes down inventories amid flagging demand for its product.
The Vancouver-based company, which is the world's largest methanol producer, blamed a slowdown in the global economy for what it described as a significant decline in methanol demand in its latest quarter.
"This resulted in lower sales volumes and a sharp drop in methanol prices, which triggered a write-down in the value of our inventories," said Bruce Aitken, Methanex's president and CEO. "These factors contributed to significantly lower earnings in the fourth quarter."
Aitken said in a conference call with analysts Thursday that, like many industries, the company's operating environment changed "quite dramatically" during the quarter.
"Customers cancelled about 200,000 tonnes of orders in the last two months of the year, which had a big impact both on our earnings and inventories."
The company reported adjusted earnings of negative US$12.4 million after recording a US$33 million pre-tax charge to write-down inventories to reflect the difference in their average cost at the end of the fourth quarter and what it expects to realize from selling them.
A net loss US$3.1 million (US$0.03 per share) was reported in the quarter, and Aitken said a further accounting loss is expected in the first quarter of its new fiscal.
However, he stressed that the latest results are not a good reflection of the strength and earning capability of the company, because earnings are affected primarily by the timing of inventory flows and the price volatility for methanol, a liquid petrochemical found in some everyday products.
While the company sells its product at a discount, its average non-discounted price in January was about US$220 a tonne. In its third quarter, Methanex achieved an average realized price of US$413 a tonne.
The drop off in demand had occurred "extremely quickly," said Aitken, "and it was widespread."
Many methanol plants are either operating at lower rates or have shut down, a move he said would provide some stability to pricing.
Despite reporting losses in the fourth quarter, Methanex generated US$51 million in cash flow from its various operations and has USUS$328 million of cash on hand.
By press time, Methanex's shares on the Toronto Stock Exchange were trading at $10.21, having fallen from a 52-week high of $33.85 on June 17.