Methanex, a large Canada-based producer of the chemical methanol, is the IBD Stock of the Day. Methanex stock is in a base, showing resilience against the broader market's slide, as Russia's attack on Ukraine upends the outlook for energy and other goods.
Shares prices have been boosted by rising prices for methanol — an alcohol used in fuel, paints, plastics, clothing and makeup — amid tightness in the world's energy markets and supply chains.
The stock formed its base alongside an increase in the price of natural gas, the raw material for industrial-scale distillation of methanol. Thinner stockpiles of methanol in Europe have also contributed to upward price pressure, as the region braces for dark days ahead, and while Russia and Europe prepare to cope with the impact of new sanctions.
Methanex Stock
Methanex stock jumped 2.7% to 48.78 in the stock market today. The stock held firm support at its short-term 21-day moving average in a cup-with-handle base. The base has a 51.30 buy point. However, with the market in correction, the stock — even if it breaks out — is not actionable.
Meanwhile, even as the broader market retreats, the relative strength line for Methanex has been rising. Shares have a 96 Composite Rating. The stock's EPS Rating is 75.
Methanol is a form of alcohol, a water-soluble liquid made up of hydrogen, oxygen and carbon. Also called wood alcohol, it sees wide use as a transportation fuel, representing 7% of the total fuel currently consumed in China. It is also an ingredient for other chemicals that go into an array of products — including clothing, construction materials, solar panels and plastics in automobiles.
'Pretty Low Inventory Levels'
Methanex, in an investor presentation in November, said that "Global energy shortages and higher energy prices provide firm methanol price support." Methanex stock, against that backdrop, has risen 16% over the past 12 months.
Methanex runs production sites in regions with low-priced natural gas, including Canada, New Zealand, Chile, Egypt, Trinidad and Tobago, and the U.S. The presentation said that energy uses generated around half of global methanol demand. Demand related to making consumer and industrial products roughly made up the other half.
The company last month reported fourth-quarter earnings per share that missed expectations. But sales beat. The company attributed profit gains in part to higher prices. However, forecasts see per-share profit falling this year and next.
Those results came as friction intensified along the Russia-Ukraine border. The quarterly results also arrived as winter demand and slim inventories led to a natural-gas crunch in Europe, which has relied in large part on Russia for supply. Russia had already been moving less gas to the region prior to its broader assault on Ukraine.
In January, during a conference call with Methanex stock analysts, management was asked whether its methanol customers in Europe were stockpiling or paying higher prices to shore up supply.
CEO John Floren responded: "No. Actually, we're seeing pretty low inventory levels in Europe."
