Methanex’s Methanol Momentum: Why Scotiabank Sees a $60 Target Ahead

Scotiabank’s recent upgrade of Methanex (NASDAQ: MEOH) to Outperform with a $60 price target reflects growing optimism about the methanol producer’s resilience in a volatile market. The revision, driven by stronger-than-expected cash flows, operational improvements, and favorable supply dynamics, positions Methanex as a key beneficiary of methanol’s structural tailwinds. Yet, lingering risks—from geopolitical shifts to production curtailments—keep investors cautious. Let’s dissect the catalysts and challenges shaping this play.

The Bull Case: Strong FCF and Operational Turnarounds

Scotiabank’s analysis hinges on free cash flow (FCF) projections that could hit $7.00–$7.50 per share in 2025, well above its conservative base case of $6.00. This upside stems from Methanex’s ability to command ASP premiums over spot prices—a trend that has persisted for two years. At $7.50/share, FCF yields could reach 16%, a compelling metric for income-focused investors.

Operational stability is another pillar of the bull case:
- The G3 plant in Chile, which suffered an unplanned outage, has been fully restored. Both Chilean plants now run at full capacity, supported by improved gas availability.
- The OCI acquisition, expected to close in Q2, adds 1 million tonnes of annual methanol capacity, bolstering Methanex’s scale and market share.

Meanwhile, Iran’s methanol market dynamics add intrigue. Reduced exports due to potential blending into gasoline (though unconfirmed) could tighten global supply, supporting prices.

Risks Lurking in the Shadows

Despite the optimism, near-term headwinds cloud the outlook:
1. Egypt’s Gas Curtailments: Summer demand for electricity could force further cuts to gas supplies, hampering Methanex’s Egyptian operations.
2. Chinese Methanol Prices: A $20/ton drop from Q1 levels in China—a critical market—reflects softening demand.
3. Macro Uncertainties: Global economic slowdowns or energy price declines could depress methanol demand.

Analyst Consensus: A Split Between Bulls and Caution

While Scotiabank’s $60 target represents a 55% upside from current levels (~$38.50 as of late April), not all analysts are fully bullish:
- CIBC maintains a Buy rating with a $62 target, citing Methanex’s long-term growth drivers.
- RBC Capital, however, holds a Sector Perform rating at $55, emphasizing near-term demand risks.

The average analyst target stands at $54.75, reflecting a balanced view. GuruFocus’ fair value estimate of $46.58 suggests skepticism about the high end of Scotiabank’s FCF projections.

The Bottom Line: A High-Reward, High-Risk Bet

Methanex’s $60 target is plausible if the following conditions hold:
- Iran’s supply constraints materialize, lifting global methanol prices.
- The OCI acquisition closes smoothly, unlocking synergies.
- Gas reliability in Chile and New Zealand outpaces Egyptian headwinds.

However, investors must weigh these positives against execution risks. Methanex’s strong balance sheet ($1.03 billion in cash and $500 million undrawn credit facility) provides a buffer, but geopolitical and macroeconomic uncertainties remain.

In conclusion, Methanex’s valuation upgrade reflects its position as a best-in-class methanol operator with structural growth drivers. While near-term volatility is inevitable, the 16% FCF yield and operational resilience make it a compelling long-term play—if investors can stomach the risks.

Final Take: Methanex’s $60 target is ambitious but achievable for bulls who bet on methanol’s comeback. For now, the stock remains a high-conviction speculative play, best suited for those willing to ride the sector’s ups and downs.

Data as of April 2025. Past performance does not guarantee future results.