Essay Example on Describe the strategy of Methanex Arena

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Cases Questions Methanex Developing Strategy in a Commodity Industry Questions Describe the strategy of Methanex Arena Methanex was originally known as Ocelot Industries in Canada as an oil and gas exploration company In 1991 Ocelot Industries split into three parts with the methanol and ammonia businesses forming Methanex Corporation By 2000 Methanex had become the largest methanol producer all over the world which there are near seven million tonnes of methanol sold by Methanex every year This huge amount of methanol met 16 of the global demand while 59 of which was sold to the Asia Pacific region 23 to Europe and 18 to the Americas Methanex set up its operations parts in Trinidad New Zealand and Chile with marketing offices in the Asia Pacific region North America South America and Europe For the global distribution of its methanol Methanex required a fleet of tankers barges trains and trucks In 1995 the company created the Waterfront Shipping Company to manage a fleet of ocean going vessels By 2007 Methanex s fleet had grown to more than 20 ships Differentiators In the global methanol industry there are several competitors with Methanex Most of these leading oil and gas companies did not only consider methanol to be their core business but also produced methanol as a part of larger petrochemical production organizations

They include Methanol Holdings Trinidad Limited MHTL Sabic Mitsubishi Gas Chemical MGC MSK Mitsubishi Corporation and Petronas These companies particularly in the Middle East were state owned and had different objectives cost structures and access to financial resources However Methanex can still take up about 17 of the market share in this industry The main strategy of Methanex was to become the cost leader in the production and distribution in the methanol industry One of the its objectives was to achieve the lowest delivered cost Unlike the others Methanex owned storage and terminal facilities in key distribution hubs in Canada Korea China the Netherlands and the United States The company supported its production with purchases of methanol from producers when prices were favourable and kept one month's worth of methanol supply Despite the high costs associated with storage Methanex used this product supplementation to diverse market risks and ensure its ability to provide its products to clients Due to its ability to deliver to all major methanol markets through its logistics network Methanex was the preferred supplier for the world s major chemical customers including Univar Momentive Lyondell Evonik Samsung Taminco Dow Chemical and LG Economic logic It had signed long term contracts based on monthly volumes with numerous multinational manufacturers none of which occupied more than 10 of its revenues In addition some of these long run contracts with low cost suppliers of natural gas partially mitigated Methanex s risk from fluctuations in supply and prices In 2010 Methanex has 267 million in earnings before interest taxes depreciation and amortization and net income of 102 million on 1 97 billion in annual revenues 



The company's earnings peaked in 2006 at 482 million Methanex was severely affected in 2009 when its revenues fell to half of its 2007 figures and the company just barely broke even In 2010 Methanex s revenues were recovering with the global economy total sales by volume grew by 16 outpacing the global industry demand growth of 13 Methanex also remained the single largest methanol producer in the world for the 10th year in a row Staging and pacing There are challenges associated with the political situation in Egypt the idling of the company's newest production plant and the shared ownership of the joint venture with an unstable government In Chile due to the natural gas supply shortages Methanex had been forced to close its primary production facilities and was sitting on more than two million tonnes of idle production capacity MHTL s expansion in Trinidad and one of Methanex s long term supply contracts that was up for renewal in a few short years are also the company s concerns One possible strategy would be to adjust the strategy of seeking low cost sources of natural gas in emerging markets In house development team would be set up to focus on potential locations for new production facilities where the political economic and environmental conditions were favourable


The natural gas should also be accessible transportable and available at secured low costs for 25 to 30 years The company was also involved in research into future uses of methanol and alternative sources of methane for the production of methanol Vehicles In 2010 Methanex had the opportunity to participate in a dimethyl ether DME project in China Methanex would be a 20 shareholder and the only supplier of methanol at a 200 000 tonne plant near Shanghai Methanex and China s XinAo Group would enter into a long term arrangement under which Methanex would supply an initial quantity of approximately 300 000 tonnes of methanol to XinAo every year Methanex could raise its investment in this venture and leverage it into opportunities in China DME was viewed as an alternative residential fuel source and was gaining traction not only in China but also in other countries such as Indonesia Japan Sweden Iran and India Pursuing this option would require an important modification to Methanex s focused and singular corporate strategy Moreover technological advances allowed for the conversion of methanol into olefins Olefins ethylene and propylene could be processed through a polymerization unit to create polypropylene the world s most widely used plastic substances Methanol to olefin MTO processes were being piloted as subunits of existing plants primarily however if demand for methanol increased a lot producers would need to purchase additional merchant methanol for supply This opportunity could also divert the company from its focused strategy


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