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Methanex’s production facilities near Punta Arenas, Chile, where the company can ship methanol to Asia, North and South America, Europe and southern Africa.

Methanex Corp. is not really an energy company, but the resemblance was close enough for investors consumed by the oil crash.

The company's stock has sufficient historical correlation with crude that the market saw it appropriate to shear 40 per cent off its share price in three months as oil benchmarks plunged.

That was clearly an overreaction, said David Baskin, president of Baskin Financial, which has owned shares of Methanex for several years. Investors seem to have recognized as much, returning to Methanex shares almost half of the value lost to the oil rout. However, the stock still trades at a 22-per-cent discount to its September peak.

"It was a tremendous buying opportunity when it went down that much," Mr. Baskin said. "You're a little bit late to the dance, but the party's not over."

While a good chunk of global demand for methanol is tied to energy, both the commodity and Methanex stock can advance even in the absence of an oil recovery.

Energy applications account for about 40 per cent of the global supply of methanol, including its use as an additive to gasoline. So when oil and gasoline prices are high, demand rises for methanol as an alternative.

On the input side, however, natural gas is the main ingredient in the production of methanol. That means Methanex is uniquely positioned to benefit when oil is expensive and gas is cheap.

The proliferation of hydraulic fracturing brought about just such a divergence. The close traditional relationship between natural gas and crude oil prices ended in 2009, when spiking U.S. shale production increased the supply of both commodities.

New sources of U.S. shale oil replaced imports and had minimal effect on the U.S. crude benchmark. Rising natural gas output, on the other hand, without any big spike in domestic demand, led to deep price discounts.

Much of the bullish sentiment supporting Methanex stock was based on the gap between oil and gas. In the five years beginning in March, 2009, when Methanex hit a postcrisis bottom, shares appreciated by more than 12 times, from less than $6 (U.S.) to more than $73. Over that same time, West Texas intermediate more than doubled to break through the $100-a-barrel mark, while the Henry Hub natural gas benchmark fell by almost 40 per cent.

The association with energy made Methanex shares and methanol itself susceptible to energy-related selling, in what widely followed U.S. financial author Jim Grant called a case of "mistaken identity."

"It's not as if there were no correlation," Mr. Grant said in a recent instalment of Grant's Interest Rate Observer. "It's rather that the market exaggerates it." Mr. Grant quoted an industry observer: "There is a whole pile of demand out there that is not correlated to oil at all and that is what forms the heart of our industry."

Most of the world's methanol is used in a variety of industrial applications – the production of paint, plywood, sealants, synthetic fibres, windshield washer fluid and chemicals such as formaldehyde. It's also used in the production of olefins, the starting point for many plastics.

Notwithstanding the discounts on crude oil, global methanol demand is expected to grow by a respectable 10 per cent to 12 per cent this year, and 7 per cent on average over the next four years, Raymond James analyst Steve Hansen said in a note, citing research from Argus DeWitt and Methanol Market Services Asia.

Mr. Hansen upgraded Methanex stock to "strong buy" from "outperform" on Thursday and raised his target price to $70 from $60. The other ratings on the stock total 10 "buys" and two "holds" at an average target of $61.

Count Methanex itself as among those considering its stock undervalued. Management recently amended its stock repurchase plan to buy back 10 per cent of its outstanding shares. Mr. Hansen said he also expects a dividend increase this spring, adding to a strong track record of payouts established over the past 10 years.

A sustained rebound in energy would certainly help Methanex. But the company, and the stock, don't need high oil prices, Mr. Hansen said. "For the generalist investor contemplating how to best play the potential energy recovery, we argue that Methanex is an ideal investment, boasting not only good offensive attributes, but also great defensive characteristics that will allow it to perform even in a flat energy-price scenario."

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