Lyondell Basell 3Q15 Earnings Call Notes

LyondellBasell Industries NV (LYB) Bhavesh V. Patel on Q3 2015 Results

Rebalancing in Olefins markets in 3Q as industry came off of outages

“The third quarter was characterized by rebalancing in both Olefins and Polyolefins markets, as the industry came off the high rate of outages that defined the second quarter. Volume continued to remain at second quarter levels, but margins in September closed lower than where they started the quarter. To this point, October margins, as forecasted by IHS, are located on the lower-left side of slide 10, have come off of the levels of the third quarter.”

Continue to see balance ethylene markets

” Overall, we continue to see ethylene markets that are balanced.”

The force majeure remains in polypropylene

“the force majeure remains in place in polypropylene. As we look ahead into the first half of 2016, we remain encouraged by what we see. The next several slides help explain our optimism. First, as shown on slide 14, the current oil-to-gas ratio remains healthy and well above the pre-shale average. This represents the U.S. shale advantage, and we remain well positioned to continue benefiting from it. Along with this cost advantage, we continue to benefit from an abundant supply of natural gas and NGLs.”

Demand for our products remained steady

” Demand for our products, approximately two-thirds of which go into consumable end users, remained steady. Our products are relied upon for fuel, food packaging and other diverse everyday end uses.”

Global demand has grown every year for 25 years except for in 2008

“In the past 25 years, global polyethylene and polypropylene demand has grown year-over-year in all but one year, 2008, and we know how severe that recession was.”

Operating rates should be similar in 2016

“Operating rates in 2016 are projected to be very similar to 2015, with ethylene effective operating rates, again, above 90%”

May see supply tightness in 1H16

“As the fourth quarter trends lower due to seasonality, we typically see a demand increase during spring and restocking occurs. This pickup in demand coincides with planned maintenance and we could again see another period of supply tightness in the first half of 2016. It would not be unreasonable for the first half of 2016 to look similar to the first half of 2015.”

Ethane demand increased during Q3 as propane fell out of favor

“Our sense is that ethane demand increased as Q3 progressed, as propane fell more out of favor, propane prices rising through the quarter, so demand increased and I think the rejection rates that you quoted are in line with our views, 400,000 to 500,000 barrels a day. ”

Weak Euro good for European competitiveness

“a weaker euro, lower naphtha price does increase competitiveness of Europe. So, our end use customers are more competitive in export markets, for example, for film. So, we’ve seen, polypropylene demand grow very solidly year-over-year, and polyethylene is incrementally higher year-over-year. I think those are all the factors and with lower oil price and weak euro, we expect that Europe should do pretty well.”

I think inventories are average at best. Customers aren’t buying ahead.

“as we sit here today, Arun, I think inventories are average at best, maybe below average in the value chain. We see buyers only buying what they need. We don’t see them buying ahead. Seasonally, as I mentioned in my remarks, that we tend to see demand decline in November/December, fourth quarter seasonal effects. Easily, we see spring pickup, not only in demand but then restocking of inventory to meet that higher level of demand”

Polypropylene has been underinvested but we’re seeing growth now

“Polypropylene has been underinvested for the past few years, especially in the U.S. and in Europe. And this is the first year we’ve seen really significant growth, globally, in polypropylene. A part of that could be that polypropylene price has come down some and it’s more competitive with ethylene, especially in the U.S. But we’re definitely seeing demand growth in polypropylene”

Styrene demand had been shrinking for some time

“in terms of supply/demand for styrene, as you know, it’s been very underinvested for years. In fact, demand was shrinking for styrene and derivatives for some time. We now see demand increasing year-over-year. It’s been underinvested for quite a long time.”

Spot ethylene is a very thin market

“spot ethylene market accounts for about 10% from the total volume produced in the U.S. Now that includes both paper and physical trades. If you just look at the physical volume, it’s like 5% to 7% of the total production, so that’s quite small. It’s a very thin market in the end. And so, near-term price movements, like we saw in the second half or the third quarter, those can be influenced by very local logistics-type issues, different producer issues, or whatever that might be. But I don’t see this as being something that’s structural.”

Oil prices should probably come up

” It’s difficult to predict where oil price will go on the near term; but longer term, certainly. There’s a lot of production in the world that’s underwater at $45. So, my sense is that longer term oil price should come up, it’s a question of when and the time that we take to get there. ”

Polyethylene expansions coming on in second half of next year

“The polyethylene expansions, I think they’re in the second half of next year; most of them are. And those expansions, in the month that they start up, there may be a little bit of disruption, but our sense is if you look at markets at a global basis, there’s enough demand growth based on the trend that we’ve been on to absorb that new capacity.”