LyondellBasell 4Q15 Earnings Call Notes

LyondellBasell Industries NV (LYB) Bhavesh V. Patel on Q4 2015

Low priced feed and industry outages will be constructive for markets we serve

“we believe that we continue to benefit from abundant supplies of low priced feedstocks and from solid underlying demand for our products. Additionally, we anticipate that the heavy industry outage schedule for the first half of 2016 will continue to be constructive for the markets we serve.”

Global ethylene operating rates are probably 80-90%

“Global operating rates, you know our sense is that they’ve been averaging in the high 80%s to about 90%, excluding some of the unplanned outages. So, last year in the second quarter they probably drifted a little lower. I think in 2016, markets are going to be relatively balanced. In 2015 demand growth for ethylene nearly matched supply growth for ethylene. So market conditions look very similar. I think the thing we’re going to have watch is the level of unplanned outages that created the tight markets in second quarter.”

My sense is that customer inventories very are low

“throughout last year, as oil price declined and there was uncertainty about global economic growth, we saw our customers depleting inventory especially downstream of our polyolefins business. By the end of the year, our sense was, they were buying only what they needed and they were buying kind of one week at a time. So anecdotally, I would say that inventories are very low and we see even in the last week of January, when we saw oil prices move up a little bit, we had a certain sudden rush in terms of demand, both in Asia and in Europe. So my sense is inventory is very low.”

Polypropylene is a very tight market

“in the case of polypropylene, we see a very, very tight market, there is really not any new supply coming here in the U.S. So, I would expect that to continue. We’ve had years of fairly modest margins. And as you know, our company has significant leverage to polypropylene. We’re the largest polypropylene producer in the world. And so we’re very constructive about polypropylene.”

Customers not building inventory despite shutdowns

“I think, their sense is that the product is very available. That’s usually been the trend. The only time John that I have seen customers build inventory is when we had a couple of bad hurricanes come through Houston, I think that spooked people. And so prior to hurricane season they build for a year or two. But generally they don’t do that, we haven’t seen that.”

Flexibility of feedstocks is key

“I think flexibility is going to be the key and so we are investing incrementally to increase our flexibility to crack more propane, a few other feedstocks. And so, that’s what we want to retain longer-term. It is difficult to call two years, three years from now whether it will be ethane or propane. We want to make sure that we can crack meaningful amounts of the big feedstocks.”

I’m pretty constructive about demand growth

“I think demand is still – is developing quite nicely. Again as I mentioned earlier in one of the questions, we’re seeing buying activity pick up as we move towards the second half of January. And I would expect that this year we ought to see similar growth to last year. And frankly, if I’m right about lower inventories downstream, the higher – as the oil price incrementally stabilizes or moves up, we should see inventory replenishment downstream, which will add to demand growth year-over-year. So frankly, I’m pretty constructive about polyethylene growth here going into 2016. Frank, downstream, our customers don’t have a lot of inventory globally.”

Expect seasonal restocking in the March, April timeframe

“one thing that I think about is the balance between supply and demand, whether it’s regionally or globally and my sense is that we still have fairly balanced markets. While coming into a March, April, May timeframe, it will bring a seasonal uptick in demand, likely inventory restocking. I would imagine at some point oil price will reach some kind of a bottom and if that happens it will bring buyers back.”

Despite lack of confidence last year we still had demand grow more than 4%

“We’ve had – if you think about 2015, we had a year where not only there was lack of confidence on oil price, but also there were questions about economic growth in the U.S., and in China, and we are destocking, despite that polyethylene demand grew more than 4%. So that’s what makes me constructive.”