LyondellBasell Industries NV Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: LYB's GoalZERO commitment resulted in a September year-to-date total recordable incident rate of 0.13, exceeding top quartile peers in the sector.
• Financials: Q3 EBITDA was $1.2 billion. Cash from operating activities was $670 million. Shareholder returns totaled almost $1.8 billion over the last 12 months, with a cash balance of $2.6 billion at Q3 end.
• MoReTec-1: Construction started in September 202x in Wesseling, Germany. It's expected to start up in 2026, using proprietary catalytic advanced recycling technology to produce recycled cracker feedstocks.
• Houston refinery: Plan to close by Q1 2025. Consideration of projects includes a larger MoReTec unit, renewable/bio-based feedstocks, and repurposing the site for sustainable value.
• Value enhancement program: Expected to unlock $600 million in recurring annual EBITDA by end of 2024 and $1 billion by end of 2025.
• Refining shutdown: Staged shutdown starting Jan 2025, with expected net cash benefit of ~$175 million in 2025. Employees will be retrained/redeployed where possible.

Segment Performance

• Olefins and Polyolefins - Americas: Q3 EBITDA was $758 million, up 13% quarter-on-quarter and 50% year-on-year. Integrated polyethylene margins were supported by low ethane and natural gas costs, and higher polyethylene prices. LYB's U.S. crackers ran at 95% rates during the quarter.
• Olefins and Polyolefins Europe, Asia and International: Q3 EBITDA was $81 million. Volumes declined due to a planned turnaround at the large Wesseling cracker in Germany. Seasonal softening of demand and planned maintenance impacted operations.
• Refining segment: Q3 EBITDA was a loss of $23 million due to lackluster demand, high industry operating rates, and declining crack spreads for gasoline and distillate fuels.
• Intermediates & Derivatives (I&D): Q3 EBITDA was $317 million, a decline driven by material decreases in raw material margins for oxyfuels and propylene oxide volatility.
• Advanced Polymer Solutions (APS): Q3 EBITDA was $19 million. Weaker demand in the automotive sector was offset by growth in packaging markets.
• Technology segment: Q3 EBITDA was $69 million, lower than guidance due to several customers not achieving expected licensing milestones.

Guidance

• Cash generation: Expectations of improved cash generation in Q4, though market conditions remain challenging.
• Refining: Further margin compression expected in the near-term as Maya 2-1-1 crack spreads continue to fall.
• Seasonal demand: Typical seasonal softening of demand in most segments, with oxyfuels margins remaining low in line with seasonal norms.
• Value enhancement: On track to unlock $600 million recurring annual EBITDA by end of 2024 and $1 billion by end of 2025.
• Regional outlook: Americas polyolefin demand improving, Europe market muted but stable, China markets slowly improving from pre-pandemic levels.

Risks

• Market volatility: Impact on crack spreads and margins due to fluctuating crude prices and gasoline crack spreads.
• Seasonal trends: Seasonal softening of demand in olefins and polyolefins constraining price increases.
• Regulatory changes: Uncertainties in European regulatory environment affecting capacity rationalization.
• China market: Uncertainties in China market recovery impacting demand for intermediates and derivatives.

Question and Answer

• Q: About North American polyethylene market strength in October, A: Overhang of September orders and favorable feedstock/crude price dynamics contributed to strong October orders, though seasonal slowdown expected in November/December.
• Q: PO and derivatives decline, operating rates in Q4, A: Impacted by unplanned downtime and weaker variable margins, with operating rates expected to be ~75% in Q4 due to planned maintenance.
• Q: Polyethylene prices in Q4, A: Hopeful for price increases but seasonal demand may hinder full realization of price hikes, with domestic demand and exports supporting optimism.
• Q: U.S. asset mix in 5-6 years, A: Leveraging existing infrastructure for renewable/circular feedstocks, maintaining feedstock flexibility while focusing on demand for low-carbon solutions.
• Q: European restructuring timelines, A: Process underway, expecting clarity in 2025. Portfolio to shift to 70% cost-advantaged operations from current 60%.
• Q: APK acquisition technology maturity, A: APK's solution-based recycling technology for laminated films is being integrated, with plans to scale up and integrate into future offerings by 2030.
• Q: Refining transition earnings impact, A: No material impact on other segments from refining shutdown, with MoReTec-2 FID not imminent and modular investment approach.