Q2 2024 Earnings Summary
- LYB's Intermediates and Derivatives segment is expected to remain steady, with the new PO/TBA facility operating better than planned rates, positioning the company well for potential upside when durable goods demand recovers.
- LYB continues to generate strong free cash flow, with a total capital return yield of 6% in Q2, and remains committed to returning 70% of free cash flow to shareholders through increased dividends and share buybacks.
- LYB anticipates improved earnings in the second half of the year, supported by expected polyethylene price increases due to strong market momentum, cheap ethane prices, and the absorption of new capacity through demand growth and record exports.
- LYB's current cost-advantaged operations represent only 60% of production volume, meaning 40% of production is in higher-cost regions, which could impact profitability.
- The company relies on favorable co-product values, especially in butadiene, to optimize its European crackers, suggesting possible challenges with core ethylene margins.
- LYB's plan to increase cost-advantaged production to 70% after implementing a European strategic assessment indicates potential issues with the remaining 30% of production, highlighting uncertainties in European operations.
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Cash Flow and Capital Return
Q: What's the outlook for buybacks and cash uses?
A: LyondellBasell generated $4.4 billion in free cash flow over the last 12 months, converting 95% of EBITDA to cash, surpassing their 80% target. In Q2, they increased dividends and resumed some buybacks. For the second half, buybacks will continue modestly as they remain cautious. Long-term, they are committed to returning 70% of free cash flow to investors. -
European Asset Review
Q: What's the plan for European assets—sell, upgrade, or rationalize?
A: LyondellBasell is evaluating all options for their European assets, including potential divestitures or rationalizations. They have announced this publicly, allowing discussions with potential buyers. The review includes both their POSM units (a 50-50 joint venture with Covestro) and cracker/PE/PP sites. They are progressing well, staying diligent and laser-focused, without delaying necessary actions. -
Polyethylene Price Outlook
Q: What PE price increases are expected in the second half?
A: They expect ethane to remain cheap, and there are two $0.05 per pound North American polyethylene price increases in the market. Practically all increased capacity has been absorbed through demand growth and record exports. With no inventory buildup and the hurricane season just beginning, they anticipate good momentum to support PE price increases. -
PO/TBA Plant and Market
Q: How is the new PO/TBA plant performing and PO demand outlook?
A: The new PO/TBA plant in Channelview operated at close to 90% capacity during Q2, a significant success for such a major investment ramping up quickly. Overall PO demand remains modest, with no noticeable rebound from durables, and they don't expect a rebound in the second half. China's ban on chlorohydrin-based PO technology by end of 2025 may offset new capacity additions. -
I&D Business Profitability
Q: Is the recent EBITDA bump in I&D sustainable?
A: Despite challenges in durable demand, the I&D segment remains steady. The new PO/TBA plant is running better than planned rates, close to benchmark. With interest rates potentially coming down, they see potential upside not currently built into forecasts. -
Demand Momentum and Maintenance
Q: What's affecting second half momentum compared to Q2?
A: They continue to see momentum building, with US domestic PE demand in Q2 up 4% vs Q1—the strongest quarter in two years. Exports were up around 8–9% vs May and June, reaching record levels. While awaiting inflation and interest rates to decline, they see improvements in areas like rigid packaging. Capacity utilization is affected mainly by scheduled turnarounds, not demand concerns. -
Refinery Closure and Circular Products
Q: Are refinery plans contingent on DOE funding, and what's in the $1B EBITDA target?
A: LyondellBasell plans to shut down the refinery by the end of Q1 2025. They are progressing with projects like MoReTec investments and renewable hydrocarbons, leveraging existing equipment to produce feedstock for their crackers. Some hydrogen projects are challenged without subsidies, but overall, they are making good progress. -
Polypropylene Dynamics
Q: How are you viewing global PP supply and feedstock costs?
A: US domestic PP demand was up 5% vs Q1, the strongest quarter since Q3 2021. PP is a more regional market than PE, with exports only 8–10% vs 40–50% for PE. The regional dynamic is influenced by propylene feedstock costs and supply reliability, particularly with on-purpose PDH units. Significant growth in China has made PP markets more regional. -
Circular Plastics and 2030 Targets
Q: Do issues with circular plastics initiatives raise concerns for 2030 targets?
A: LyondellBasell's MoReTec technology is different, being a catalytic process leveraging their expertise in catalysis. They have a unit operational in Ferrara and are progressing well with investments in Wesseling. They are confident in their technology and experience. -
Feedstock Optimization
Q: Did attractive naphtha co-product values influence feedstock choices?
A: Yes, they ran at 60% naphtha in EAI due to very good co-product values, especially in butadiene. This was considered the best optimization for their European crackers at the time. They continually optimize their feedstock slate week-to-week to produce the best value.
Research analysts covering LyondellBasell Industries.