Q1 2021 LyondellBasell Industries NV Earnings Call
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Hello, and welcome to the Lyondellbasell teleconference. At the request of Lyondellbasell. This conference is being recorded for instant replay purposes. Following today's presentation. We will conduct a question and answer session at that time to ask a question. Please press star one on your Touchtone phone I'd now like to turn the conference over to Mr. David Kinney Director of Investor Relations.
Sir you may begin.
Thank you operator, Hello, and welcome to line up with sales first quarter 2021 teleconference. I'm joined today by Bob Patel, Our Chief Executive Officer, Michael Mcmurray, Our Chief Financial Officer.
Before we begin the business discussion I would like to point out that a slide presentation accompanies today's call and is available on our website at www Dot Lyondellbasell Dot com.
Today, we will discussing our business results, while making reference to some forward looking statements non-GAAP financial measures.
We believe the forward looking statements are based upon reasonable assumptions and the alternative measures are useful to investors.
Nonetheless, the forward looking statements are subject to significant risks and uncertainties.
Encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are available at www top line up sell dot com Slash Investor Relations.
Reconciliations of non-GAAP financial measures to GAAP financial measures together with other disclosures, including the earnings release are also currently available on our website.
Finally, I would like to point out that a recording of this call will be available by telephone beginning at one PM Eastern time today until May 31 by calling 890, 446, Portland, seven in United States, and two or 3369 390, <unk> outside the United States Pass code for both numbers is 36941.
During today's call, we will focus on first quarter results. The current environment from outlook and provide an update on our growth initiatives.
Before turning the call over to Bob I would like to call your attention to the noncash lower of cost from market inventory adjustments or LCM that we have discussed on past calls.
These adjustments are related to our use of last in first out or LIFO accounting and the recent volatility in prices for our raw materials and finished goods inventories.
Comments made on this call will be in regard to our underlying business results. Excluding the impacts of LCM inventory adjustments that being said I would now like to turn the call over to Bob.
Thank you, Dave and good day to all of you participating around the world. We appreciate you joining us today as we discuss our first quarter results.
Before we get into the discussion of our results I would like to take a moment to recognize the tremendous progress that has been made in fighting the COVID-19, pandemic and how much hard work still needs to be done around the world to reduce the effects of this disease.
While financial markets are focused on the economic upside enabled by increased vaccination and the eventual reopening today, our employees customers suppliers and the communities, where we operate and India in particular as well as Brazil, and even parts of Europe are still suffering from terribly.
Hi case rates and fatalities.
We are working closely with governments around the world to do our part to advance community, our employees and their communities and Asian and end to the devastation brought on by this virus our thoughts remain with those most affected by this pandemic.
Now moving into the discussion of our Q1 results Pinedale Booz Allen is continuing to build upon the momentum seen in the second half of 2020.
During last years recession, we advanced on our strategic initiatives to grow our asset base and emerge stronger from the downturn to position our company to capture the benefits of a recovering economy in 2021.
Let's begin with slide three and review the highlights and.
In the first quarter earnings more than doubled from the same quarter of last year to $3 18 per share.
<unk> first quarter net income improved by 25% relative to the fourth quarter as we earned approximately $1 $6 billion of EBITDA.
Our businesses benefited from strong demand and tight markets that improve margins across the majority of our segments.
Our olefins in Polyolefin, <unk>, Europe Asia, and International segment achieved their highest quarterly EBITDA since 2018, while the OMB Americas segment reached a quarterly EBITDA level that has not been seen since 2015.
Strong cash generation enabled us to pay down $500 million of debt in January and the first quarter with nearly $5 billion of cash and available liquidity.
After the quarter closed we paid down an additional $500 million of debt in April.
We expect that our robust cash generation should continue throughout the year and our top priority for capital deployment in 2021 is debt reduction, which will enable meaningful progress toward improving our credit metrics to two turns of total debt to EBITDA.
As we approach the end of the first months from the second quarter low inventories and persistently high demand are driving higher margins for most of our products. The unusually cold weather and associated power outages that occurred during February and Texas resulted in approximately one month of downtime for a significant share.
Fair of total U S capacity located within the state.
Deferred turnarounds from 2020 are resulting in high levels of planned maintenance downtime for many of our competitors during the second quarter.
Lyondellbasell has no major planned maintenance for the second quarter had any of the global assets that we operate.
We are focused on running our assets safely reliably and at maximum rates to supply our customers' needs and capture the opportunities available in these strong markets.
We expect markets will remain tight through at least the end of this year due to very high demand low inventories and the capacity that will be lost during planned downtime with.
With customer demand exceeding production the full extent of our customers' backlogs.
<unk> consumption and unmet demand are unknown.
And the day after the Texas freeze North American PV exports fell by 13% for the month of February.
And we expect the March data to reflect further declines in exports.
We'll likely require quite some time before north American polyethylene industry can fulfill backlogs satisfy.
Satisfy domestic demand and returned to last year's pace of selling 40% of production into the export market to serve global demand.
In this scenario of replenishing inventory over the course of 2021 does not factor in an additional wave of demand that is likely to arise from the second half of this year from restocking and increased activity in the travel and leisure and hospitality sectors has vaccines provide for it.
Increased mobility.
The reopening and considerable pent up demand will add another leg of growth across our businesses.
Increased mobility and rising demand for transportation fuels should enable our oxy fuels and refining businesses to deliver meaningful profit improvements in the second half of 'twenty, one and into 2022.
Let's turn to slide four and review our recent safety performance.
At Lyondellbasell, the first topic on the agenda for a meeting of our leadership or any group of employees throughout the company is typically oriented toward improving the health and safety of our teams.
Our consistent emphasis on our culture of safety provides clear and direct benefits towards improving the health and welfare of our employees contractors and communities.
We also believe the attention to detail embedded in our safety culture Cascades indirect benefits towards our work to ensure a reliable operations commercial leadership and ultimately differential financial performance.
As such I'm pleased to report that in the first quarter of 2021.
Our employees and contractors achieved the best safety performance, we have attained in any prior year. We look forward to continued progress on our journey toward our goal of zero injuries.
Earlier this month, we launched our circular and portfolio of polymers described on slide five.
To enable our customers and brand owners to improve the sustainability of their products.
Circulin recover polymers are already in use producing consumer products, such as the Samsonite Magnum Chico's suitcase line depicted on the slide.
We are stepping up volumes of circle in renewable polymers in Europe, and advancing our proprietary catalyzed pyrolysis technology at our Martech molecular recycling pilot facility in Italy with.
With the goal of bringing this potentially game changing technology for Circulin revised polymers to a commercial scale.
Over the past 70 years.
<unk> have played a central role.
<unk> modern living by reducing food food waste with protective packaging delivering safe drinking water through plastic pipes, and advancing health care with sterile and affordable devices and equipment.
With the introduction of our circular product line, we're making further progress towards lyondellbasell goal of producing and marketing 2 million metric tons of recycle and renewal base polymers annually by 2030.
On slide six we highlight how lyondellbasell technological advancements can enable our customers to independently improved the sustainability profile of their product formulations.
New Hypersound HDTV process is capable of producing polyethylene with more than five times the crack resistance of standard polyethylene produced with the chromium catalyst.
Slurry loop process.
This premium performance of polyethylene from our Hypersound multi zone process can be directly leveraged by customers to produce packaging such as detergent bottles with thinner walls and less polyethylene that reduces weight without sacrificing durability or performance.
As our customers seek to improve the circularity of their business models.
Many plastics converters have set aggressive goals to increase their utilization of post consumer recycled or PCR plastics and packaging and other applications hyper.
<unk> outstanding performance can also be leveraged to allow for increased blending of PCR without sacrificing performance as you can see in the chart Hypersound HDTV blended with 25% PCR can still exceed the crack resistance of standard polyethylene by 70%.
Kent.
Our customers are leveraging Lyondellbasell has advanced technology to improve the crack resistance top load strength impact resistance and other critical properties for their products, while simultaneously improving the sustainability profile of their business models.
Now, let's step back a bit and on slide seven and review some of the macroeconomic forces that have been driving lyondellbasell business performance during the pandemic and the ongoing recovery.
One way to think about the trajectory of the economy is to untangle a few of the societal trends that are fueling demand and markets for non durable goods durable goods and transportation.
In the early days of the pandemic in March April and May of 2020, we saw elevated demand for non durable goods has households engaged and pantry stocking to protect against supply disruptions and adapt to the transition towards increased working from home schooling from home and other lifestyle change.
His associated with quarantines and societal lockdowns.
Lyondellbasell olefins <unk> polyolefin businesses benefited from the double digit improvements in packaging demand has increased utilization of non bulk packaging and e-commerce deliveries boosted demand for our materials.
In 2021 consumer package goods demand remains elevated by single digit percentages relative to pre pandemic levels.
We expect somewhat elevated demand for packaging will persist following the pandemic with some permanent changes in society as a portion of the population continues to work remotely school remotely and use home delivery for convenience.
The second economic driver for our businesses has been the recovery in consumer industrial and construction related demand for durable goods that began in the third quarter of 2020.
This trend can be reflected by the dark blue line that tracks the ongoing recovery in vehicle production in North America.
With government stimulus supporting the U S economy, and limited options for travel leisure and public dining.
Consumers remodeled homes and purchased appliances home entertainment and vehicles that drove recovery for the industrial economy.
This trend has been boosting demand for Lyondellbasell propylene oxide from our intermediates and derivatives segment that is used in polyurethane foams for furniture and construction installation as well as polymers from our OSP segment that are used both directly and in plastic compounds produced by <unk>.
Our advanced polymer solutions segment.
The third significant trend is the increase mobility that is developing around the world has vaccination rates improve and activity in the travel leisure and hospitality sectors returns to some semblance of normalcy.
Increases in vehicle miles traveled are supporting a rebound in crude oil from gasoline gasoline prices to bring back margins for our oxy fuels business in the <unk> segment.
While a slower rebound in international Air travel is holding back demand for jet fuel strong demand for diesel and improving demand for gasoline is expected to improve profitability for lyondellbasell as refining segment during the second half of this year.
Increased mobility will also benefit our polymer businesses as the restaurant hotel and tourism industries restock and begin to address substantial pent up demand.
But some of these trends points to a strong outlook for both the global economy can lyondellbasell during the remainder of 2021 and well into 2022.
On slide eight these trends can be seen in first quarter global demand growth for our two largest products polyethylene and polypropylene relative to pre pandemic levels being two years ago from the first quarter of 2019.
Over this period, we've seen modest improvements in European demand in the first quarter of 2021, North American demand was quite strong, but constrained by a lack of supply due to the downtime triggered by the cold weather and associated power outages in Texas.
Northeast Asian demand increased by an astounding, 23% driven by the post pandemic strength of the Chinese economy.
Since imports accounts for approximately 40% of China's demand needs for polyethylene.
Chinas growth benefited lyondellbasell production sites in the United States, and the middle East that export polyethylene to China.
Global demand for Polyolefin <unk> has grown by 14% over the past two years far above the long term trends of 4% and 5% annual demand growth for polyethylene and polypropylene respectively.
Strong global demand and constrained production has supported polyethylene contract price increases of $950 per metric ton in the U S. From May 2020 through March of this year.
With $420 per ton occurring since November and more than $300 per ton of additional price increases on the table for April and May of 2021.
As demand should get even stronger as we progress through the recovery, we expect tight markets and strong margins for polyolefin to persist into next year.
On slide nine I would like to remind you of our view on the cyclical outlook that we discussed during our fourth quarter call.
In January we talked about concerns that global polyethylene capacity additions, particularly in China could outpace global demand and depressed operating rates and profitability over the coming years.
This quarter, we have updated the chart, we discussed during the fourth quarter call to address operating rates for both polyethylene and polypropylene.
Predictions of reduced operating rates due to new capacity are highly reminiscent of forecast from consulting reports published in 2016.
These are depicted by the dotted blue line, which predicted global operating rates would dip due to capacity additions.
As Gulf Coast from 2017 through 2018.
The actual operating rate depicted by the solid line demonstrates tab press releases announcing capacity additions often have ambitious timelines and typical delays in construction and commissioning can allow consistent demand growth to absorb capacity additions with less impact on operating rates.
And margins than predicted.
More importantly them delays in capacity, we believe recent forecasts are underestimating demand growth.
Early in the pandemic many predicted declines in PV demand for 2020 by.
By the middle of the year forecast improved to flat demand.
Most consultants now believe that global polyolefin demand grew by approximately 4% in 2020.
Similar to growth rate seen consistently over the past 30 years.
Adjusting these forecast to 4% demand growth for both 2020 one.
<unk> and a predicted operating rate shown by the dotted Gray line.
Last quarter, we suggested that 2021 would likely follow the pattern seen after a prior recessions and this year's demand growth could be higher than the historical trend of 4%.
A 7% growth in demand during 2021 for only one year with reversion to the historical mean in 2022 and beyond would generate the robust operating rate forecast depicted by the dotted Orange line.
Today with global Polyolefin demand growing in the first quarter by 14% over the past two years, we are even more confident that the recovering economy is likely to facilitate a more orderly absorption of this new capacity part of the global market, which should support robust.
<unk>.
With that.
I will turn the call over to Michael who will describe our financial and segment results over the past quarter.
Thank you Bob and good morning, everyone.
Please turn to slide 10, and let me begin by highlighting our track record of strong cash conversion.
Over the last 12 months Lyondellbasell converted almost 80% of our EBITDA into $3 4 billion of cash from operating activities.
In the first quarter of 2020.
2021, our business has delivered over 40% more free operating cash flow relative to the same period last year.
We expect continued improvement of our LTM performance as we progress through each quarter of 2021.
Let's turn to slide 11, and review further details of our cash generation and deployment during the first quarter.
As Bob mentioned our goal for this year is to accomplish meaningful deleveraging to further strengthen our investment grade balance sheet in the first quarter, while paying dividends of $352 million and investing a similar amount in capital expenditures, we reduced the balance on our term loan by $500 million.
Closed the first quarter with cash and liquid investments of $1 8 billion.
After the quarter closed we repaid an additional $500 million.
On the term loan in April we expect that robust cash generation should enable continued progress on deleveraging throughout the year.
Before I continue with a more detailed discussion of our segment results. Let me provide a brief update on our 2021 modeling guidance, we continue to be on track to invest approximately $2 billion.
And capital expenditures during 2021 targeted equally towards profit generating growth projects and sustaining maintenance.
Due to extremely strong demand for propylene oxide, we have shifted a turnaround at one of our TBA units in Bay Porte, Texas from the second quarter to the third quarter of this year and reduced the scope and associated downtime for the maintenance.
With this change we expect no major planned maintenance downtime in the second quarter of 2021 and based on expected volumes and margins, we estimate that the third quarter EBITDA impact due to lost production associated with planned maintenance across the company will increase by $30 million to $75 million.
In total the EBITDA impact associated with all of <unk> 2021 planned maintenance downtime should decrease by $30 million relative to our original guidance to approximately $140 million for the year.
Let's turn to slide 12, and review our quarterly profitability.
In the first quarter of 2021, Lyondellbasell business portfolio delivered EBITDA of $1 6 billion.
This was an improvement of more than $300 million.
Relative to the fourth quarter exceeding typical first quarter seasonal trends.
The upward trajectory of Lyondellbasell profitability reflects improving demand and margins for our products driven by the recovering global economy and tight markets as Bob mentioned cold weather and associated power outages resulted in unplanned shutdowns that constrained first quarter production for Lyondellbasell and nearly all.
All of our competitors in the state of Texas.
This downturn was exacerbated by strong global demand that tightened markets and elevated margins across most of our businesses.
While it is clear that we lost production during the first quarter due to unplanned downtime the offsetting effects of higher margins and sales from inventory complicates the effort to quantify the impact on first quarter business results in the second quarter, we plan to operator assets at nearly full rates as profitability improves for oxy.
<unk> fuels and refining businesses.
<unk> further EBITDA improvement during the second quarter.
On the left side of the chart, our all time high quarterly EBITDA, excluding LCM of approximately $2 2 billion.
Reported in the third quarter of 2015 provides useful perspective.
While profitability for transportation fuels was quite strong in 2015 today, our company has more earnings power from a larger asset base.
Over the last six years, we have added ethylene capacity at Corpus Christi.
Expanded our compounding business through the acquisition of a schulman.
Started a new Hypersound <unk> plant in Houston, and added significant joint venture capacity in Louisiana and China.
In 2021, Lyondellbasell is poised to capture opportunities that are emerging in the rebound in global economy with a larger asset base.
Now, let's review the first quarter results for each of our segments.
As mentioned my discussion will describe our underlying business results, excluding the noncash impacts of LCM inventory changes.
I'll begin with our olefins <unk> Polyolefin Americas segment on slide 13.
Third quarter EBITDA was $867 million.
$145 million higher than the fourth quarter tight markets and strong demand resulted in improved margins driving quarter results higher than we've seen since 2015.
Olefins results increased approximately $155 million.
Compared to the fourth quarter olefins margins increased with higher ethylene and propylene prices outpacing higher feedstock and utility cost.
Volume decreased due to downtime driven by Texas weather events, partially offset by a full quarter of volume from our Louisiana joint venture that we formed in December.
The ethylene cracker at the joint venture ran continuously throughout the weather events and exceeded ethylene nameplate operating rates by 9% during March.
Polyolefin results for the segment decreased by about $15 million during the first quarter.
Polyethylene margin decreased while polypropylene margin improved polyethylene volume increased due to a full quarter of contribution from the Louisiana joint venture, partially offset by lost production during the weather events.
We anticipate both volume and margin improvement for our <unk> Americas segment during the second quarter.
Volumes are expected to rebound in the absence of weather related downtime type markets due to high demand low inventories and customer backlogs are expected to continue to support strong integrated chain margins.
Now please turn to slide 14 to review the performance of our Olefins and <unk> Europe Asia and International segment.
During the first quarter EBITDA was $412 million.
$161 million higher than the fourth quarter strong demand expanded margins driving quarter results higher than we have seen for this segment since 2018.
<unk> results increased $30 million, driven by increased margins and volumes ethylene.
Italy margin improved due to increased ethylene prices and lower fixed costs, despite higher feedstock costs.
Demand was robust during the quarter and we increased volumes by operating our crackers at a rate of 98% almost 10% above industry benchmarks for the first quarter.
Combined polyolefin results increased approximately $150 million compared to the prior quarter strong polymer demand drove spread improvements for both polyethylene and polypropylene prices relative to monitor.
Margin improvements at our Middle East and Asia Joint ventures were offset by higher LPG feedstock cost pressuring profitability at our <unk> joint venture in China, resulting in little change in equity income for the segment.
During the second quarter, we expect strong demand and tight markets to drive further margin improvement for our <unk> and <unk> businesses.
Please turn to slide 15, as we take a look at our intermediates and derivatives segment.
First quarter EBITDA was $182 million.
$14 million lower than the prior quarter.
<unk> improved with higher product prices, while volumes declined due to the Texas weather events and planned maintenance in our propylene oxide and derivatives business.
First quarter propylene oxide and derivatives results decreased by approximately $35 million due to lower volumes offsetting stronger margins driven by tight market supply.
Intermediate chemical results decreased about $55 million due to lower volumes as a result of the weather events.
<unk> fuels and related products results increased by approximately $25 million as a result of higher margins benefiting from improved gasoline prices that were partially offset by constrained volumes.
We expect both volumes and margins to improve for our IMT segment in the second quarter strong demand for durable goods, coupled with continued tight market supply are expected to increase profitability across most of the businesses in this segment.
Now, let's move forward and review the results of our advanced polymer solutions segment on slide 16.
First quarter, EBITDA was $135 million $9 million higher than the fourth quarter volumes improved driven by higher demand for our products, partially offset by lower margins.
Compounding <unk> solutions results were relatively unchanged with higher volume is driven by improved demand being offset by compressed margins due to rising feedstock costs.
Advanced polymers results increased by approximately $15 million due to both higher margins and volumes.
In April North American feedstock cost for our polypropylene compounds rapidly decline to reverse much of the price escalation that occurred during the first quarter, we expect that falling feedstock prices combined with continued price improvements were a compounded products will expand margins during the second quarter.
Now, let's turn to slide 17, and discuss the results for our refining segment.
First quarter EBITDA was negative $110 million, a $36 million decrease versus the fourth quarter of 2020 higher cost for renewable fuel credits or rins and lower crude throughput overwhelmed improvements and the Maya 211 industry crack spread.
In the first quarter, the Maya 211 crack spread increased by $5 21 per barrel to $15 32 per barrel as a result of the Texas weather then.
The average crude throughput at the refinery fell to a 152000 barrels per day.
In April we continue to see improvements in refined product demand and we are running the refinery at nearly full rates.
Strong demand for diesel and improving demand for gasoline is expected to improve both volumes and margins at our refinery during the second half of this year. However, we don't expect a full recovery until there is further progress and vaccination rates and a rebound in global demand for jet fuel driven by increased business and international Air travel.
Please turn to slide 18, as we review the results of our technology segment.
First quarter technology segment, EBITDA was $94 million.
<unk> $49 million higher than the prior quarter catalyst profitability increased with customers rebuilding inventories and increased demand from Asia and the middle East based.
Based on anticipated timing of upcoming licensing milestones and catalyst demand, we expect that second quarter technology business profitability will be similar to the first quarter.
With that I'll turn the call over to Bob.
Thank you Michael Let me summarize our view of current conditions and the outlook for our businesses with slide 19, we.
We began this year with low inventories and increasing demand from our recovering global economy joining.
During our fourth quarter earnings call in January we thought that strong February order books, increasing seasonal demand and tight industry supply will support strong margins for at least the first half of 2021.
Since January our industry last several weeks of supply due to Texas weather events during February and deferred maintenance from 2020 is resulting in high levels of planned downtime across the industry, particularly in the second quarter.
North American inventories were depleted during the downtime.
European inventories have been pressured by unusually strong first quarter demand.
Our company normally maintains over one month of polyolefin sales inventory, our European Fiji and <unk> businesses.
Ended March at levels, well below those targets, most notably with less than two weeks of low density polyethylene inventory.
Logistics constraints are exacerbating the situation due to shortages of shipping containers on critical routes and escalating freight rates that are limiting opportunities for regional arbitrage.
China remains structurally short of polyethylene and U S exports to China have vanished has north American suppliers seek to replenish inventories and address order backlogs from domestic customers.
Backlogs for finished goods are rising as a recovering global economy continues to be supported by government stimulus and <unk>.
Went up demand emerges with increased vaccination rates.
In summary, we believe that tight global markets are likely to persist well into the second half of this year and continued improvements in mobility and associated economic activity could sustain strong volumes and margins into 2022.
Please turn to slide 20, and let's review Lyondellbasell profitability over the course of the first complete business cycle for our company.
In the years following the 2008, great recession, our company nimbly captured the benefits of low cost feedstocks that arose from the development of North American oil and gas resources line.
Our Brazil typically delivered between $6 billion to $7 billion of EBITDA over the past 10 years, our EBITDA Ashram LCM inventory adjustments reached $8 1 billion in 2015 during my first year as CEO of our company.
At the end of 2019, we thought we might simply be coming to the end of a very long business cycle until we learn more about COVID-19 and the extreme tolls it would take on our society the economy and ultimately in human lives.
As we rebound from the pandemic and contemplate how our company could perform through the recovery and the next business cycle. It is worthwhile to consider the factors that should provide additional earnings power relative to our performance last year and in the previous cycle.
Recovery in automotive and other durable goods demand is rebuilding volumes within our new Aps segment.
Back towards 2018 levels.
Increased utilization of our capacity should provide greater visibility on the more than $200 million in synergies.
We've built into the business since acquiring a schulman.
In 2020, we added 500000 tons of polyethylene capacity utilizing our next generation Hypersound technology.
During the depths of the pandemic and recession, our strong balance sheet enabled us to move forward conform accretive joint ventures for integrated crackers in China, and Louisiana that provided immediate returns on our investments.
This quarter, we finalized an agreement to farm, our second propylene oxide joint venture with Sinopec.
Beyond the broad based margin improvements that are currently underway for many of our products.
Full recovery in demand for transportation fuels still lies ahead and should drive margin improvement for our sizable refining and oxy fuels businesses over the coming quarters.
Our larger asset base is well poised to capture the opportunities of a recovering economy established new earnings benchmarks and physician Lyondellbasell for further growth over the upcoming business cycle.
Let me close with slide 21.
The title of our 2020 annual report is emerging stronger and it is an appropriate description of lyondellbasell trajectory as the global economy recovers from the pandemic and recession.
Our leading and advantaged business positions are prime to capture the benefits of a recovering economy.
In the second quarter, we have no major planned downtime and we are operating our highly reliable and low cost global network of assets at maximum rates to capture rising margins.
We have remained steadfast to our disciplined financial strategy over the coming year, our priority will continue to be deleveraging, while supporting shareholder returns with a strong and progressive dividend.
We remain committed to an investment grade credit rating and our plan is to bolster our credit metrics through increased earnings and additional debt reduction over the coming quarters.
Our aim is to maximize free cash flow by leveraging our larger asset base efficiently converting earnings into cash and deploying capital in a prudent manner toward high return investments.
All of this will help drive our ultimate focus on delivering strong shareholder returns.
Outlook for our business is quite promising and we look forward to delivering on our commitments over the coming quarters.
Now pleased to take your questions.
Thank you we would now like to open the phone line for questions. If you would like to ask a question. Please on mute your phone press star one and record your name clearly when prompted if you need to withdraw. Your question you may do so by pressing star two at anytime we respectfully ask that you limit your questions to a simple.
Question, So that we are able to get to as many questions as possible on today's call. Our first question comes from Jeff Zekauskas from Jpmorgan, Sir Your line is open.
Thanks very much.
If your.
Peak EBITDA in 2015 was $8 billion.
What do you think your peak EBITDA is now after you.
Bring on your 2023 expansions.
So good morning, Jeff and for everyone and thanks for your patience with our longer prepared remarks, there's a lot going on so we wanted to provide color suggested in terms of peak EBITDA.
If you think about.
Kind of mid cycle margins up to now we've added between one and $1 2 billion of EBITDA in 2023 will add another 500 million with our Sinopec Pls Ham project hand, TBA project, So I would say mid cycle margins.
Added one five to $1 7 billion of EBITDA and if.
If you were to consider peak earnings.
It'd be something even more than that.
Thank you. Our next question comes from P. J <unk> from Citi. Your line is open.
Sure.
Hey, Bob.
Good morning P J.
Hey, first of all I like your brand name cycle under the cover revive recovery vibrant renew what was really nice.
Okay.
Mike My question is on regular polyethylene.
You talked a lot about higher polyethylene demand.
And during COVID-19 time on slide nine can you discuss how much of the capacity and the capacity you said how much of capacity, possibly was delayed due to COVID-19.
Because there are some numbers out there about $1 million to $2 million.
Sounds of capacitive delayed and then just any I saw something in the.
Headlines about.
Phase two of Bora joint venture can you also talk.
Talk a little bit about that thank you.
Sure P. J, so first of all in terms of capacity delays.
I think in China, we should assume that capacity will come on.
Part of the schedule for those projects that are already underway.
Thank for projects that haven't started in China, certainly interest the CTO and MTO projects I'll, probably at risk and we've learned recently that.
Government is considering cash.
Canceling those projects for the environment.
In the U S because of COVID-19 from projects that are underway, maybe were delayed a quarter or two.
Especially Q2 Q3 last year as there were there were slowdowns.
Until we all figured out how to manage density in our sights and construction site. So so maybe.
Of quarters for those projects that are underway and if you think longer term.
Projects that our CTO MTO based in China could be at risk.
Alright.
Oh, and Bora and your question about Barra phase two so we're still discussing with our partner on Bora phase III.
Net no definitive decisions yet.
I would say that would be middle of the decade or beyond in terms of product hitting the market.
Thank you. Our next question comes from Steve Byrne from Bank of America, Sir Your line is open.
Yes. Thank you.
Curious to hear how youre marketing of the polyethylene out of Lake Charles.
Chain since it was solely run and managed by Sasol, maybe more importantly.
This broader.
<unk> positioning you have in the U S market.
Are you picking up anything from your customer relationships, where the industry might be trying to allocate more tons into into this.
Premium market.
To capture that premium versus.
Spot pricing ex U S.
Yes, so good morning, Steve.
On this asphalt marketing so pre pandemic our view was that we would.
Plug that volume into our global network.
And so sell in Europe, and in China, and also supplement in the U S. So that's still our plan, but in the near term because of the supply disruptions really spot sales have have there have been zero.
We've been on allocation.
So exports are only those where we have contracts, we're not doing spot exports. We don't have enough volume today and our inventories are below our typical levels. So our focus in the near term will be to meet domestic demand.
Which is which we still don't know what level that demand is because of the supply constraints and then we'll we'll look to resume exports.
Thank you. Our next question comes from Arun Vishwanathan with RBC capital markets. Sir Your line is open.
Great. Thanks for taking my question Congrats on the good results here.
I just wanted to get your thoughts on PE inventories and kind of the outlook for the next couple of quarters.
Obviously as you noted the storm.
Those inventories and materially and how do you see those evolving over the next couple of quarters. When do you. When do you expect that we'll be back at normal and what does that imply for the next couple of price increases that have been announced thanks.
Thank you Ron.
First of all in inventories I was actually just looking at that data. This morning, the industry data and <unk>.
Industry inventories both PV MPP are below typical levels that we've seen in the past.
Again, I think following on from what I answered to Steve earlier, we still don't know what's the level of demand.
My guess is the level of demand is higher than what we saw.
In February and March and so our first priority is to meet the demand of our customers and then find the opportunity to rebuild of inventory. So if you think about what's ahead, we still have reopening ahead in the U S. We are reopening ahead in Europe.
Many parts of Asia ex China still reopening ahead.
Stronger demand period, typically we see seasonal improvement so opportunity to rebuild inventory we may not have that until later in Q3.
Recall that there is a lot of planned downtime in the industry because many producers deferred planned maintenance last year into this year. So.
I mean, I think all of these reasons are why they are setup looks to be for a very tight market for most of this year if not all.
Yeah.
Thank you. Our next question comes from Kevin Mccarthy from vertical Research partners. Sir Your line is open.
Good morning, Bob the spread between polypropylene resin and propylene monomer has widened quite a bit since October I think 21 cents per pound or so perhaps you have a slightly different number but my question is.
What is the trajectory that you would foresee for that spread moving through the back half of the year, how sustainable is it given the inventory levels that you mentioned in your view of supply demand.
Yes, so Kevin on polypropylene.
More of it goes into durable goods than does polyethylene and.
And I am sure all of our listeners I have heard about the.
Shortage of chips that have limited automobile production.
I think thats going to cause more demand as some of those constraints.
Leave themselves and there is more chips available.
And generally speaking auto sales are up inventories are low.
Our fleet sales have been have been low.
Rental car fleets have been depleted last year. So all of that has to be replenished. So my sense is that polypropylene market will continue to be strong and if I were to look at inventories.
Data that I saw this morning from an industry perspective in the U S. P. P inventories are actually lower than PV inventories and this is data that I'm, citing it as 60 days in arrears. So my guess is that trend will continue to decline as we see data from March and April.
Thank you. Our next question comes from Vincent Andrews from Morgan Stanley. Your line is open.
Thank you and hi, everyone, Bob maybe on polyethylene Theres, a pretty epic spread now or arb spread between the U S and Asia.
Hi, its level.
Ever.
And usually those get those get our doubt.
What do you think is going to happen do you think the Asian price is going to need to move up a lot more than the U S price is going to need to move down or how do you envision this playing out over the coming quarters.
Yeah, So Vince and first of all I think we have to differentiate between the polypropylene price in polypropylene spreads through the.
Polypropylene price could continue to come down.
On an absolute basis as propylene comes down polypropylene.
But the spreads are widening.
So we've announced another spread increase markets are very tight.
So my sense is that <unk>.
Global prices will likely come up.
As propylene comes down some are has come down in the last month, you could see polypropylene absolute price moderate wrapping spreads will continue to widen because the market is very tight.
Thank you. Our next question comes from John Mcnulty from BMO capital markets. Sir Your line is open.
Hi, good morning, Bob.
John Congrats on another strong quarter.
Following on your comments you made around cash deployment cash.
Those are obviously very strong this year and David likely continued though as new projects come on line.
You noted that you plan to pay down some more debt this year.
What's the target leverage for you and how should we think about the allocation of capital like how should we think about buybacks and do you think you'll see the right setup given the high margins to maybe expand your organic capex beyond that $2 billion Mark. Thanks.
Yes, So let me start and then I'll ask Michael to add as well.
Deleveraging continues to be our top priority, we want to get our on that.
Debt to EBITDA metrics down below two <unk>.
Absolute debt.
The $12 billion sort of range and I think we're well positioned to hit those kind of numbers by year end.
Just on what we see is the trajectory of our earnings.
Buybacks could certainly entered the picture actually reach these <unk>.
Targets that we have could be as soon as next year early next year.
Buybacks could be part of the picture.
Unlikely that we will add to organic growth.
We have our TBA project that we're executing we wanted to make sure we complete that.
And beyond that we don't have plans to start a new large organic project in the next 12 to 24 months from Michael anything else to add on capital allocation, Yes, I mean, maybe just a couple of comments Bob maybe just a reminder, last year, we generated very strong cash flow.
$3 4 billion from ops, almost 90% conversion, we more than covered capital and our dividend and that was I think pretty impressive as Bob said, we expect very strong cash flow generation. This year and we do expect to make meaningful progress in debt reduction we've taken out a $1 billion of debt year to date, and I think kind of looking towards the end of the year.
$3 billion to $4 billion in total debt reduction for the year is within within reach.
Thank you. Our next question comes from Mike Sison from Wells Fargo. Your line is open.
Hey, good morning, Nice a nice start to the year.
Bob in terms of your ERP E&P PPE effective operating rate chart on slide nine.
There is a little dip there in 'twenty, two and 'twenty three.
Is that considered mid cycle in your outlook.
If so would you still be able to generate some EBITDA growth and LP in Americas.
In 'twenty two.
Yes so.
Mike.
Yes, I mean, thats kind of mid cycle or better than mid cycle that dip if you look at the.
The operating rate is still above 90% and generally when operating rates are greater than 90% tip.
Typically the seasonal highs tend to be very tight. So Q2, Q3 tend to be tied to quarters.
And an annual average net above 90%. So my sense is we're going to be somewhere mid cycle or better in 'twenty two 'twenty three and then after that.
There's really not a whole lot of new capacity ex China.
Should see the cycle play out.
I wanted to also answer Vincent's question about polyethylene.
Vincent I thought you asked about polypropylene building on the prior question from.
Polyethylene spreads.
Market is still extremely tight so our sense is that.
The price increases that have been implemented.
Could remain in place through Q3.
There are more increases out there market remains tight and again as I've said.
Well times, we really don't know where the real level of demand is because we've been on allocation and and we know our customers want more if we had it so if we add the product.
So I think that the spreads should stay well into a into Q3 for polyethylene.
Thank you. Our next question comes from Duffy Fischer from Barclays. Your line is open.
Yes, good morning.
Bob you just kind of made a comment working off your slide nine that the dip you see coming kind of takes us to mid cycle, and then obviously better than that going forward. So.
Next five years to seven years, all look like they are better than mid cycle. So can you walk us through what that would mean for reinvestment economics for a new cracker in the U S. And then maybe touch on globally, obviously with your catalyst business you get a first look at what everybody is thinking about doing globally.
How many new announcements for new crackers should we expect this year.
Sure Duffy so first of all on <unk>.
Mid cycle returns, yes. Thank you first of all if you look at that chart.
It's actually probably better than mid cycle other than maybe 'twenty two.
And again, if demand grows at 7%, but I think you have a chance of actually having just a flat line and not much of a dip at all and we're headed in that direction.
Seems to me so based on that and where our Capex has has turned out recently on new projects.
I think it kind of leaves Us Act.
Maybe low double digit kind of returns are more importantly.
Many companies, who would think about investing are likely thinking about repairing their balance sheets from last year and paying down debt. So I don't expect with this sort of a profile for there to be a rush in terms of new project announcements, let's say ex China, but let's see how it develops.
Each company has its own considerations, but certainly for US we don't have plans to take on.
Additional organic growth.
<unk> in the near term.
In terms of your question about what are we seeing from catalyst activity in licensing activity.
We are seeing slower activity in China.
Compared to what we saw over the last two years, especially in polyethylene so.
And we participate in most if not all.
Lenders have that occur for a new project. So it seems the activity is slowing compared to.
18 and 19.
Thank you. Our next question comes from John Roberts from UBS, Sir Your line is open.
Yes, Hi, Bob just to beat slide nine to death here on the polyethylene outlook.
The Chinese now building plants in three years so.
Beyond 2023 may not be in the consultants forecast now for supply.
Yeah. So John first of all I think slide nine is really important when you think so we can beat it to death enough I suppose.
So I would say that we're already into 'twenty one right. So the forecast out through 'twenty five are probably pretty firm.
In terms of what could what could be built and what sort of supply we should expect from China post 'twenty five.
It remains to be seen but I would say three and a half years something like that is because the build time.
Thank you. Our next question comes from Bob <unk> from Goldman Sachs. Your line is open.
Thank you very much I guess I'll keep beating away then Bob.
You mentioned that time duration I thought maybe in the Bora project you guys worked on the construction to commercial options a little bit faster. So was there something unique to that project or what insights did you get from working with those guys Theyre about what it might suggest across the industry in China. As you can appreciate for a lot of investors.
Lack of transparency there it makes it difficult to handicap, what's actually going to happen.
Yes, so Bob.
Remember first of all it was in the north which is a less congested area in terms of new projects.
And Liana province, so.
We joined the project, while it was already in construction.
And we started our discussions and of course, we signed the definitive agreement within a month or two of startup.
I still think about three to three and a half years is probably the right time to think about a project being approved to the time we have production.
Thank you our next question comes from.
David Begleiter from Deutsche Bank. Your line is open.
Thank you Bob just on the Aki fuels refining can you discuss the improvement you're looking at for Q2 and even in the back half of the year and refining do you think we will have positive EBITDA next year in this business.
Yes, so on oxy fuels, we've already seen improvement as gasoline prices have come up and we've seen the blend premium come back a bit so.
It's recovered more than our base refining business has.
We're getting closer to breakeven David My hope is that in Q3, we get to breakeven in Q4 were positive in the refining business.
No thats that depends on the pace of reopening I can tell you here in Houston the traffic is back.
In the evening.
When I drive home, it's a ICANN coming out of Houston is full going both ways. So.
More and more we're going to see the summer driving season could be very strong.
With a lot of pent up demand for vacations and people wanting to get away.
So I think the refining.
<unk> should see breakeven soon and positive profitability certainly by Q4.
Thank you. Our next question comes from Matthew Blair from Tudor Pickering Holt Your line is open.
Great. Thanks, Good morning, Bob.
So many things going right here, let me ask about the one area that's lagging of course.
Mining due to these historic RIN obligations.
Is there anything you can do to mitigate your exposure maybe by buying extra RIN forward or potentially looking at like a renewable diesel projects.
Yes, Matthew Youre right. The Rins have been quite a burden for us this year in our refining business.
We're probably spending something like three ex more than we did last year on rins.
In the near term I don't see anything else, we can do at some point the government will reset the mandate on Rins and.
And then we could see the price moderate.
But in the near term we're doing all we can in terms of renewable diesel sort of projects.
So that would be much more longer term.
And at the moment.
We're not pursuing those sorts of projects in our refining business.
We're just trying to run hard.
Run at maximum rates and and.
Japan to recovery and in miles driven.
Thank you and our last question comes from Frank Mitsch from Fermium Research Sir Your line is open.
Mr. Kenny good job saving the best for last.
Very very much appreciate it.
Bob I was very struck by the comment that the market is going to be tight through the end of the year because I think just like two months ago. The thought process was it would be tight through the end of the third quarter. So apparently you gain a little bit more visibility and feel that it's going to be tight through the end of the year. So that's obviously, that's pretty positive and youre going to be operating full out in the second quarter.
Which begs the question what are you guys in the first quarter on your on your own businesses in terms of operating rates and as we look at the second quarter, where do you think the industry is going to be operating at.
<unk> segments.
Yes, so Frank.
On the operating rates.
I mean.
In Q.
Q1, we lost about 30 days of production on average in our Texas assets one of our crackers was down for almost 90 days so.
Now, we're back up and running fully.
I suspect that our competitors do have some planned downtime.
Maintenance that they had planned last year that was deferred into this year, so likely our operating rate from unplanned basis is higher than most in Q2. Your earlier question about our confidence about the outlook.
I think Frank is as time goes on I, just see the number of shortages on consumable items on automobiles.
Lumber steel like furniture, or if you want to buy furniture, there's like a six month delay from.
From the time you order to the time you receive and then reopening is still in front of US I think there are so many factors.
That provide a very strong set up for how demand will develop for really all of our products.
The company. So that makes me more optimistic about the fact that we will have tighter markets for longer as we go through the year.
So thanks for your questions I do have a few closing remarks, if I may 1st of all really good questions as always in slide nine we will continue to be part of our discussion as we go forward.
I want to emphasize a couple of things first of all Q2, we're going to run full rates.
No planned downtime.
As I mentioned, there's a lot of backlog, we have reopening still in front of us that should benefit our refining and oxy fuels business and continue to underpin demand strength in the other businesses that have been doing well.
It's very important to note that with the larger asset base that we have.
We've added one to $1 2 billion more of EBITDA as we sit here today at mid cycle kind of margins now clearly today from a well above mid cycle margins in some of our businesses. So.
I think thats a bit differential for lyondellbasell net in 2021 more assets deployed and a much much stronger market and I'm really pleased that we can see a path to perhaps reaching our leverage target by year end on both on a gross debt basis and on the debt to EBITDA metrics. So.
That as I mentioned earlier brings buybacks kind of back into the equation as we think about capital allocation as we go into 2022. So we look forward to giving you an update in July on our Q2 results meantime have a great and safe weekend. Thank you.
Thank you all for participating in today's conference you may disconnect your line and enjoy the rest of your day.