Q2 2023 LyondellBasell Industries NV Earnings Call
Hello, and welcome to the lineup of cell 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 I would now like to turn the call over to Mr. David King head of Investor.
Sir you may begin.
Thank you operator.
Four we begin the 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 Slash Investor Relations.
Well, we'd be discussing our business results, while making reference to some forward looking statements and non-GAAP financial measures. We believe the forward looking statements are based upon reasonable assumptions and the alternative measures are useful to investors.
And the last forward looking statements are subject to significant risks and uncertainty. We 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 also available on our Investor Relations website.
Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures such as EBITDA and earnings per share excluding identified items.
Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures together with other disclosures, including the earnings release and our business results discussion.
A recording of this call will be available by telephone beginning at one P. M. Eastern time today until September four by calling 8776606853 in the United States and 20161 to 7415 outside the United States. The access code for both numbers is 1373.
Nine 183.
Joining today's call will be Peter Vanacker Windup cells, Chief Executive Officer, our CFO , Michael Mcmurray, Ken Layne, our executive Vice President of Global Olefins <unk> Polyolefin.
Kent Police R. E V P of intermediates and derivatives and refining and charcoal Raymond our EVP for advanced polymer solutions.
During today's call, we will focus on second quarter results current market dynamics, our near term outlook and our long term strategy with.
But that being said I would now like to turn the call over to Peter.
Thank you David and welcome to all of you. We appreciate you joining us today as we discuss our second quarter 2023 results.
Starting with slide three during today's call, we will discuss the resilient results that our team delivered during the challenging marketing conditions.
Good quarter.
And we will also provide an overview of our outlook for the second half of this year is with us or plans to optimize our advantaged positions to navigate volatile markets and feedstock costs.
But first let's take a few moments to review lined up but those foundations and the progress we have made with our long term strategy.
Let's turn to slide four and begin the discussion with all of our foundational commitment to leadership in safety performance.
Our team continues to deliver outstanding safety results.
<unk> year to date incident rate for employees and contractors to zero point 16.
While slightly higher than our results for 2022, our focus on safety continues to deliver performance that exceeds the top 75th percentile for our industry.
But we're leading safety results produced benefits that are reflected in our.
Our operations and ultimately in our financial performance.
Safety is a fundamental part of our core values and it will continue to be a critical enabler for our strategy and our future success.
Let's turn to slide five and review the progress on our long term strategy.
As we shared during our capital markets day in March, but our strategy is built around three pillars and upgrade to court.
A profitable circular and low carbon solutions business.
The performance and culture.
We are confident we have the right strategy and we are not allowing current business conditions to slow golar progress.
Let me highlight some of our actions on these pillars over the past few months.
Our value enhancement program is providing benefits for two of the pillars in our strategy.
The V P is generating volume growth as far as the CRO and upgrades decor and margin improvement captured we didn't step up performance and culture.
I am pleased to see the rapid progress and execution of these VIP initiatives.
We are raising our 2023 V P targets for year end annual recurring EBITDA run rates by $50 million to $200 million based on mid cycle margins to reflect or accelerated progress.
I will provide more details on this progress in a few minutes.
<unk> can grow an upgrade to corn, we are investing in our business that fits with our long term strategy.
Last quarter, we announced the successful startup of our new P O TBA facility.
Largest propylene oxide plant in the world.
This quarter, our team successfully completed technology performance tests to prove out the full capacity of <unk>.
Can you facility.
We're also managing our portfolio to ensure that all the businesses are aligned with our long term strategy.
In May we announced that we are extending our refining operations to no later than the first quarter of 2025.
Let me be clear, we have not changed our decision to exit the refining business.
The extension of operations will allow us to develop options to redeploy the sites workforce and assets in support of the company's sustainable growth strategy.
Now, let's turn to the second pillar of our strategy.
We're committed to building a profitable circular and low carbon solutions business to drive our leadership in circularity and address the massive demand for these products from our customers and society.
We expect this business will generate at least half a billion dollars of incremental EBITDA by 2027.
And $1 billion of incremental EBITDA by 2030.
Through multiple acquisitions partnerships and other arrangements, we're building a comprehensive business model.
Powerful competitive advantages that come from new technologies upstream sources of recycled and renewable feedstocks.
And downstream relationships with our customers and brand owners.
The third pillar of our strategy is to step up our performance and culture.
October we streamlined our organizational structure to improve our line of sight with clear accountabilities and improve the alignment across our commercial and manufacturing functions.
We're leveraging disrupture of our EVEP to drive commercial excellence and improve our customer focus.
And Tony and his team are making solid progress on transforming the performance of our advanced polymer solutions segment.
Altogether, the three pillars of Lyondellbasell strategy or working side by side to provide focus and alignment to drive our progress in capturing value and delivering a more profitable and sustainable growth engine for lyondellbasell.
Let's turn to slide six and take a closer look at Cobra approach to establishing leadership in circular solutions.
As Ivan stated at our capital markets day in March or circular and low carbon solutions businesses, taking a differentiated approach by gaining advantage in three key areas technologies.
Technologies feedstocks.
And downstream customer relationships.
We believe that our comprehensive strategy based on regional hubs.
Establish lyondellbasell is the leader in sustainable solutions.
We're expanding our participation further up and down the plastic waste value chain to both gain scale and maximize the returns of various waste streams around the world.
Today, our team is building supply chain to bring waste feedstocks into our existing facilities and driving innovation through investments in new technologies.
As you saw on the previous slide we are investing in both internal and external technologies, such as Lyondellbasell property anymore, you think advance recycling process.
As well as primes pyrolysis process and LMS north mechanical recycling.
Okay.
In line with what where sustainability goals, we are advancing our carbon reduction initiatives through partnerships.
In June we signed an Mou with Technip and Chevron Phillips to develop an electric cracker demonstration units in channel view takes us.
We have completed power purchase agreements to support the development of procurement of renewable power for Lyondellbasell as locations around the world.
These partnerships utilize the unique strengths of each party to deliver superior results with a common goal.
Reducing the carbon intensity of our products to increase the value.
Products for our customers.
And we are leveraging the unique capabilities of our Aps segment, two upgrades or mechanical recycling portfolio quite offering tailored solutions for our customers.
Most importantly, we are building a business that provides T solutions at scale.
Step by step, we are making progress to wear torque 20, Turkey go to sell 2 million tonnes of recycled or renewable base polymers annually.
Since 2019, we have produced and marketed approximately 220000 tons of these polymers.
Lyondellbasell is differentiated approach uniquely positions us to unlock significant value as we address the needs of our customers and society.
On slide seven we ask that you save the date for a webinar on September 26th when Jim Stewards, EVP, and Chief Innovation Officer, and Yvonne to fund Atlanta, EVP of circular and low carbon solutions will share more details on all of them already take technology.
And our circular and low carbon solutions business.
We hope that you can join us virtually.
Let's turn to slide eight and discuss this year's updated targets for value enhancement program.
Our company has a well earned reputation for strong operational excellence and cost leadership.
Our goal is to build on these strengths to capture and pep value across the company through modest investments.
Since the launch of our E. P. We have inspired a more agile and entrepreneurial mindset throughout our workforce.
When we launched the value enhancement program last year, we announced targets to deliver recurring annual EBITDA improvements run rates of $150 million by the end of 'twenty two 'twenty three and.
$750 million by the end of 2025.
Our team is progressing ahead of plan for 2023.
As we expanded to V P to Europe , and smarter U S sites during the first and second quarter, we found the enthusiasm and energy gaining momentum.
We now think a recurring annual EBITDA improvement, we would reach a run rate of at least $200 million by the end of 2023.
Yeah.
It's getting a bit more specific about a few of the Z P initiatives on slide nine.
At our low density polyethylene manufacturing facilities in Clinton, Iowa, our team faced recurring reliability challenges related to valves controllers we.
We have an investment of approximately $60000 or team was able to upgrades to controllers, and then look more than $400000 of annual value.
The project was executed during a planned outage with V b, providing the resources required to rapidly resolve as chronic issue.
The modest investment across our global engineering and procurement teams unlocked an opportunity to expand to supplier pool for electric motors at our manufacturing sites.
We expect to direct annual cost benefits of $400000 as well as an improvement in the security of our supply for these critical motors.
These benefits will be realized.
Total resource investment of RMB $70000 over the next three years.
Yeah.
At our China facility, we invested the engineering resources required to implement the new process control scheme to improve yields and decrease energy consumption and distillation towers.
Through better seem control and increase butadiene yields we will realize one $4 million in annual value added one time cost of $50000.
In addition to the direct financial benefits. This project supports our sustainability goals by reducing C. O two emissions by over nine kilo tons.
One of our larger fee initiatives will install our <unk> system to remove solids from a byproduct stream at our olefins plant in channel view.
By upgrading the byproducts, we anticipate over $5 $1 million in recurring annual EBITDA improvements from higher margins.
And increased utilization through a modest $550000 investment.
These examples are representative of the hundreds of initiatives.
Over the portfolio.
The average annual benefits of our initiative is less than $1 million.
But the program is supported by rigorous economic analysis.
Diligent tracking and an evergreen process.
The value enhancement program has been the catalyst within our organization to rapidly implement good ids to create value.
We look forward to providing you with regular updates on our progress as these initiatives become more prominent in our results.
Let's turn to slide 10, and focus on our financial results for the second quarter.
During the second quarter Lyondellbasell businesses delivered resilient results and strong cash generation despite challenging market conditions.
Earnings were $2 44 per share.
EBITDA was $1 5 billion.
At the end of the quarter, our cash on hand was $2 5 billion with $6 $6 billion of available liquidity.
Now, let me turn the call over to Michael first and then to each of our business leaders, who will describe what were financial and segment results in more detail.
Thank you Peter and good morning, everyone. Please turn to slide 11, and let me begin by describing how we are extending our track record of outstanding cash conversion.
During the past four quarters, Lyondellbasell generated $4 $8 billion of cash from operating activities.
Our cash balance was $2 $5 billion at the end of the second quarter.
Our team efficiently converted 103% of our EBITDA into cash over the last 12 months.
Let's continue with slide 12, and review the details of our cash allocation during the second quarter.
The Lyondellbasell team remains committed to our balanced capital allocation strategy, while providing strong returns for our shareholders.
During the second quarter, our portfolio of businesses generated $1 $3 billion in cash from operating activities.
Our robust cash generation comfortably covered our capital expenditures of approximately $300 million as well as our $508 million of returns to shareholders through dividends and share repurchases.
During the quarter, we increased our quarterly dividend by 5% to $1 25 per share 2023 will mark our 13th consecutive year of annual dividend growth.
In May we issued our first green bond to support investments that advance our strategy for leadership in sustainability.
After the startup of our new P O T be a facilities in the first quarter. We successfully demonstrated full operating rates on these assets. Our capital expenditures are now focused on continued investments in maintenance and smaller growth projects with.
With the rapid progress and the value enhancement program and the extension of operations at our refinery. We expect capital expenditures for 2023 will increase to $1 $7 billion $100 million higher than our original guidance of $1 6 billion.
During the third quarter, we expect operating rates of 85% for our North American Olefins polyolefin assets.
75% for our European Olefins, and polyolefin, and intermediates and derivative assets and just below 95% for our refinery.
In the appendix at the slide deck, we provided updated 2023 modeling guidance capex and several other items, including refresh estimates on cost and capital expenditures associated with extending the operations at our refining business.
Now I'd like to provide an overview of the results from each of our segments on slide 13.
Lyondell Zelle business portfolio delivered $1 5 billion of EBITDA during the second quarter.
Our results reflect modest improvements in OUP margins and higher R&D volumes offset by weaker refining margins.
Results in our olefins <unk> polyolefin businesses benefited from lower feedstock costs.
Demand for Oxy fuels remained strong while margins in our refining business declined due to lower refining crack spreads with that I will turn the call over to Ken Ken.
Thank you Michael let's begin the segment discussion on slide 14, with the performance of our olefins <unk> Polyolefin Americas segment.
During the second quarter, <unk> Americas, EBITDA increased $138 million.
$679 million.
North American integrated polyethylene margins increased on higher U S sales prices and lower ethane costs, while weak demand for durable goods continued to impact polypropylene margins.
In the third quarter, we expect volatile feedstock costs and new capacity entering the market will compress margins.
Also demand is being impacted by cautious buying by our customers due to the uncertainty economic outlook.
As Peter mentioned, we are not allowing current business conditions to slow our progress on strategy on.
On June 1st we announced an Mou with technique and Chevron Phillips to develop an electric furnace demonstration unit at our channel view, Texas site.
The technology could enable the company to use renewable electricity as a heat source for ethylene cracking and significantly reduce the greenhouse gas footprint of our olefins production.
This collaboration is just one of many initiatives underway to build a profitable circular in low carbon solutions business for Lyondellbasell.
Please turn to slide 15, as we review the performance of our Olefins <unk> Polyolefin, Europe Asia and International segment.
In the second quarter European ethylene margins benefited from lower feedstock costs, but this was offset by weak demand for polymers Houston durable products.
As a result, <unk> second quarter, EBITDA increased $7 million to $84 million.
Looking ahead, we expect the European and Asian markets to remain challenging with consumer uncertainty and energy cost volatility.
Slow economic recovery combined with additional supply in China will continue to be a headwind.
Finally, we are growing our portfolio of recycled and renewable base polymers.
From consolidating our ownership in Q C T mechanical recycling.
Vesting and primes plastic waste pyrolysis process and building a flexible packaging and recycling facility through LMS Nord our CLC S team continues to build out our regional hub model to advance our leadership in circular and renewable solutions.
Having said that I want to emphasize the focus our team has on generating value and cash from operations team.
Team is highly seasoned and is doing a great job of both I want to be sure and acknowledge all of their hard work.
Now I'll turn the call over to Kim.
Thank you Ken Please turn to slide 16, as we look at the intermediates and derivatives segment.
EBIT for the segment increased $46 million in the second quarter to $472 million.
Additional capacity from our new propylene oxide facility was largely offset by planned maintenance downtime.
Propylene oxide and derivative margins decreased on continued weak demand for durable goods.
Demand for Oxy fuels remains strong when margins were slightly lower.
In line with the guidance from the beginning of the year. We are conducting planned maintenance during the third quarter on two of our existing propylene oxide assets.
We expect to run our global IMD assets at approximately 75% of capacity in the third quarter, which includes the idling of two P. O S. M assets in the U S and Europe for approximately two months at each asset.
In the second half of the year, we expect oxy fuel margins to compress as Clos.
Seasonally increase for butane our key raw material.
Last quarter, we discussed the successful startup of our new P O TBA plant.
This quarter I'm pleased to report that we have completed the technology performance tests to prove up the full capacity of our new P O TBA facilities.
I am incredibly proud of what our team has accomplished quickly reach these milestones.
Now, let's turn to slide 17, and discuss the results of the refining segment.
The second quarter EBITDA declined by approximately $200 million to $114 million as the benchmark Maya 211 crack spreads fell by more than $9 a barrel relative to the first quarter.
Spreads for other heavy crude oil run at our refinery such as the Canadian WCS declined further than Maya, providing additional headwinds to our margins.
In the near term, we expect demand for refined products to remain stable and inventories to remain low.
Recent elevation of crack spreads will likely moderate as outages in the refining industry are resolved.
Nonetheless, we expect Maya 211 spreads to remain above historical averages.
In the third quarter, we plan to operate the refinery at approximately 93% of capacity.
This rate provides optimal economics for asset based on our plans for crudes products and operations head of our maintenance work.
We remain committed to the safe operation of these assets with a focus on high reliability.
In the fourth quarter, we are planning for FCC maintenance with an estimated EBITDA impact of $25 million.
We are extending operations at a refinery can no later than the first quarter of 2025.
This extension will help Cambridge activities at the site as we develop new projects to transport it.
Right and it's supported by our circular and low carbon solution growth strategy.
With that I will turn the call over to <unk>.
Thank you Kim Let's review of the second quarter results for the advanced polymer solutions segment on slide 18.
Second quarter, EBITDA modernity increased to $34 million.
Margins for the polypropylene compounding business decreased as product prices improved and energy costs decreased.
We saw lower demand from the construction and electronics markets, while demand from the automotive markets gained momentum during the quarter.
We expect demand in the third quarter to be similar to the second quarter across most Aps businesses tipping.
Typical third quarter downtime at the Oems will offset some of the automotive production gains we have seen in the first half of 2023 in Europe and North America.
Our number one priority and Aps is to restore service levels to our customers and restore growth in the business.
I'm happy to report that we have restored our service levels and we're making good progress in refilling our growth pipeline.
Aps has a lot of project based business and our growth pipeline depends on winning a spot on the next automotive platform launch or the next color design.
One K P.
So we track is the number of color and concentrate request we service.
In Europe , the number of requests increased by more than 50% by the end of the second quarter relative to our performance in the second half of 2022.
We still have a long path to complete our transformation, but our team is making tangible progress and delivering improved results.
In early July we completed our acquisition of the <unk> group a manufacturer of recycled high performing technical compounds located in Italy and Poland.
Metals expertise and sustainable compounding fits perfectly into our strategy to be the leader in providing sustainable solutions for our customers.
With that I will turn the call back to Peter.
Thank you Darko, Please turn to slide 19, and I will discuss the results for the technology segments on behalf of Jim Hewitt.
Second quarter EBITA of $79 million reflected higher licensing revenue and lower catalyst volumes.
In the third quarter, we expect that licensing revenue and catalyst volumes will moderately improve as a result, we have.
Sumit that the third quarter technology segment results will be similar to the quarterly results seen in the first three quarters of 2022.
As discussed in our previous earnings call. We expect that Lyondellbasell is appropriate to remotely take advanced catalytic recycling technology will be a key enabler for scaling up our circular and low carbon solutions business.
Engineering work for our first commercial scale plant in Cologne, Germany is underway.
We hope to provide you with further updates and announce an investment decision for a commercial scale plant during the fourth quarter of this year.
Please turn to slide 20, and I will discuss the market outlook by regions and end markets.
And as you heard from our business leaders, we expect that the challenging market conditions of the second quarter will continue for the remainder of the year.
And the Americas fundamental demand to step it and we see cautious buying from both our customers and consumers.
Margins are expected to be pressured by near term volatility in feedstock costs and new capacity.
The potential for energy cost volatility and associated consumer caution.
<unk> over to European markets, despite moderation in feedstock and energy costs relative to 2022.
And China strengths in consumer services has not been sufficient to offset slower recovery and durable goods infrastructure and export activity.
Markets are not reflecting much benefit from initial stimulus measures.
Demand for our consumer packaging, a stable supported by the surface industries. However, our customers continue to keep their inventory levels cautiously low.
Building and construction markets are relatively flat with benefits from new housing starts offset by reduced sales and maintenance for existing homes.
As owners resist trading into higher mortgage rates.
We're watchful for tailwind in the United States from stimulus enabled by the inflation reduction act to be parts of infrastructure law and the chips Since Science Act.
Demand from automotive market seems to be gaining momentum. However, there may be some headwinds from the typical downtime at Oems in the third quarter.
Oxy fuels and refining markets continue to see stable demand as refined product inventories remain low.
At <unk>, Brazil, we optimize our well positioned assets across the world.
We will continue to align our operating rates with market demand and steered through all stages of the business cycle.
Now, let me summarize our second quarter outlook and our long term strategy for our company with slide 21.
Our second quarter results illustrate how our team is capturing value through our new strategy despite challenging markets.
Margins for our OSP business, just moderately improved at tip it demand.
Although lower than the first quarter over Akshay fuels refining margins remained at Beth historical averages supported by low inventories and steady demand.
Cash generation in the second quarter was outstanding with $1 $3 billion in cash from operations and an impressive cash conversion of 103% over the past four quarters.
We returned $508 million in dividends and share repurchases, demonstrating our commitment to shareholder returns.
Looking ahead to the third quarter, we anticipate soft immense and additional polyolefin capacity in North America, and Asia will lead to further margin compression.
We expect <unk>, Brazil's third quarter, EBITA will be mid teens to mid 20 percentage points lower than the second quarter.
We remain watchful for near term risks and opportunities across sectors and geographies.
Our capital markets day in March we shared our excitement around over new forward strategy.
During the call today, we provided updates on our progress to capture incremental value across the three pillars of the strategy.
I want to emphasize that we're not allowing current conditions to slow us down.
Our value enhancement program has generated incredible energy and enthusiasm across our workforce.
From frontline operators sent manufacturing to engineers developing innovative solutions to sales and support teams serving our customers around the world <unk> VP is unlocking value at an accelerating pace.
We're making steady progress on our goal to deliver a more profitable and sustainable growth engine for Lyondellbasell.
We're now pleased to take your questions.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. As a reminder, if you have a question. Please press the star followed by the one on your Touchtone phone. If you would like to withdraw your question. Please press the star followed by too we do ask to limit to one question.
Our first question comes from the line of Christopher Parkinson with Mizuho. Please proceed with your question.
Great. Thank you so much good morning, everyone I'm, just taking a step back on slide 14, you had a pretty solid Q2 and the.
The Americas, but at the same time as <unk> been consistently highlighting there's been a lot of volatility in NGL pricing there should be a difference in operating rates in the second half, there's a little bit of a choppy macro picture.
We're thinking about integrated polyolefin margins, just how should we be thinking about the run rate for the second half and into 2024.
Just when you're taking a look at the current dynamics and then any comments on how you expect this to eventually inflect and improve hopefully next year. Thank you so much.
Yes, Chris Thanks for the question.
Like we said in the.
Our remarks that we may we do expect it to be volatile. So the good news is we've seen NGL prices come down.
That was really peaking in July , but we do see that coming off here in August but it did have an impact in July .
I'm not going to continue.
Inventory levels for Ngls are still very healthy and production is growing so overall, we expect that they were going to see.
Advantages with NGL production here in the U S, especially with ethane.
Now, having said that we still do have a lot of.
New supply that's coming into the market and at the end of the second quarter, we saw prices in the Americas coming down and that's going to continue into the third quarter or let's say, it's going to carry into the third quarter.
We've seen some green shoots in the export market. So I think we're kind of bouncing along the bottom here.
But it's just going to support that that theme of continued volatility going forward, what I would expect it.
We're going to see that normal seasonality going into the fourth quarter some weakness on volumes.
Q1 will typically be a little bit better and then when we get into the second half of next year is what I expect to start to see things really improve.
Thank you. Our next question comes from the line of Duffy Fischer with Goldman Sachs. Please proceed with your question.
Yes, good morning, guys.
Question around the.
The exports split versus sales in North America. So if you would maybe three parts. So where are you guys on that split where do you think the U S. Industry is and then when you think about the three plants that are going to start off or are in the process of starting up where do you think they're split will be in their first year of <unk>.
Operations.
That's a very good question Duffy.
Let me hand, it over to Ken on the Olefins <unk> Polyolefin site.
Hi, Duffy, yes, so listen we have traditionally been lower in terms of a percentage for exports in our portfolio and you see that this year and if some of that as well as driven by the the turnaround until we've had in the first half of the year. We've got some of our capacity down right now in the Midwest. So we've been a little bit lower on the X for sale.
In the first half of the year.
In industry, you know the Americas or the U S. Typically is exporting somewhere around 35% to 40% of the capacity normally when these new assets come online you are looking at them exporting significantly above that level level for the first year or so.
Worked their way into the market, but I don't see any change in the mid term morale around the industry being at that 40% level of exports, but its always our goal to find the highest value for our products.
And that is in the domestic market. So our focus is on serving the customers here and building out a portfolio that is more resilient by supplying domestic.
Thank you. Our next question comes from the line of Steve Byrne with Bank of America. Please proceed with your question.
Yes. Thank you.
<unk> concept that you are pursuing is that fair to assume that this would require a complete rebuild and not a retrofit and if so how do you look at the economics of that approach versus.
These multiple heidrick skus that you have at your refineries.
<unk> renewable nap, particularly if the dose.
It goes along with your hydrogen hub proposal.
Yes. Thank you Steve very good question that you're asking I mean, what we are doing here together with our partners is first of all developing that technology further into let's call. It a semi industrial scale.
So this is not replacing but it is feeding into them.
Into a cracker.
Next to that of course, we are following different other avenues in order.
To prepare ourselves for more renewable hydrocarbons.
Hydrocarbons in here, that's what we're looking at the refinery and how can we leverage abundant hydro <unk> hydro crackers that we have so there.
There will not be one solution fits all is the key message, but we are playing let's say very broadly being technology agnostic.
And investing into different types of technologies.
That is essentially where we then would decide to invest in those technologies in an industrial scale, we're talking about 2013 plus in my view.
Of course, there can be different solutions, depending on where you are in the world.
Thank you. Our next question comes from the line of Steve Richardson with Evercore ISI. Please proceed with your question.
Thank you. Good morning, I was wondering on a P. S. <unk> appreciate the update I was wondering if you could maybe remind us of some of your longer term goals in terms of restoring profitability. It sounds like youre, making some good inroads and then also was wondering if you could talk a little bit about more.
Acquisitions should we expect it to be a persistent part of the outlook there or if this is something unique thank you.
Thank you so as we communicated our target is to get.
Get the business to what we believe is very feasible. If they have $1 billion earnings by 2027, and that's the plan that we have embarked on and I have to say we are at the current moment.
I expect us to be led multiple business transformations and this is where I expect us to be at this time. So if you look at the earnings performance I think fourth quarter of last year was the bottom and we have them two months behind us where we are gradually improving it but it is a multiyear effort for us.
And we're filling the growth pipeline as I mentioned is our number one priority and.
We're making good progress, but that also takes time.
But it is our focus.
In terms of acquisitions the metal I think was an acquisition that perfectly fit in.
There is nothing else that we have.
We are.
And in that.
Sort of category for our space at the moment.
<unk>, Peter I mean, just to add to that I mean in terms of the acquisitions I mean, one needs to look at the Maple acquisition being at the boundary the interface between circular and low carbon solutions.
And then the Aps business with a component. So <unk> has a very strong mechanical recycling position.
In those different markets and that's what made it so attractive for us to do that acquisition.
Thank you. Our next question comes from the line of Arun Viswanathan with RBC capital markets. Please proceed with your question.
Great. Thanks for taking my question.
Just wanted to follow up on your outlook for.
Oh N P margins across both.
Both North America and EIA.
So it calls it looks like you're calling for double digit.
Declines and are in your and your profitability in Q3 sequentially from Q2.
Can you just walk us through some of those mechanics, I know that we have the <unk> decline.
At June on polyethylene are you looking for further declines.
And and in Q3 and I'm, just wondering given the the feedstock volatility there as well.
The recent decline in ethane prices or is it a continued weakness in volume or is it a little bit about or maybe just walk us through some of those mechanics.
Yeah, maybe first of all I mean repeat what has been said.
In the prepared remarks is that we have an outlook for Q3.
Which we believe will be Mitch.
Mid double digits mid teens to mid twenties lower in terms of EBITDA compared to Q2 and why it at relatively broad range still because.
As you know I mean, we have a very broad portfolio of different products.
And we've seen a bit of improvements.
In the refinery market on one hand side, we continue to believe that we will have strong oxy.
Akshay fuel margins.
As Ken mentioned in the prepared remarks.
And of course, I mean with the volatility that you'll see in the olefins <unk> polyolefin smart.
Markets in China is still not being back.
As it should be at this point in time right now so we will then of course.
Fine tune that.
Towards the end of the quarter when you Michael will speak on our conference and that will give a further update on where we are standing I mean in that quarter.
Thank you so what does that mean.
On the OSP, maybe answer that question is what I mean, Ken if you can give some additional.
Like I had said previously.
We're looking at.
Feedstock kind of peaked in July so that definitely is going to hurt us versus Q2 think about it sequentially.
Also like I said with prices coming down in the U S. At the end of Q2 that that's carried into Q3. So both of those are going to be headwinds. Then there is some volume component to that Q2 is normally our peak volume in terms of seasonality in Q3, especially in Europe .
The summer months, you start to see the volume slowdown. So we will have some volumes slow down in Q3 as well.
Overall I expect that we are like I said bumping along here on on margins in Q3 in terms of being at the bottom.
And then what I would remind investors is that the fourth quarter is typically seasonally weak to the third.
Just as a reminder.
Thank you. Our next question comes from the line of Alexia <unk> with Keybanc capital markets. Please proceed with your question.
Thanks, Good morning.
Government in China recently included the plastics industry, specifically American Omics support program.
Just very recently.
Do you have any insight into how the support actually is implemented in practice. It sounds like you haven't seen much benefit so far.
Just any color on this.
Eric program, maybe that would be helpful.
<unk>.
Yes, Alexia I mean, we have seen a couple of.
Areas, where that eventually could have an impact but at this point in time, it's too premature to say how much that impact will be.
Or people as you know they are on the ground to them and following that.
It seems too.
He talks around I mean automotive industry talks about white goods industry.
But too premature to say because we need.
We've seen a couple of these initiatives so far but.
We are rather than <unk>.
But in a wait and see position now.
Already I mean, if the market with.
We see an uptick because all the initiatives so far has not Pat.
E impacts as we would have hoped.
The fact that the saving rates of individuals.
Is extremely high I mean in China.
Thank you. Our next question comes from the line of Frank Mitsch with Fermium Research. Please proceed with your question.
Hey, good morning, everyone.
I had a question on <unk>.
In your in your slide that you are anticipating a $20 million headwind.
Three Q from turnarounds, but also you indicated that you're shutting down.
Two P O S implants for both the months of July and August I assume that that is not included.
In that.
That guy so I'm, just curious on what sort of financial impact, we should be anticipating with the shutdowns of the P. O S M facilities and.
Are you or are you waiting a return in demand before you bring those facilities back up any more color there would be very helpful. Thank you.
Yeah very good question, Frank and of course, I mean, like we have done last year as well, we don't call. It let's say cost savings, but I mean, we call. This I mean, we look at what is happening in the marketplace.
With our TBA capacities, and especially the new one that we have brought on stream successfully that.
We have the lowest cost and also lowest carbon footprints appropriately look sites.
World.
So it's clear that tend to appeal is in facilities or more kind of playing a role.
Swing capacity, so with that I will hand over to Kevin to give more details. Okay. Thank you. Thanks, Frank Thank you Peter.
Let me just add a little bit more color as Peter alluded to when we can.
Provide the guidance the guidance is really to help investors understand the difference of bringing on this new TBA capacity.
And relative to the other capacity that we would be taking offline for maintenance.
Really looked at that from the P. O TBA technology. So that you can see both the <unk> impacts as well as the oxy fuel impacts.
They are almost offsetting is which is what you see in the guidelines you know we talked about a 50% run rate for the new plant.
And versus the maintenance of the other assets. So when you ask about what's the impact of the P. O S M market.
It's going to I think the way to think about it is we're in styrene today styrene is oversupplied.
It's changing month to month on on very very thin margins.
How I would answer your question Frank I don't think there is an impact based on P. O demand there is.
<unk> idling at this at this point in time based on the durable demand for polyurethane regionally as well as globally.
Thank you. Our next question comes from the line of Vincent Andrews with Morgan Stanley . Please proceed with your question.
Thank you question within your your wide range of EBITDA guidance.
You sort of a single point targets for operating rates. So I'm, just wondering how youre thinking about operating rates given they fluctuated a fair amount a lot more than normal over the past 12 months and so what are you solving for with those operating rates.
Versus the profitability you are saying.
It's a pretty simple Vincent we're matching supply to demand I wouldn't I wouldn't say it any other way.
Okay.
Thank you. Our next question comes from the line of Mike Go ahead with Barclays. Please proceed with your question.
Great. Thanks, Good morning, guys.
Question on OSP.
Historically, if I look back this business did about $1 billion or more of annual EBITDA and now it seems like profitability is likely going to be a bit below that for some time, just given energy dynamics that some of the new supply that's coming on in Asia. So we take a step back how are you thinking long term about the competitiveness and profitability of your assets there.
Yeah, Ken I mean, if you can take that question, yeah. So listen unfortunately, the headwinds in the European market with with energy like everybody else has and we're focused on generating the highest value from those assets because there are things that we can do through our bep.
Program.
Theres still does generate good value from a margin standpoint, we've seen probably the biggest headwind in Europe around demand sort of volume is down pretty significantly year over year.
As you can imagine the the whole inflation equation it hits consumer very hard in Europe . So we.
We believe we've got good competitive assets there.
But of course, we're operating at a very difficult market, we're going to look for ways to continue to improve the value that we can get from those assets and the longer term. We're always looking at our portfolio and we'll continue to do so and make sure that we have the most competitive position that we can.
With reasonable amount of capital that we would have to deploy there.
Thank you. Our next question comes from the line of Matthew Blair with GTH. Please proceed with your question.
Yes.
Hey, good morning, Thanks for taking my question.
Yes.
Question on just the longer term outlook.
Outlook some of the consultants are showing global capacity growth and.
The two 5% range for 2024 through 26, which as you know is about half of what we've seen.
And so my question is do you what are your expectations do you believe this forecast.
Think this number will creep up or is it too late to really be.
Any meaningful increase in.
The 2024 and 2025 numbers.
Thanks.
Well Matthew I mean normally you have quite a good visibility I mean with the announcements of capacity increases so that visibility in our industry is normally around what four or five years, I mean down the road.
I would be very surprised if it would suddenly be additional capacities coming on stream within the period that has not been announced.
That's not how the industry is working.
I mean, Ken with regard to the announcements no, yes, it's a supply and demand.
Only I would add to that Peter is we have seen some projects starting to slow down right. So we are hearing about that in the market.
I'll remind you too we always get into these down cycles and it happens every time and it feels like youre going to be here forever, but there will be capacity that also comes out of the market. So yes. There are some additions that are going to come in some.
Some of those are going to make sense, depending on their feedstock position in the region that they're in but there are going to be some capacity that come out. It takes a couple of years for that to happen.
But that's how the cycle works. So in the short term I don't expect there to be any significant change in capacity coming on but in the midterm I do think youre going to see some projects start to be slowed down and then if you looked at it I mean from a demand side, if you look into the history.
Then.
The financial crisis, 2008, and 2009, then certainly into 2009 and 2010, you had a big recovery. So growth was higher than it normally is lets say over the cycle, let's say around.
4% per year and the same we've seen also with the pandemic can be done in 2021.
During the second year, you saw a recovery yet.
When you compare that to 2020.
Yeah. So.
I mean, we continue to be just looking I mean from from a historic point of view.
Or behavior.
It could very well be that also then we see in the future.
It's going to be higher demands.
Compared to the average over the cycle.
<unk> growth of about 4% per year.
Okay.
Thank you. Our next question comes from the line of John Roberts with Credit Suisse. Please proceed with your question.
Thank you will the delay in closing the refinery pushback the timeframe to achieve the 1 billion EBITDA from circular plastics I assume youre going to be later and converting some of the gasifier and so forth that the location.
The clear answer and that is John though it's not or targets remains unchanged.
In the circular and low carbon solutions business.
As we have communicated to the capital markets day, and we have been evaluating that option, obviously exactly what we did our capital markets day. So it was on the radar screen.
Thank you. Our next question comes from the line of Jeff Zekauskas with Jpmorgan. Please proceed with your question.
Thanks very much.
I think a couple of years ago, and advanced polymer solutions, you're earning about $300 million.
And today.
I guess the quarterly run rate is about $1 billion.
King you know $10 million in EBIT.
What happened to that business.
And in your forecast of 500 million EBIT da from circular polymers.
EBITDA margin do you expect on that or what EBITDA margin does that number still.
Thank you for the question on on the Aps MSA covered when we had the capital markets day.
I think we really lost the focus on on the business and our customers. When we went through the integration that we took out a lot of cost and synergy.
But this is a business that really requires this customer centricity.
Click based business you have to have a really good growth pipeline.
Very very good service level and Thats the recognition that I think from the whole integration that we made some mistakes and we really have now put together this transformation plan to make two to deliver what this business can perform.
The journey that we're on.
I'm confident that we're going to deliver on it we're making good progress.
But as it is a transformation that will take multiple years and then Jeff its Michael one other thing that I'd add if youre looking at current year results versus historic revolt results remember at the start of this year, we removed two relatively significant businesses from the AP Aps segment and put it back in LNP. So that's not an apples to apples comparison, if youre looking at this.
This year versus history, just as a reminder.
And to your question I mean on the circular business Jeff.
I mean, the five 4 million.
In 2020 by 2027, and then the $1 billion by 2030, when we talked about that on the capital markets day.
We are talking about it about 2 million tonnes well targeted by 2030.
The margins that we talked about I mean, you can do tobacco DSO calculation pretty much yes.
Incremental EBIDTA.
On top of.
Do you have it so that we don't really may come in in our crackers. So it gives you a bit of guidance also here I must say I mean, where do we look at the market margins that we are creating I mean today with that business.
Since we started the business.
We have been able to grow the business quite substantially.
Of course, albeit still at a low level compared to the overall volumes that we are having in the polyolefin.
We see that the margins if we can capture.
Or substantially higher than what we have set at the capital markets day.
And again, it's a separate business that has been created to keep repeating that like I said that the capital markets day with its own supply and demand that has its own.
Value based pricing mechanisms.
We are positioning in the marketplace. So this is not a market where you have a polyolefin plus a premium.
Type of approach.
Thank you our final question comes from the line.
Amit with Alembic Global. Please proceed with your question.
Good morning, guys just wanted to revisit.
The earlier question around polyethylene exports out of the U S.
Look I mean, a lot of this capacity that's been coming online in the U S has been with an eye to the export markets.
And you know as you guys and others have talked about.
The European market isn't looking great Asia Hasnt rebounded the way one would have expected it to.
So I mean are you seeing a scenario where some of that product that was meant for the export markets isn't making its way to the export markets.
And potentially as putting further downward pressure on pricing in the U S.
But one of the things that we have seen already since the end of last year.
And this is maybe also a bit to do with some learnings out of running a business like that pandemic environments is that there has been substantially more discipline in the marketplace.
So just like we as a leader in the industry have reduced the output instead of pushing products into the market.
Others have done the same thing so you'll see a change in my view in terms of behavior.
Compared to me too.
So the history, Ken anything you want to add I completely agree with that and like I had mentioned before there will be headwinds, but this capacity coming on there always is but.
The capacity comes on one time, and then you feel it in the market will adjust to that.
I also said earlier, we're seeing some strength in some of the export markets, especially going south so.
We're starting to see some growth in some markets like Brazil, that's going to help absorb some of that capacity. So I'm not any more concerned about it now than I was six months ago.
Southeast Asia is even looking a little bit a little bit better we've seen we've seen that that trend over the last couple of months. So.
The markets are going to absorb it over time and.
Like Peter said and Michael had said, we'll adjust our operating rates to optimize cash.
Thank you, ladies and gentlemen that concludes our time allowed for questions I'll turn the floor back to Mr. <unk> for any final comments.
Okay. Thank you very much as usual very thoughtful questions.
We're looking forward to sharing updates on our progress towards looking additional value of course over the coming months.
And we wish you all a great weekend and as usual stay safe. Thank you very much.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.