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, 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 LyondellBasell's first quarter 2020 teleconference. I am joined today by Bob Patel, our Chief Executive Officer and 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 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.
Nonetheless, the forward looking statements are subject to significant risk 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 available at www.lyondellfacel.com, slash investor relations. Reconciliations of non GAAP financial measures to GAAP financial measures, together with other closures, 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 1 pm Eastern Time today until June 1st by calling 866-397-1431 in the United States, and 2033690538 outside the United States. The pass code for both numbers 0.
During today's call, we will focus on first quarter results, the current environment, our near term 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 non cash, lower of cost or market inventory adjustments or else M 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 decline in prices of our raw materials and finished goods inventories. During the first quarter, we recognized pretax LCM charges totaling $419,000,000. Comments made on this call will be in regard to our underlying business results, excluding the impacts of these LCM inventory charges.
With that being said, now like to turn the call over to Bob.
Thank you, Dave, and good day to all of you participating around the world. I hope that you, your colleagues, and your families are all staying healthy during these difficult times. We appreciate you taking the time to join us today as we discuss our Q1 results. Let's begin with continue to deliver relatively resilient performance amid challenges arising from the coronavirus pandemic. Rapidly falling oil prices and deteriorating economic activity.
Our global asset footprint, feedstock flexibility, and disciplined financial strategies are serving us well and enabling us to navigate through these unprecedented market conditions. Our first quarter EBITDA of $1,100,000,000 represents a decline of approximately 12% relative to the 4th quarter, and 25% relative to the first quarter of the prior year. Despite robust demand for our polymers used in consumer packaging and medical applications, profitability was impacted by soft demand for our transportation fuel and products used in automotive and other durable goods and markets. Events surrounding the coronavirus pandemic and the drop in oil prices continue to evolve and impact global markets for our products. Let's turn to Slide 4 and review our approach to mitigate the effects from these headwinds.
Currently all of our major manufacturing sites are operating. In response to serving automotive end markets and appropriately decreased production rates and other plants to match reduced end market demand. Industry consultants estimate that petrochemical and refining assets in various parts of the world are running at 60% to 80% of nameplate capacity We expect that the majority of LyondellBasell capacity will also operate within that range during the second quarter. Our manufacturing operations have been declared as an essential industry, supporting society's needs to fight the pandemic in the majority and the communities where we operate around the world, while maintaining business continuity with team in late January, we instituted social distancing practices, escalated our sanitization protocols, and increased employee health monitoring at all of our manufacturing sites. Our office based employees work productively from home as the pandemic spread from Asia to Europe, Vented Americans.
We are implementing processes to enable a safe and full return to workplaces as condition permit around the world. The majority of our 1000 employees in China are now back in our plants and offices I want to thank and acknowledge our over 19,000 linedel Brazil employees for their tireless innovation dedication and sense of ownership they have exhibited for our company during these difficult times. Since the full extent of the pandemic, we across the company. Those initiatives have been accelerated. In response to following demand, we instituted more aggressive inventory management policies.
When combined with lower prices for raw materials and products, we expect these actions will provide a meaningful release of cash from working capital during 2020. In order to reduce operational and financial risk, we postponed selected growth projects and planned maintenance, including slowing construction activities on our POTBA plan. We currently expect these actions will reduce 2020 capital expenditures by approximately 20% from our prior guidance of $2,400,000,000 to our current outlook of one $900,000,000. During April, strong demand for our investment grade bonds enabled us to increase liquidity by $2,000,000,000 interest rates in the history of our deployment will serve us well during these challenging times. Our focus on funding the dividend, while remaining committed to a strong investment grade balance sheet played an integral role to our shareholder value proposition.
We believe that our action to reduce operating costs, capital expenditures and working capital will generate sufficient free cash flow over the coming quarters. In the event of a prolonged or deeper downturn, we will act pragmatically and evaluate all prudent options. In March, lower oil prices reduced demand for transportation fuels negatively impacted both volumes and margins for our refining segment and our Oxyfuels and related products business within the Intermediates And Derivatives segment. Global shutdowns by Automotive Manufacturers sharply reduced demand for our polypropylene compounds within the Advanced Polymer Solutions segment. Consumer driven demand for polyolefins used in packaging and healthcare products supported relatively stable, integrated polyethylene margins, the olefins and polyolefins Americas segment.
Lower feedstock prices resulted in higher integrated polyethylene margins for our O and P, Europe, Asia And International segment. While we expect that demand for durable goods will take some time to recover, last seeing changes in consumer lifestyles may have beneficial midterm implications for some of our large end use markets. On Slide 5, we show some recent North American market research that suggest changes in consumer buying habits that could endure beyond the current prices. As you may have experienced, consumer stockpiled home pantries as it became clear that societal restrictions were required to slow the spread of the virus. LyondellBasell felt this surge for our polymers used in consumer packaging to safely deliver food, medicines, and other essential products to households around the world.
The need for plastic packaging increased as society moved from bulk volumes used in workplaces and sizes delivered and consumed in the home. Excessive demand for paper goods has subsided, and thankfully, most stockpiled home health care products do not require replenishment, but lifestyle changes are creating a new normal as consumer based demand for frozen, dairy and packaged food has risen by approximately 30%. Surveys indicate that after staying at home during the pandemic, 40% of Americans plan to increase the amount of time they work from home and 65% intend to eat at home more often. These changes are likely to increase demand for the polyolefin packaging that is typically used in these applications. Let's turn to Slide 6 and review our recent safety performance.
LyondellBasell's commitment to health and safety has become even more relevant to our employees, contractors and communities during the pandemic. Our employees have continued to deliver top quartile if not top decile safety performance, despite numerous potential distractions through these difficult times. Earlier, I mentioned our precautionary measures to increase the frequency and intensity of our workplace, sanitization, social distancing practices, health monitoring, and self reporting processes to reduce the spread of the virus among our workforce. Our processes have proven effective with limited virus spread across our global 3 to support society's needs during the pandemic. Let's turn to Slide 7, where we highlight LyondellBasell's role in supplying vital product that support health care, hygiene, and medical needs.
For example, our polypropylene resins are used by customers to produce melt blown fibers that provide filtration in face masks. Our Master Batch products are used to produce breathable films our polyethylene is used for protective clothing, tramping, and medical packaging. And our polypropylene ethanol isopropanol ethylene oxide and propylene oxide are used to make syringes, tubing, test kits, soaps, disinfectants, medical devices, and many other products. With that, I will turn the call over to Michael will lead us through several topics related to our financial performance.
Thank you, Bob, and good morning, everyone. Slide 8 illustrates our relatively consistent cash flow performance over the past 5 years. Over the last 12 months, 90% of our EBITDA translated into cash from operating activities. With approximately $1,000,000,000 dedicated to maintaining our assets, our free operating cash flow remained relatively healthy at $3,800,000,000. As you heard from Bob, we are putting a Now please turn to Slide 9 where we provide further details on cash generation for the first quarter.
You can see that our business is generated $500,000,000 of cash from operating activities during the first quarter, down just over $100,000,000 from 1 year ago. During the first quarter, we increased our cash on hand to $1,800,000,000 in abundance of caution with borrowings from our revolving credit, accounts receivable, and commercial paper facilities. Capital expenditures were approximately $660,000,000, as we continued to move forward on our POTBA plant. In the first quarter, we paid $351,000,000 in dividends to our shareholders. As Bob mentioned, optimize liquidity.
We are increasing cash inflows by accelerating cost saving initiatives and reducing working capital. At the end of March, we had $3,200,000,000 in liquidity. We further bolstered this liquidity through the successful issuance of $2,000,000,000 in senior notes in April at very attractive long term rates. With the slowdown of our POTBA plant construction, postponement of growth projects and some deferral to our prior guidance. In the current uncertain environment, we will prioritize liquidity over share repurchases and any potential M and A activities.
We have a strong balance sheet and a favorable maturity profile. Slide 11 illustrates the maturities of our long term debt portfolio as the April 2020 bond issuance. Proceeds from the issuance will be utilized for general corporate purposes, including increasing our liquidity and managing shorter term debt maturities. With the addition of the new bonds, our weighted average cost of debt remains about 3.8%. Long term debt due in 2022 includes $500,000,000,000 borrowed under our revolving credit facility in the first quarter.
This borrowing along with other short term borrowings were repaid in April from existing cash and proceeds from our recent bond offering. Our bonds had a well balanced maturity profile that reduces refinancing risk in any given year, and the company benefits from a good mix of both dollar and euro denominated Before I turn the call over to Bob, please turn to Slide 12 and allow me to provide an update on the annual financial modeling guidance that we discussed last quarter. As we mentioned, we are reducing our 2020 plan for capital expenditures by $500,000,000,000 to $1,900,000,000. Approximately $200,000,000 of the reduction is associated with profit generating projects, with the majority coming from the reduced pace of construction at our new POTBA facility. The reduced spending will become evident during the second half of this year.
We remain committed to the completion of our strategic investment in the POTBA project and will resume expenditure reduction is primarily associated with postponements and our plant maintenance schedule. In addition to CapEx savings, we no longer anticipate EBITDA impacts the business associated with major planned maintenance activities for the second half of twenty twenty. We previously provided a cash interest estimate for 2020. We thought it's easier for you to model using our interest expense for 2020, which is expected to be $410,000,000. This includes a credit for capitalized interest of approximately $45,000,000.
2020 annual depreciation and amortization continues to approximately $80,000,000, and our pension expense remains estimated at $100,000,000. We are reducing our estimated 2020 effective tax rate from about 20% to an expectation in the mid teens. The cash tax rate is expected to remain in the mid to high teens. From the U. S.
Coronavirus aid, relief, and economic security, or Cares Act. The Cares Act resulted in a higher first quarter tax expense due to a revaluation of our deferred tax liabilities that was discrete to the first quarter. The net impact of the CARES Act for the full year is to be favorable. With that,
you, Michael. Let's turn to Slide 13 and review our first quarter performance. As mentioned previously, my discussion of business results will be in regard to our underlying business results, excluding the impacts of the non cash LCM inventory charges. Our global footprint and diverse business portfolio continued to provide resiliency in this challenging market environment. EBITDA for the first quarter was $1,100,000,000.
Profitability for both the olefins and polyolefins Americas and O and P, Europe, Asia and international segments were supported by our capability to switch amongst low cost feedstocks and robust polymer demand from consumer driven packaging and medical applications. Our refining segment and the Oxyfuels and related products businesses within the INB segment face challenging market conditions created by reduced margins and demand for transportation fuels. The resiliency of our business portfolio continues to benefit from our relatively high participation in consumer driven demand for non durable products and a diverse global manufacturing footprint. Slide 14 highlights our differential feedstock flexibility relative to our peers at both lane cracker assets. We can leverage the most economical feedstocks with respect to raw material costs and prices yielded from products.
In North America, our 2 Midwest crackers in Clinton and Morris were built to utilize low cost stranded ethane and propane. On the U. S. Gulf Coast, 3 of our crackers can utilize a full range of feedstocks ethane, propane, butane, y grade mixed NGLs, condensate and naphtha, while the 4th cracker can flex amongst the most economical NGLs. This allows us to respond to feedstock prices and alleviate demand pressure on any one of the feedstocks.
Our cracker system offers distinct advantages relative to new build crackers that can only run ethane. In a similar way, we have improved our flexibility in Europe with capabilities to run slightly more than 50% of our feet to 8 using LPGs and other potentially advantaged raw materials. On Slide 15, we highlight how this feedstock ability can provide advantage margins for LyondellBasell. Integrated polyethylene margins in North America fluctuated in the first quarter as the advantage feed shifted from ethane propane and butane to NASA as the price of oil fell during March. We are able to follow the most economical feedstock to maximize profitability by switching among integrated polyethylene margins in March were the highest we have seen since 2015.
We've been able to maximize value across Naphtha, propane, butane, and other advantage feeds, with significant asset bases in both Europe and North America LyondellBasell's overall results are less volatile than if our business was reliant upon only one region. With our feedstock in mind, let's review our first quarter results starting with our Olefins and Polyolefins Americas segment on Slide 16. 1st quarter EBITDA was $477,000,000, 46,000,000 lower than the 4th quarter. Profitability was driven by robust proved polyethylene price spreads over ethylene monomer. Olefins results decreased approximately $110,000,000 compared to the 4th quarter margins declined on lower ethylene sales prices, partially offset by a decrease in feedstock prices.
Ethylene operating rates fell to about 87% for the quarter due to a planned maintenance turnaround for 1 of the 2 crackers and our channel view facility. Polyolefin results increased about $95,000,000 during the first quarter, driven by an improvement and polyethylene price spread over ethylene of more than $105 per ton, primarily due to lower ethylene costs. During the first quarter, we advanced on our growth initiatives by launching production at our 500,000 ton per year Hyperzone high density polyethylene plant here on the U. S. Gulf Coast.
Our Hyperzone polyethylene technology provides differential product for applications such as water pipes, industrial drums, and intermediate bulk containers. We expect a more challenging second quarter with the unprecedented market conditions as a backdrop. While lower feedstock prices could reduce costs, uncertainties around oil industry consultants predict that U. S. Crackers will operate at approximately 75% of nameplate capacity during the second quarter and our assets are expected to operate in a similar range.
Now please turn to Slide 17 to review the performance of our Olefins and polyolefins Europe, Asia and International segment. During the first quarter, EBITDA was $225,000,000, $81,000,000 higher than the 4th quarter. Profitability was driven by lower feedstock prices, increased reliability, and higher volumes. Olefins results increased more than $135,000,000, driven by an increase in ethylene margin due to lower prices for NASA and other feedstocks. Volumes increased as cracker operating rates rose to 95% for the quarter due to improved reliability.
Combined polyolefins results were comparable to the previous quarter. Polyethylene volume increased 15 percent over the fourth quarter with increased consumer driven demand for packaging due to stay at home orders. Polyolefins margins declined offsetting the improvement in volume reductions in both margins and volumes across our joint ventures contributed to a decline in the second quarter to follow similar trend as the Americas with the benefits from lower feedstock costs muted by lower demand. Our European crackers are expected to operate 2nd quarter. Please turn to Slide 18.
Let's take a look at our Intermediates And Derivatives segment. 1st quarter EBITDA was $281,000,000, a $48,000,000 decrease versus the prior quarter. Results were affected by a significant decline in gasoline demand that severely impacted Oxyfuels margins beginning in February. 1st quarter propylene oxide and derivatives results increased approximately $25,000,000 due to higher volumes and margins. Intermediate chemicals increased $15,000,000, driven by an increase in acetyl margins.
Volumes were lower due to planned maintenance and our Channelview methanol unit. Oxyfuels and related products results treached approximately $80,000,000 as a result of lower product prices. During February March, Oxyfuels margins declined with weaker gasoline demand as global travel restrictions and stay at home orders became Q2 has lackluster demand for propylene oxide in polyurethane applications and continued pressure on oxide fuels demand. And margins will likely persist polymer solutions segment. 1st quarter EBITDA was $115,000,000, $53,000,000 higher than the fourth quarter.
Volumes and margins increased with typical seasonal improvements that were muted by pandemic related shutdowns in automotive end markets. 1st quarter pretax integration costs were $14,000,000. Compounding and solutions results increased approximately $30,000,000 due to higher margins and volumes. Seasonal volume improvements were partially off set by declines in automotive end market demand during March. Advanced Polymers results increased about $10,000,000, supported by improved seasonal construction demand.
Related to the 2018 acquisition of A. Schulman. Integration activities are on schedule to achieve $200,000,000 in forward annual run rate synergies by the third quarter of this During the second quarter, we expect profitability for the segment to be increasingly impacted by severe reductions in demand for our polypropylene compounds utilized in automotive end markets. As I mentioned, we have temporarily idled production at several of our small plants in response to manufacturing plant closures across the automotive industry. Now let's turn to Slide 20, discuss the results of our Refining segment.
1st quarter EBITDA was negative $80,000,000, line versus the fourth quarter of 2019. Results were driven by a decline in crack spreads and an unplanned outage on our fluidized catalytic cracker unit. In the first quarter, the Maya 211 industry benchmark cracker spread decreased to an average of $17.21 per barrel for the quarter. Unplanned maintenance our Houston refinery reduced the average crude throughput by over 40,000 barrels per day to 226,000 barrels per day for the quarter. The refining market has been challenged by falling prices and demand for transportation fuels, including gasoline and jet fuel.
We anticipate that these factors will continue to transportation fuels returns to typical levels later in the year. Our fluid catalytic cracker unit at the refinery returned to service in late April, and we are currently operating the refinery at 85% to 90% of nameplate crude throughput. Please turn to Slide 21 as we review the results of our Technology segment. During the first quarter, technology segment EBITDA was $56,000,000, a decrease of $82,000,000 compared to the record results from the fourth quarter of 2019. Catalyst volumes and margins remained steady while licensing revenue declined due to fewer revenue milestones during the quarter.
Our technology segment licenses polymer production technologies for new manufacturing plants that enable subsequent catalyst sales to licensing customers over the lifetime of the asset. Individual contract terms and the timing we expect that 2nd quarter licensing profitability will return to the higher levels of recent quarter. Let me summarize this quarter's highlights and outlook with Slide 22. During the first quarter, LyondellBasell's leading and advantaged assets continue to deliver resilient results. Our foundations in leveraging our feedstock flexibility with our low operating costs and high asset utilization serves us well, with our capital deployment strategy capital expenditures for required maintenance and profit generating growth projects.
Commitment to a strong investment grade credit rating. We anticipate that challenges from the coronavirus pandemic and plummeting oil prices that arose irritation fuels will eventually rebound as various regions emerge from societal restrictions return to work and regain comfort with prior travel patterns. Markets for discretionary durable goods will likely take longer to recover from the downturn We expect that robust consumer driven demand for LyondellBasell is addressing these challenges by proactively reducing costs, working capital and capital while prioritizing and increasing liquidity. Our company is really well positioned to navigate these challenging market and emerge stronger with the eventual rebound of the global economy.
And we do have a question in the queue from John McNulty from BMO Capital Markets. Your line is now open.
Yes, good morning. Thanks for taking my question. So I guess when we look at this recession, it's it's different than past ones because of the quarantining and the impact of that or the compounding effect of that. It seems like when the quarantining starts to end, a couple of your businesses refining in Oxyfuels that should kind of snap back pretty quickly. But how should we think about the rest of the businesses and potential impact that maybe the quarantine is having on it where you might as that ends start to get relief maybe earlier than just the broader macro.
Is there a way to think about that?
Yes, John, so good morning. The way we think about it is we have, we have packaging and medical which is probably nearly half of, half of the company essentially. And then durable goods auto is probably about 20%, 25% and then the fuels, and, Oxyfuels and so on, the remainder I think that, we should see demand improve even further if the, economies are opened, because typically in the summertime, as you know, we see seasonal effects and we see leases in demand. So relatively speaking, we could see more of that on the packaging side. And on fuels, you said it regularly that, as, as people get on the road and drive more, are up fuels and refining business should improve.
So, kind of the way we're thinking about it is, automobile production and demand will probably be the slowest to return. But it's
Bank of America. Your line is now open.
Project, the cracker and downstream polyethylene plant, if they were if that was on stream today and you were able to receive naphtha as an internal transfer from your partner's refinery, how would the integrated margin of that comp compared to, say, your NAFTA based margins in Europe and your U. S. Gulf Margins?
Yes, good morning, Steve. Indeed, if it was running, we'd have decent margins probably in the $400 to $500 per ton integrated basis range. You'll recall that, thesis around that investment is about producing in China for China. And, and, the benefit of that project for us, beyond getting a bigger position in China is that, timing of the investment will be such that, when we make our capital infusion, it'll be very close to start up, so within a quarter or 2. But decent margins today, if it was running.
Our next question is from David Begleiter from Deutsche Bank. Your line is now open.
Good morning, Bob.
Hey, good morning, David.
Bob, just on polyethylene prices, consultants said they sell $0.04 in April. Do you agree? And they're calling for another $0.06 in May June for combined $0.10 decline in Q2. Again, do you agree? Do you think that's to sit here.
Yes, David, I think even the $0.04, I would say it's that, that may be more of a headline number as opposed to kind of realized when you look through, all of the different end use segments that we supply in terms of the outlook, with ethane price rising like it has, difficult to imagine that you have that kind of a large step down. And again, as I mentioned earlier on the demand side, packaging related demand is still very good. Were coming into the summer season. And as, different state economies in the U. S.
Start to open, and outdoor activities actually are safer than indoor activities and that drives packaging demand. So if we see, if we see some increased in demand seasonally, it seems to me that, we have a decent market environment. And in our case, and we're running our assets in Olefins and Polyolefins in the U. S. At about 70% today.
So pretty decent rates given the kind of environment we're in.
Next question is from Vincent Andrews from Morgan Stanley. Your line is now open.
Thanks and good morning everyone. Bob, wondering if you could talk a bit about, the concern that's out there that with lower oil prices will have less, associated gas production and therefore less NGL production. So if gas does go above $3 $3.50, wherever it goes. What do you think happens to ethane and propane prices?
Yes. So Vincent, in terms of, chain supplydemand, I mean, we're all, working to get our arms around what could happen. But here's the way I think about it. First of all, there's quite a bit that's being rejected today, maybe as much as 350,000 barrels a day of ethane being rejected. So of course, that and would get shut off.
And then in times past, what we've seen is if I think that it still snug and values rise, especially in a low oil price environment, you'd see feedstock flexibility kick in and, you know, company like us, which who have a lot of feedstock flexibility, we would tilt more towards liquids and LPGs And beyond that, some of the exports could even get shut off for ethane. So it seems to me that what we're really trying to think through is could we have another spike as opposed to a sustained period of high ethane prices Because in the end, we continue to believe that there's an abundance of ethane available in the U. S. And higher prices will just attract more investment and more supply of ethane over the long term. So it's more about thinking through transitory effect And I think a company like ours that has so much feedstock flexibility, we can manage through that probably better than most.
Next question is from Arun Viswanathan from RBC Capital Markets. Your line is now open.
Great, thanks. Good morning.
I hope you're all well.
I guess I just wanted to ask polypropylene. So, when you look at supply demand and what's going on with compounding and automotive, would you expect and then also feedstocks as well, would you expect, any capacity reductions in polypropylene over the next, year or 2, maybe just your comment on your outlook for polypropylene? Thanks. Yes, Arun, it could be that some of the high cost capacity in Europe or U. S, is idled.
But more importantly, what we've observed so far is project are starting to get delayed, excluding China, but elsewhere in the world, if you look, up in North America, and other parts of the world, those are the first signs of change. And frankly, we're seeing that even in ethylene. So one of the outcomes of the period that we're going through is, is delays in new construction. And I certainly see that in Republic.
Our next question comes from P. J. Juvekar from Citi. Your line is now open.
Hey, Bob. Good to hear from you. Good morning. Just a quick question. Given the plant shutdowns globally, where are your inventory polyethylene polypropylene?
Where are they for the industry? And in this type of environment, usually, converters begin to destock anticipating lower prices. Where do we stand on that? And what kind of working capital do you expect to release given lower raw materials, lower inventories, etcetera? Thank
you, Vijay. Well, inventory reduction is has been a very, very high focus for us, over the last 75 days or so. We started reducing inventories back late February early March. And so today, for our polyolefins, we're we're sitting at 30 days or so of inventory based on lower demand rates. So, so we've already adjusted for anticipated lower demand.
Our product wheel to preferentially produce the products, whether it's high demand, and only produce to order the areas where we believe there's low demand or low visibility on demand. And your question about working capital reduction and and cash release, we expect about $500,000,000 of, of cash release from lower working capital as we work our way through this year. Most of that benefit should come through in Q2 with a little bit of tailing benefit in Q3.
Our next question comes from Kevin McCarthy with Vertical Research Partners. Your line is now open.
Yes, good morning, Bob. One of the effects of the pandemic seems to be rapidly changing consumer and government attitudes towards single use plastics. What are you observing in that arena? And do you anticipate any any backlash reversion, that would lead to a structural benefit in addition to the other working and staying at home, cooking at home benefits that you alluded to in the prepared remarks?
Good morning, Kevin. We do see some structural benefits, I think accruing to both polyethylene and polypropylene for some time, given what's happened, reversal of backbans in, in on the West Coast, on the East Coast, those could stay for a while. I think what people are realizing is that there are very significant hygienic benefits to plastics. And that single use, has benefits. The key thing that we have to remember that won't change is that the challenge of plastic waste still remains.
And I can tell you that we, as a company, have not lost our focus on that. I think as an industry, the focus on plastic waste addressing recycling, increasing, capture of waste before it gets in the environment. That something that we should continue our focus on as an industry and we certainly will continue as a company and then you know, as single use applications increase in demand, I think society can be confident that that single use waste won't end up in the environment. So plastic waste will continue to be an area of emphasis for us.
Our next question comes from Aleksey Yruma from KeyBanc. Your line is now open.
Thank you. Good morning everyone. Bob, you mentioned that benchmark margins for ethylene polyethylene in Europe were fairly high close to record. At the same time, your EBITDA was up sequentially, but below 2019 2018 averages. So A, could you explain why that is?
And B, if these benchmarks decline, in the second quarter, should your EBITDA decline less than the benchmark would apply?
Well, so, Alexei, probably more about timing during the quarter in terms of the margins, as in Europe oil price decline, you know, we did see a margin expansion and that's very typical in Europe. And I think it speaks to, again, the diversity of our, of our asset base and in a lower oil price environment, we generally see better contribution from our European assets. We'd likely we'll see, some margin erosion in Europe as we work through Q2. And as things normalize a bit more, And the new sort of lower oil price environment sets in, we do expect some margin erosion in Europe, but demand's decent in Europe. Frankly, we're running our O and P assets at about 80% in Europe today.
And, as economies over there open up, we think that going into the summer season, we could run at pretty good rates in this 80% to 85% range, through December.
Next question comes from Duffy Fischer from Barclays. Your line is now open.
Yes. Good morning, Fellas. Question just around the differential between, say, U. S. Ethane base and kind of European and Asian naphtha based.
Obviously, as oils come down on paper, at least, those two regions look extremely competitive How quickly do you think as they ramp up some of their production rates? Do you think the byproducts from the NAP though, we'll start to readjust to lower levels. So the propylene's, the benzene butadiene, that kind of stuff. Can you walk through how you see that playing out the rest of this year?
Yes. So, hey, good morning, Duffy. Actually, the, the byproduct disposition is already playing out. And, you know, C4s, computer dyeing is containment is a real challenge. And so our strategy is that we don't want to build inventory on betadine.
And so we'll crack click up to a point where we can move the beer dying. And I think that's already globally been restricting the amount of naphtha that's that's being, cracked. And so we've had over the past 10 years, I was thinking about this that we've had probably 2 or 3 periods like this where where co product disposition became challenged. Typically, it doesn't last that long. And in the current environment, some automobile production coming back and people driving and replacing tires should provide some relief But I think it'll continue to be a constraint through most of this year, especially disposition of butadiene.
And again, our our strategy, even in the U. S, where we have significant feedstock flexibility, we will maximize liquids up to a point where we're not building inventory of C4
Next question comes from Bob Koort from Goldman Sachs. Your line is now open.
Good morning. This is Dylan Campbell on
for Bob. Good morning. Good morning. Good morning. Good morning.
I understand time on the cash flow profile. You mentioned kind of working capital improvements. Would you be able to size that to any degree in terms of how much of those are your intrinsic improvements versus the decline in oil prices? And then also on CapEx, almost kind of $1,100,000,000 of growth CapEx I'm still embedded in the total CapEx number for the year. Is there further room for that to decline this year?
Yes, hi, good morning, Dylan. Let me answer the question in terms of how we're the actions we've taken to increase cash flow. So as I mentioned earlier, working capital release, expect to be about $500,000,000, mostly in Q2 with some trailing benefits in Q3. CapEx we've reduced on a cash basis by about $500,000,000 from $24,000,000 Q3 and Q4. In addition to that, we've undertaken, we've accelerated our cost production initiatives that we started in September of last year, we expect those to provide additional benefit this year on a cash basis of between $150,000,000 $200,000,000.
So when you kind of total all that up between the working capital, the CapEx, and in the cash basis cost reduction, we expect that we should boost cash flow this year by about 1.1to1.2 $1,000,000,000, and the timing will start in Q2 through the end of the year.
Next question comes from Mike Sison from Wells Fargo. Your line is now open.
Hey guys, hey Bob.
How are you doing? But just sort of a longer term question, when you think about your EBITDA and the olefins, both Americas and I think you're going to be down this year, right? And given a lot of the challenges that we have in the economy. So when you think about in a better volume environment, hopefully over time, and rebuilding that margin over time. Can you maybe walk us through the variables between oil and And how much of volume recovery comes back in terms of your EBITDA maybe on a more normalized EBITDA margin basis longer term?
Yes, I mean, I think, in the near term, Mike, that we have decent visibility here with Q2 and into Q3, Q4, So all of us are keeping an eye on whether we're going to have another wave of the virus or not. And it's an unknown something is difficult to predict. But if I look beyond the pandemic and look beyond the current period of low oil price I mean, it's history as an indicator, typically oil prices do rebound within 24 months. Now at the moment, we also have a lot of inventory to work through. So We're not expecting significant improvement in oil price for most of this year, but I do think that if you were to look 24 months out, You could see oil prices at higher levels.
Likely, we'll also see project delayed and cancel And I think, and some, demand improvement benefit from pent up demand which should set up a very good supply demand environment, 24 months out 12 24 months out. But our focus is to make sure that we maximize cash flow and maximize liquidity in the near term and and make sure that we keep our focus on the long term projects that we've initiated.
Next question is from Frank Mitsch from Fermium Research. Your line is now open.
Good morning, gentlemen. I'm glad to hear you're all doing well.
Good morning, Frank.
Hey, Bob, you mentioned that all the major plants are running, although some of the smaller plants in APS are idle. I'm just curious. I assume you looked at perhaps idling some polyethylene capacity as others have. Where do you come out on the pros and cons of doing that? And what would be the likelihood that Lyondell would go that route?
Yes, you know, Frank, we haven't really seen demand, declined to a level where we would consider idling fidling polyethylene capacity. So, our sense is that here in April, we're kind of seeing, a near term bottom in demand. As you would imagine that as economies partially reopen, direct that should help on the demand side. And as I was stating earlier on one of the other questions that, in a partial lockdown or reduced mobility mode for the rest of the year, perhaps, we think that packaging is a area of that. So our expectation is that in the U S, we're going to run kind of 70, 80% our assets in olefins and polyolefins in Europe, 80, 85%.
And we don't really foresee needing to idle for a long period of time, any polyethylene.
Next question is from Jeff Zekauskas from JP Morgan. Your line is now open.
Thanks very much. Bob, when you contemplate the experience of Lyondell both in its business performance and its share price during the current recession. Does it change your view concerning the distribution of dividend increase and share repurchase in the future for Lyondell. That is, do you think that your behavior in allocating your free cash flow in the future will change because of your experience this year.
Yes, thank you for that question, Geoff. Long the near term, I mentioned, given lack of visibility in terms of the outlook beyond Q3, really our priorities are to maximize liquidity. In terms of capital allocation, we're very in our view that the dividend is a high priority for us, coupled with a strong BBB or investment grade rating today is BBB for us. So, I don't expect that we would, we would undertake buyback given that we're prioritizing liquidity, our dividend, we expect that, we will We will recommend the main dividend to our board. We expect that they will approve that dividend for Q2 given the visibility that we have and and the improvements we've made in terms of working capital, CapEx and the cash cost savings, we think that, we can largely cover the dividend the full year.
And I think your question will be in a better position to answer when we get to later in the year. About capital allocation. Today, the priority is maximize liquidity, maximize cash flow, and all of those will allow us to continue enable us to continue to pay the dividend, largely from operating cash flow for the balance of the year.
Next question is from Jonas Oxgaard from Bernstein. Your line is now open.
Thank you. Question on the refining of the Oxyfuels, it seems that the main issues right now is because of the lack of fuel demand. So can you give us an idea for what should those businesses look like after the lockdown is over. Crude is still 30, 40 bucks probably, but we're driving again.
Yes. So, you know, on refining, Jonas, for the light heavy differential is a very, very significant driver for earnings, followed by diesel cracks. Our refinery, given that it's a heavy crude oil processing refinery and we make, we make a significant amount of coke as a result. In this environment, it actually favors our refinery because of the amount of diesel that we produce. We've mentioned in in prior earnings calls and other venues that, we expect that our refinery under more normalized conditions should earn about $100,000,000 in EBITDA per quarter.
It'll be a challenge to get to that level this year because we still need more supply of sour crude oil. But we do think that the higher level of diesel production as a portion of the total yield favors us in our refinery. In Oxyfuels, we should start to see some benefits, from the volume rising. Higher oil price also helps in terms of Oxyfuels profitability. So both should directionally improve as the lockdowns are eased and as activity, at least daily activity returns to more normal levels.
Next question is from John Roberts from UBS. Your line is now open.
Thank you and glad you all sound well. If you were able to switch to 100 percent heavy feedstocks, would you be able to place all of the extra co products in this soft market?
Yes. No, we would not be able to do that. And again, Peter Dine would be probably our greatest challenge today. And it's what limits us in terms of, how much liquids we can crack. Our capability, we have 2 crackers of channel view that produce about £4,000,000,000 of ethylene total, we can, we can crack all liquids at those two crackers.
And in terms of our, Corpus Christi cracker, we can crack about 2 thirds non ethane feed. So So we have significant flexibility, but today we could not place all the C4s. And as I said earlier, We do not intend to build inventory.
Our next question is from Matthew Blair from Tudor, Pickering, Holt. Your line is now open.
Hey, good morning, Bob. Glad to hear you are safe and sound. I just had a question, could you compare polypropylene demand with PE demand which is holding up better and why?
Yes, good morning, Matthew. Good to hear from you. They're both resilient for different reasons. In polyethylene, the areas of weakness have been around construction. But we expect that that's more seasonal and that'll pick up.
In polypropylene, it's more about auto, being weak, but on the other hand, it's been offset by the melt blown, type of products that are going into PPE for first responders. And there's quite a bit of and polypropylene. If I really had to call 1 or the other, I would say maybe on the margin poly clean is a little bit weaker than polyethylene just because of the auto, auto content. But both are holding up pretty well. And as I mentioned earlier, we're running our assets at 70%, 70%
plus here in the U. S. Yes, Matthew, the only other thing I would add is the support market from North America for polyethylene isn't as strong as it was earlier in the year. So, that's a particular weakness here in the quarter anyways until China starts producing for the rest of the world again.
The final question in the queue is from Asana Med from Olympic Global Advisors. Your line is now open.
Bob wanted to revisit some of the comments you made about your dividend. Having taken a glance at the 10 K, it seems that as I take a look at the covenants and the like, that if LTM EBITDA net debt to EBITDA sort of approaches or exceeds 3.5 times. I guess the verbiage was that there are certain restrictions that are put on dividend outlay. So obviously LTM kind of looking fairly sort of decent right now. But as if this pandemic or certain lockdowns were to last longer, if there was COVID related sort of lockdowns to up later on, as we go through the course of the year, maybe if we start approaching LTM levels of I'd say close to $3, slightly north of $3,000,000,000 dividends start becoming a bit more questionable.
Just wanted to sort of hear your thoughts about that.
Yes. EBITDA levels at kind of levels you're describing would be extremely low. But I'll invite Michael to comment on the covenants.
Yes. Hey, so one thing to keep in mind in regards to the covenants, so you're right. It was there is a covenant related to total debt to EBITDA at greater than 3.5 times. You'll note from some recent filings, if gone through them. We decided it was prudent to actually get credit for cash on sheet.
And so instead of a total debt, it's now a net debt covenant. So again, As Bob said, that outlook from an EBITDA perspective is pretty, pretty dire and would probably have to continue for some period of time. And then, but I did want to point out that we actually did some covenant relief as well, going from total debt to net debt.
Well, thank you for all your questions. I'd like to close with a few comments. As I mentioned earlier, we're anticipating and we're ready to address, continue challenges as we progress through the current will serve us extend our track record sustainable value for you, our shareholders. So we thank you for your interest in our company and look forward to updating you in July on our second quarter results. So with that, or adjourned, have a great weekend.
This concludes today's call. Thank you for your participation. You may disconnect at this time.