Hello, and welcome to the LyondellBasell Teleconference At the request of LyondellBasell, this conference is being recorded for instant replay purposes. Following today's presentation, We will conduct I'd now like to turn the conference over to Mr. David Kenny, Director of Investor Relations. Sir, you may begin.
Thank you, Britney. Hello, and welcome to LyondellBasell's 4th Quarter 2019 Teleconference. I'm 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 at www.lyondellpacell.com. Today, we will be discussing our business results while making references 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. Nonetheless, the 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 available at www.linedelpacell.com slash investor relations. Reconciliations of non GAAP financial measures to GAAP financial measures, together with other disclosures including the earnings release are also currently available on our website. Finally, I would like to point out that a recording of this call will be available by telephone beginning at 2 pm Eastern Time today, until 11 59 pm Eastern Time on March 2nd by calling 800-seven 50nine-four 1057 in the United States and 402 9980479 outside the United States.
The pass code for both numbers is 1160. During today's call, we will focus on the 4th quarter and full year results, the current environment, our near term outlook and provide an update on our growth initiatives. With that being said, I would now like to turn the call over to Bob.
Thank you, Dave and good day to all of you participating around the world. We appreciate you joining us to discuss our 4th quarter and full year results for 2019. Let's begin with Slide 3 and review some highlights. In 2019, LyondellBasell's businesses extended our outstanding track record of cash generation by delivering $5,000,000,000 of cash from operating activities. Over the past 6 years, our resilient business portfolio steadily produced $5,000,000,000 to $6,000,000,000 of cash each year under a variety of oil prices and macroeconomic conditions.
Our company's focus on operational excellence, cost management and technology driven growth has proven that we have an advantage across the range of business climates. 2019 earnings were $9.58 per share with $5,700,000,000 of EBITDA This represents a decline of approximately 20% 17%, respectively, relative to the prior year. Despite healthy consumer driven demand, our profitability was impacted by soft industrial demand as trade uncertainty regulatory changes, and a weak environment for capital investment challenged the automotive industry and other durable goods markets for our products. Our global asset footprint and operational flexibility enabled us to adapt to changes in trade lanes while continuing to leverage the advantage of abundant low cost natural gas liquids as feedstocks for production from both our both American operations and our Middle East joint ventures. Our Technology business achieved record revenues from licensing plant designs to support growth in China, resulting in the most profitable year in company history for this segment.
Before we get further into the results, I would like to introduce our new Chief Financial Officer and Executive Vice President, Michael McMurray. Michael brings extensive knowledge and perspective to company after working in finance, investor relations, treasury, and as a CFO over the course of more than 30 years. I'm looking forward to Michael providing our finance and strategy groups with the leadership that will drive our continued success. Michael, welcome to LyondellBasell.
Thank you for the kind words, Bob. I'm excited to be part of LyondellBasell and your partner in driving our future. In my 1st several weeks, for the company. I'm very impressed with the people and results or in culture within the company. I look forward to meeting all our stakeholders in the investment community and describing how we will continue our disciplined approach to value driven growth while driving shareholder returns.
Thanks, Michael.
Let's turn to Slide 4 and review our approach to maximizing the returns from our cash generation. Over the past year, we continue to actively manage our business portfolio with value driven growth investments to develop opportunities around the world. On the U. S. Gulf Coast, we completed construction of our new Hyperzone polyethylene plant and increased activity to build our POTVA plant.
As Hyperzone production ramps up this year, and the POTBA plant reaches completion next year, both projects will provide growth in volumes and profitability that will further increase our capacity for cash generation. The box on the right summarizes work to expand our footprint in the rapidly growing patient market during 2019, we announced that our joint venture in Thailand will begin construction of their 4th polypropylene plant that will reestablish their position as the largest polypropylene producer in Southeast Asia. In September, we signed an MOU with Bora to build an integrated cracker in Northeast State, China. And in December, we announced our intention to expand our existing partnership with Sinopec to build a second propylene oxide and styling monomer plant also in China. All of these projects leverage LandellBasell Technologies in our core businesses to extend our positions and expand in the world's fastest growing markets.
With these disciplined investments, we are achieving growth, while providing substantial returns for our shareholders. On Slide 5, you can see that our company has maintained our focus on delivering top quartile safety performance. As we integrated the employees, contractors and assets from the H. Schulman acquisition in 2019. We were able to reduce the injury rate at these facilities by more than 50% relative to the prior year Our goal remains 0 injuries.
We're diligently working to ensure all our employees, contractors, assets, and the communities in which we operate, finish the day in the same or better condition than when they started. In October 20 19, we announced the latest step in our progress to utilize plastic waste in the Circular economy. We're building a pilot plant facility at our research center in Varara, Italy, to develop our proprietary more tech technology to convert mixed plastic waste, continue polymers. As shown on Slide 6, Mortek will use catalyzed pyolysis to convert plastic waste into hydrocarbons that can be used as feedstocks to produce new plastics from existing olefins crackers and polymerization plants. We will develop the more tech technology at our pilot facility and optimize it toward a commercial scale.
LoreTech is complimentary to LyondellBasell's existing mechanically recycled product business that relies upon cleaned and sorted waste streams. Together with our bio based Circular polymers, our company now has 3 technologies that are advancing the
Thank you, Bob. Let's begin on Slide 7, where you can see the trend of our company's EBITDA and EPS over the past 3 years. 2019 results include a one time noncash tax benefit of $85,000,000,000 that increased earnings by $0.24 per share. Integration costs related to the A. Schulman acquisition impacted full year net income results by $89,000,000 or $0.26 per share and 4th quarter results by $29,000,000 or $0.08 per share.
As Bob mentioned, our profitability was impacted by challenging market conditions during 2019. Using third quarter 2019 results as a benchmark, Our resilience relative to our industry peers during these challenging times is noteworthy. While our peers' profitability fell as much as 2 thirds, LyondellBasell's global business portfolio performed relatively well, with approximately 2 thirds of our asset volume serving non durable demand from consumer markets. Our businesses are generally well positioned during industrial downturns. Slide 8 illustrates the consistent and efficient cash flow performance that Bob mentioned earlier Our businesses have generated $5,000,000,000 to $6,000,000,000 of cash from operating activities over the past 6 years.
In 2019, 80 7 percent of our EBITDA translated into cash. With approximately $1,000,000,000 dedicated to sustaining capital, Our free operating cash flow yield remains healthy at 12.5 percent in 2019. Please turn to Slide 9, and allowed me to review our capital allocation strategy. Our approach remains consistent with the policies where it articulated last September at our Investor Day and frankly, for the past several years. We seek to provide balance between value driven growth and shareholder returns.
We remain committed to a strong and progressively growing dividend. Our capital expenditures are focused on ensuring our assets maintain their high levels of reliability as well as funding profitable growth. With the completion of the Hyperzone and POTBA projects, our go CapEx will taper down. Our cash generation provides flexibility for highly selective value driven M and A. Growth through JVs and opportunistic share repurchases.
At the same time, we are mindful about maintaining appropriate leverage ratios and our commitment to a strong investment grade balance sheet underlies all of our decisions. Now please turn to Slide 10, where you can see that our businesses generated $1,200,000,000 of cash from operating activities during the fourth quarter, which contributed to $5,000,000,000 of cash generation for the year. Capital expenditures for the fourth quarter were approximately $730,000,000, with roughly 60% invested in profit generating growth projects, and 40% dedicated to sustaining capital. Our investment in growth has increased since the second quarter of 2019, as we completed our Hyperzone polyethylene plant and continued to move our POTPA plant construction forward. In the fourth quarter, we paid $351,000,000 in dividends.
In 2019, our opportunistic buyback strategy allowed us to repurchase 43,000,000 shares
for a
total of $3,800,000,000. Together with dividends, we returned a total of $5,200,000,000 to shareholders in 2019, Along with that thought, I would like to compare our capital returns to some of our peers over the prior 4 quarters. Please turn to Slide 11. The dark blue bars depict dividend yield, which was nearly 5% over the trailing 12 months prior to the fourth quarter. Together with share repurchases, our company tops the chart with 20% of total capital returns to shareholders.
Before I turn the call over to Bob, let me address some of your annual modeling questions for 2020 on Slide 12. Regarding capital expenditures, we are planning to invest approximately $2,400,000,000 during 2020 to support both our sustaining capital and profit generating projects. Approximately $1,300,000,000 is targeted towards profit generating growth. The majority of this growth investment in 2020 will be dedicated to the construction of after the completion of this facility. For 2020, we have a fairly typical planned maintenance schedule.
Activities during the year are expected to impact annual EBITDA by approximately $155,000,000. Our O and T Americas segment will have a cracker turnaround overlapping the First And Second Quarters of this year, that is expected to impact EBITDA by $25,000,000 $30,000,000, respectively. Our OP EAI segment will have a cracker turnaround in the Third And Fourth Quarters of 2020 that is expected to impact EBITDA by $15,000,000 in each quarter In our Intermediates And Derivatives segment, we have planned maintenance events that will impact EBITDA by approximately $10,000,000 in each of the First And Second quarters and $25,000,000 in each of the 3rd and 4th quarters this year. Our cash interest expense for 2020 is expected to be $420,000,000, which includes capitalized interest of about $120,000,000. 2020 annual book depreciation and amortization is forecasted to be $1,500,000,000.
We plan to make regular pension contributions in 2020 that total approximately $120,000,000, and we estimate a pension expense of $100,000,000. Of approximately 20% with a cash tax rate in the mid teens. I will now turn the call back to Bob for a more detailed discussion of our segment results. Bob? Thank you, Michael.
Let's turn to Slide 13, which illustrates our quarterly profitability over the last five quarters. EBITDA for the fourth quarter was $1,200,000,000. As you have seen, Ryan Dezelle's business portfolio typically follows a seasonal trend with peak earnings occurring midyear. In the absence of external catalysts that improve or detract from our underlying businesses, the patterns seen in 2019 are fairly typical. We have a focused and well balanced business portfolio supported by our global footprint, feedstock flexibility and reliable operations.
These are recurring themes for our company and attributes that we seek to improve upon as we manage the portfolio. Even in uncertain market conditions, our company continues to demonstrate resilience. We talked last quarter about polyethylene spreads being near 10 year lows. And on Slide 14, we've expanded that idea to illustrate the market margins associated with some of our major products. Each market has experienced several cycles over the past 20 years.
Most recently, we are faced with slow industrial demand and uncertainty in trade policies Margins are currently relatively strong for North American polypropylene and for MTBE. On the flip side, we're seeing historically REIT margins for Styrene And Northeast Asian Polyup Some of you may be surprised to learn that globally we sell higher volumes of polypropylene and upstate fuels, than polyethylene and styrene. These charts illustrate how our portfolio provides balance where our product and trough margins is often offset by another with strong margins within the portfolio. With these natural hedges, across our global footprint and our innovative technology, cost advantage, operational flexibility and consistent underlying consumer driven demand. GlyondellBasell is well positioned to provide resilient profitability With the market conditions in mind, let's review our 4th quarter segment results, starting with our olefins and polyolefins Americas segment on Slide 15.
4th quarter 2019 EBITDA was $498,000,000, $155,000,000 lower than the 3rd quarter. Profitability was impacted by reduced polyethylene margins from typical winter seasonality and an increased cost of ethylene production as feedstock costs were higher and propylene price was lower compared to the previous quarter. Olefins results decreased approximately $20,000,000 compared to the 3rd quarter 2019. Margin contracted on relatively higher natural gas liquid feedstock costs and lower propylene price. Volume increased after the completion of our planned maintenance at our Clinton, Iowa facility during the third quarter.
Combined polyolefin results were approximately $135,000,000 lower than the 3rd quarter, primarily due to a decline in polyethylene spread over ethylene of more than $130 per ton. For the full year, results decreased by $460,000,000. Olefins results increased as we utilize the high feedstock flexibility across our fleet of 6 U. S. Ethylene crackers to take advantage of low cost feedstocks.
Combined polyolefins results declined primarily due to a spread decline in polyethylene of approximately $2.60 per ton. We expect the remainder of the first quarter will follow typical seasonal trends with increasing demand continuing into the second quarter. Now please turn to Slide 16 to review the performance of our olefins and polyolefins European International segment. During the fourth quarter, EBITDA was $144,000,000, a decrease of $147,000,000 compared to the 3rd quarter. Pepline margin declined as a result of higher feedstock costs and lower propylene price, with typical 4th quarter seasonality pressuring volumes There was little support to increase polyethylene price.
Olefins results decreased approximately $140,000,000 primarily driven by higher feedstock costs and lower propylene price combined polyolefin result decreased approximately $45,000,000, driven by decreased spread in both polyethylene and polypropylene Full year EBITDA was $101,000,000 lower than 2018. Results included in impact of approximately $55,000,000 due to 2018. Olefins results for the full year increased due to lower feedstock costs and improved reliability with planned and unplanned maintenance impacting the fourth quarter of 2018. Combined polyolefin results and joint venture equity income decreased due to lower polyolefin spreads. In Europe, we expect typical seasonal improvements as we progress through the 1st and second quarters, similar to the Americans.
Please turn to Slide 17. Let's take a look at our 4th quarter EBITDA was $329,000,000, a decline of $61,000,000 from the third quarter of 2019. Well supplied markets drove margin declines in most businesses for both propylene oxide and derivatives and intermediate chemicals. 4th quarter propylene oxide and derivatives results decreased approximately $10,000,000 due to lower margins from our product sales mix. Intermediate chemicals decreased $50,000,000, primarily due to reduced margin Oxyfuels and related products results were relatively unchanged with the strongest fourth quarter for the company over the past 5 years.
During 2019, EBITDA declined $454,000,000 compared to the record performance we achieved in 2018. Margin declined in most businesses, primarily styrene, partially offset by a strong improvement in margins for our Oxyfuels, and related products businesses. Volumes for most businesses also declined due to planned and unplanned maintenance, as well as a softer market. In January, MTBE raw material margins have trended downward, but are still relatively strong for this month compared to recent years. As the first quarter progresses, we expect well supplied markets to continue to pressure most of our IND businesses.
Recently, we announced our intention to expand our existing partnership with Sinopec to build a second POSM plant in China. Joint ventures enable us to expand our reach with relatively low capital commitments in attractive markets. The proposed new JV will serve growing demand for both propylene oxide and styrene in China, where styrene demand is growing at a reasonable rate. As demand for PO based construction materials, packaging and furnishing continues to grow, we see an opportunity to bring together our leading technology with Sinopex operational capability to further serve the Chinese market. The chart on Slide 18 depicts the company's cost leadership in producing propylene oxide from our 2 co product technologies.
We're building using our cost leading POTBA technology on the U. S. Gulf Coast where butane feedstocks are abundant and low priced. In China, we have selected our PLSM technology to serve growing propylene oxide and styrene demand. Both of our co product technologies offer significant cost advantage over new plants based on alternative technology or aging or hybrid capacity.
On Slide 19, let's review the results of our Advanced Polymer Solutions segment. 4th quarter EBITDA was $54,000,000, $48,000,000 decline over the third quarter of 2019. Volumes and margins declined as we are seeing continued headwinds from the automotive sector and a seasonal decline in the construction market. 4th quarter pretax integration costs were $38,000,000, Compared with the prior period, compounding and solutions results declined approximately $35,000,000 due to continued headwinds in the automotive market. Advanced Polymers results decreased about $20,000,000 due to lower margin and volume due to a seasonal decline in construction demand.
Full year EBITDA results for the segment were $424,000,000, a $24,000,000 improvement over 2018. 2019 was the 1st full year of results with the addition of new product lines from the acquisition of Ace Schulman. Pre tax integration costs were $116,000,000, in 2019. Volumes declined in legacy LyondellBasell businesses due to decreased automotive and construction demand. Integration activities are on track, and we have captured $130,000,000 in forward annualized run rate synergies as of December 31st.
We expect higher industrial construction demand, particularly for products from our Advanced Polymers business as we move through the first quarter toward the arrival of spring. Any improvements in automotive and other industrial markets should benefit our compounding and solutions business. Now let's turn to Slide 20 and discuss the performance of our Refining segment. 4th quarter EBITDA was $22,000,000, a $28,000,000 improvement versus the third quarter of 2019 Results were driven by an improvement in margin. In the fourth quarter, the Maya 211 industry benchmark frac spread improved to an average of strong naphtha and coke prices.
Operations were strong for the quarter with an average crude throughput near nameplate production rate at 267,000 barrels per day. Full year EBITDA was $232,000,000 lower than 2018. The refinery ran well at an average crude throughput of 263,000 barrels per day. This was 32,000 barrels per day higher than prior years due to the completion of planned maintenance in 2018. For the full year, refining margins were impacted by the limited availability of power's heavy sour crude oil in the U.
S. Gulf Coast as well as lower Maya two In January, weak demand for Eagle has driven Gulf Coast ULSB to Brent frac spreads to 5 year loans. While we are disappointed by the current market environment, we continue to expect improvement as the carriage ban on high sulfur marine fuels takes effect in March. We are well positioned to benefit from the new regulation by serving demand for more environmentally friendly marine fuels from our refinery Please turn to Slide 21 as we review the results of our Technology segment. In 2019, Our Technology segment delivered a record quarter and record annual profitability with our industry hating polymer production technologies and catalysts.
EBITDA was $138,000,000 during the 4th quarter and was $411,000,000 for the full year, with a number of significant revenue milestones reached for our licensing business. We expect lower licensing income recognition and therefore, lower profitability in the first quarter, following the strong 4th quarter 2019. Now on Slide 22, I'd like to take this opportunity to reiterate our company's disciplined investment growth strategy that we shared with you during our 2019 Investor Day We expect the contributions from our growth investments to deliver $1,300,000,000 of incremental annual EBITDA by 2022. Applying cash yield from EBITDA of about 80% combined with our moderating CapEx requirement of approximately $1,100,000,000. We expect an increase in free cash flow of about $2,100,000,000 that would double our free cash flow by 2022.
Let me summarize the year's highlights and outlook with Slide 23. In 2019, our resilient portfolio was supported by abundant low cost natural gas liquid feedstocks in North America. Natural hedges across our global business portfolio and licensing growth in our Technology segment. We have generated $5,000,000,000 to $6,000,000,000 of cash from operating activities for 6 consecutive years This consistent and strong cash generation contributed to growth through disciplined profit generating capital investments, and provided significant shareholder returns through a growing top quartile dividend and share repurchase In 2020, we look forward to the additional capacity from our Hyperzone polyethylene plant for our O and P and M as segment We're moving toward the completion of our POTBA plant in 2021 to provide further growth for our INB segment. We're seizing opportunities to drive value by expanding our diverse global business portfolio.
We expect the seeds of these joint venture investments today to reach tangible earnings growth over the years to come. With that said, we're now pleased to take your questions. Thank
you. Please be advised for
questions.
And our first question comes from Matthew Blair from Tudor, Pickering, Holt. Your line is now open.
Hey, good morning, Bob. Maybe you want to start off on refining. 1 of the bright spots in the quarter. Could you talk about whether you were able to run high sulfur fuel oil as a feed at your Houston refinery And, if so, what kind of what kind of volumes and what kind of EBITDA uplift? And if you were not, was the constraint economic or was it equipment related any details on that would be great.
Yes, good morning, Matthew. Thanks for your question. On refining the HSFO, we are able to run supplemental feed, typically, when we've cut back on crude run rates, for a variety of reasons. So we can run between 20,401,000 barrels a day of additional HSFO. And I would say in a typical month, maybe that contributes $5,000,000 to $9,000,000 of additional EBITDA.
So that gives you a sense for a contribution. And we did do some of that. In fact, in January, because we had some, some external events that caused some downtime on one of our crude units. And some internal issues. So we were able to buy some HSFO.
The margins were pretty good. So we do use that as an optimization tool.
Thank you. And our next question comes from Steven Byrne.
Yes. Thank you. What fraction of your polyethylene production is currently exported to China And what other markets would this likely shift to as China becomes more self sufficient? Are you able to move more of it into Europe, and or do you have a concern that others might do this and erode the margins in that region?
Yes, Steve, good morning. Well, first of all, we've not exported as much generally as the industry has in years past. And 19 is no different. We did increase exports in 2019 as the year progressed, but we're still well below the industry average. We're or we're probably at a run rate of around 30% of our polyethylene that's exported.
And of that, maybe 5% of it goes to China. And, that could move up some next this year in 2020 as we start up our Hyperzone plant and balance our system. Your question about self sufficiency based on IHS data and our analysis of that data, it seems that, China will continue to need large amounts of imports of polyethylene, and that short still is incrementally growing, over the next decade. Now it's not growing as much as we thought maybe 2, 3 years ago, but there's still significant short in China on polyethylene
Thank you. And our next question comes from Kevin McCarthy from Vertical Research Partners.
Yes, good morning. Bob, I was wondering if you could address the impact of, the phase out of single use plastics in China. And also comment on your table 2 of your, supplemental information suggests that high density polyethylene prices declined about $110 a ton sequentially in 4Q versus 3Q. Seems to be a little bit more than maybe some of the consultants are indicating. And so I was wondering if you could comment on that, and whether or not you're seeing discounting?
And if so, might that reverse as 2020 progresses? Thank you.
Okay. So, and good morning, Kevin. On your question about single use plastics, and I think we'll have to see how that announcement plays out. Whether it's in China or Europe, or the U. S, one of the challenges is there aren't really readily available substitutes for many of the applications for single use plastics.
So in the near term, Kevin, I don't expect significant impact on demand. Over, let's say, the next 3 to 5 years. I think post 5 years, I think we'll have to kind of watch and see how, how, recycling shapes up and how, chemical recycling develops and the technology develops. But in And then near to medium term, I don't expect a lot of impact, especially because there aren't really obvious substitutes, for those applications. Your question on price from Q4 to Q3, several factors.
I think first of all, As I said earlier, as the year progressed, we exported more as an industry and frankly as a company And so that mix of domestic versus export probably had some impact. And, and also new supply came on. We saw demand actually come off, because of destocking and seasonality. So tons of pressure in, in Q4, we've already seen some of that reverse. For example, posted spot polyethylene prices have already come up $0.03 to $0.04 since early December based on different publications that we follow.
So we're already seeing some of that reverse.
Kevin, this is Dave. That table that you're referring to is actually the net transaction price from IHS. It's not the contract price per se for polyethylene. Discounted. Thank
you. And our next question comes from Jeff Zekauskas from JP Morgan. Your line is now open.
Thanks very much. Can you talk about polypropylene demand trends both in the United States and in Europe, either sequentially or year over year in the light of the slowing of the economy and difficulties in the auto sector?
Polypropylene demand growth, Geoff, has been similar to polyethylene demand growth. It's been impacted a little bit because of the, the slowdown in automotive. And generally in the industrial sector, polypropylene as more end users in those sectors. But we still see a reasonably good market environment in polypropylene something that we'll certainly watch as new capacity comes in, in 2020. But, but overall, we see polypropylene growth developing reasonably well.
Thank you. And our next question comes from Arun Viswanathan from RBC Capital Markets. Your line is now open.
Great, thanks. Good morning. Good morning. Just wanted to ask your question on the monomer side. You've often had some profitability from the Metasys unit.
Could you size what that's been over the last several years and what your outlook is for both ethylene and propylene, monomer profitability over the next couple of years? Thanks.
Yes. Thanks, Arun. It does move around quite a lot, as you can imagine, depending on polypropylene price and the spread between propylene and ethylene. Generally speaking, if you look at Q4 and you look at all of our major product areas, they really declined through the quarter and, and, have reached kind of these trough conditions. And propylene is, is, is an example of that.
So in Q4, we had really minimal contribution from our Flex unit as a result of lower propylene price. So as that reverses, we should see better contribution from, from ethylene into a propylene. It does, it moves around quite a lot. And it's something that we factor into our optimization as we think about, how we deploy the ethylene we produce.
Yes, Arun, just to give you a sense of scale in 2019, the flex profitability was about half of what it might have been in 2018. And then as Bob said, in the fourth quarter, it was very, very small.
Thank you. And our next question comes from Duffy Fischer from Barclays. Your line is now open.
Yeah, good morning guys. Just a question, sort of around the refineries, sort of around IMO 2020, I'm getting a lot of feedback people are kind of acquitting that with Y2K. We got all been out of shape and there's not been much change because of it. Seems like you guys have a little bit different view and maybe just delayed. So can you kind of walk through how you think IMO 2020 still plays out?
And then within that context, what does that mean structurally for the refinery within Lyondell's portfolio.
So you'll recall in our prior discussions about IMO, what we've said is there are 2 primary benefits from IMO for, for us. One is that the light heavy differential would get wider, which favors our refinery, and that distillate spreads would increase because of, the value of this low sulfur, bunker fuel. So one of the 2 have shown some signs of improvement. The light heavy differential has improved by about $3 a barrel, over the past 90, 60, 90 days or so. Compared to what we saw most of last year.
So we're starting to see a bit of response on that. And you can see it in the numbers. They're not terrific, but they're they're getting better. On the distillate side, there have been a couple of factors that have actually kept distillate crack spreads down or actually that reduced in the last 60 days. One is I think we probably we all underestimate the amount of inventory of compliant fuel that was built before year end.
To your point, there was concern about would there be enough? And I think perhaps there was more than enough. And so there's a bit of overhang, which will be worked through. So I think I see that as a temporary situation Secondly, we've had a really mild winter. So, so distillate values have come down, because there hasn't been as much demand for heating.
Again, I think a seasonal effect. So, you know, to summarize in terms of IMO, I think that, the effect will be somewhat delayed, but we are expecting some improvement in the refinery profitability as a result of IMO. Your question about portfolio, again, our focus has been very consistent, run the refinery as well as possible, try to optimize on the product side so that we can maximize value and we're continually focused on that. And, we'll see how things play out longer term. Thank you.
Thank you. And our next question comes from Vincent Andrews from Morgan Stanley.
Bob, I'm wondering if you could talk a little bit about the Asian P markets and maybe 2 things to touch on. 1, the margins have been negative there for a while now. Longer than if I look back over the last 10 years, usually they don't stay that negative for too long before capacity comes off and they at least go back to 0 and that hasn't happened. And the big thing that looks like has happened is that naphtha prices have been very strong. Certainly in fourth quarter, maybe they've come off a little bit year to date because of the coronavirus.
But what is driving the naphtha price versus a relatively flat crude oil price? And why aren't we seeing, Asian capacity come off line given the losses?
Yes, good morning, Vincent. Really good question. I think, and this is really at the crux of sort of why we think we're reaching trough conditions in polyethylene globally. As you rightly mentioned, margins today appear to be below cash costs. So, you would think there would be negative earnings on many of these units, not just the highest cost, but probably deep into the cost curve.
I've been following this business for many years, including when I lived in Asia, more than 10 years ago, and typically when you fall below 300, it's not just a few marginal crackers, but many are underwater. But my sense is that typically it takes perhaps a quarter or 2 of these sorts of conditions for there to be meaningful reduction in output, or idling of capacity. We're nearing that stage in my opinion. And it seems to me that, that we should see some bounce And as I said earlier, if you look at posted export prices of polyethylene from mid December to mid January, they have moved somewhat. So, so again, I think these are all signs of trough conditions and there should be some bounce off of these really, really unusual lows.
Thank you. And our next question comes from John Roberts from UBS. Your line is now open.
Thank you. Could you give us an update on the closing of the Bora deal and is the startup still on schedule?
We're working diligently to move towards definitive agreements. We expect, to have those completed within the first half of this year. In terms of the project startup, they're making really great progress, and, I would expect that, will be in the commissioning stage towards the end of this year, for that project. I think that's one of the attractiveness to us of this project is that, by the time, we're, we're, we're in a position to infuse equity into the venture, be within months of startup. So the timing between our investment and timing of startup is very short, which de risks quite a lot of that project in our view, as a partner.
Thank you. And our next question comes from P. J. Juvekar from Citi. Your line is now open.
Yes. Hi. Good morning, Bob. One more question on your BARA project. At your Analyst Day, you mentioned that the cost of building in China is about half of that in the U.
S. Can you comment about time it takes to build in China? I know crews there were 20 fourseven to build And so, what's your expectation of timing? And does that JV give you any special insight into the timing of some of these new crackers that are starting up in China? Thank you.
It can be that it's one of the, one of the, sort of attractions to us is that, first of all, that project is going to produce product for the local market. So we don't intend to export. I think it'll give us a really good window into how the market works there. As well as, as you said, timing and cost of construction. In terms of the costs, they are between half 2 thirds that of, Gulf Coast builds and also timing very similar, somewhere between half 2 thirds of the time that's required to build on the Gulf Coast.
So and the Borrow project is certainly, in that range relative to the U. S. Cost and timing.
Thank you. And our next question comes from Bob Court from Goldman Sachs. Your line is now open.
Thanks. Good morning, Bob.
Hey, good morning. On
Slide 14, we talked about those integrated spreads from our competitors. It's a good thing you don't have a lot of mafic crackers, but coincide with your comment that maybe refining a trough, just be curious how that informs or adjusts your use of capital plans? Clearly, your stock has gotten punished pretty substantially here. You've got a big dividend that You could reduce those payouts by maybe buying some stock back. On the other hand, I would imagine targets are looking quite a bit cheaper as it is.
So can you just maybe refresh us where they are in the capital deployment at this stage of the market?
Sure. Thanks, Bob. First of all, on CapEx, you'll recall that at Investor Day, we, we had a, we had a few things we highlighted. First of all, sustaining capital of about $1,100,000,000 to $1,100,000,000. Frankly, we don't plan to change that.
We wanna make we wanna make sure that our units are well maintained and are able to operate when we need them at full rates. And because of our dividend coverage, we don't have to do that. We're in a position where we're able we have a well covered dividend without having to take those sorts steps. Secondly, our CapEx is declining because the Hyperzone project is essentially complete. And, so that capital comes off.
So we have somewhere around $300,000,000 to $400,000,000 reduction in CapEx from, from 2019 to 2020. And then if you look further out, we'll see another reduction after the project start. So I think the key for us is to really be thoughtful about how we think through future projects, be very disciplined as we've shown, and I see great opportunity on both sides of the equation to increase cash flow. We see sources of new earnings and we see CapEx declining. That story remains intact as we discussed at Investor Day.
Thank
you. And our next question comes from Hassan Amit from Olympic Global. Your line is now open.
Bob just wanted to follow-up on, you made some comments about what you think the trajectory of polyethylene pricing may be, obviously keeping in mind some of the negative margin trends in Asia. My question is a bit more specific about the grades. As we see the influx of all of this polyethylene capacity in 2020, 2021, it seems they're fairly large divergences between the amount of capacity that's coming online, call it in HDPE and linear low versus not that much capacity coming online in LDPE. So I mean, how are you thinking about that? Should we expect to see sort of divergent pricing patterns between the different grades?
Yes, good question. And I think 1st of all, with linear low density polyethylene supply being less on an absolute basis, the demand growth is also lower for low density polyethylene. So when I think about high density polyethylene, which is the majority of what we produce we do see, that the supply is coming on generally when the demand is there as well. If we see periods of oversupply, it's episodic as opposed to structural. So my sense is that, as we will work our way digesting the new supply in 2020 globally.
And then we'll have to see how the timing works on the future projects. Even in China, some of the projects have been later than they were, first announced. So, and we're going through startup of our Hyperzone plant right now. And we don't reach full capacity on the 1st day that we put hydrocarbon in So these things have a certain ramp up rate, which generally is not reflected in IHS numbers. But yeah, I'm somewhat constructive that I think we're we've reached bottom and we're bouncing off of the lows in Q4.
And, we'll see how demand develops here.
And Hassan, to your point, I mean, the days sales of inventory reported by ACC has dropped for high density by 8 days since December of 2018 to December of 2019. Just shows you that the market is tightening up for high density here in North America.
Thank you. And our next question comes from Mike Bassan from Wells Fargo. Your line is now open.
Hey guys. Bob, when you think about your EBITDA in the fourth quarter, you know, it held up pretty well given difficult environment sort of across the board. So when you think about 2020, and your portfolio, can you grow EBITDA in 2020? And if you can, where do you think you'll see some of the, around the potential upside?
Yes, good morning, Mike. Thanks for that question. Indeed, I think we did hold up well. And on our prepared comments, I mentioned that, the Oxyfuels business did well. So, first of all, I think the diversity in our portfolio, and that, some of these products are at different points in their individual cycles.
That helps in delivering consistent and strong cash flow But I think through sources of earnings upside, 1st of all, startup of our new Hyperzone polyethylene plant, as I said, we're in the process of startup right now. And so we should have, we hope to have production by month end. So once that plant is up and running, And, as this Q2 progresses, we start to produce the target grade slate, that should start to interviewed earnings. Also our APS integration work, the integration of Ace Schulman continues. We're doing really well.
Run rate synergies at the end of December were at about $130,000,000 annualized. So, we're doing quite well on that and we should continue to see benefits. The automotive sector has been really depressed globally. And frankly, that hit our legacy compounding business because it was mostly automotive. Any rebound in automotive is going to help that segment.
And in our view, with all of our integration work, I think we're laying the groundwork for really capitalizing on small improvements. Furthermore, IMO, I talked about that earlier, while we've been disappointed that we haven't seen some response yet, we do believe we will see it, as, as, as Q2 into Q2, we should see the benefits of IMO in terms of better distillate cracks and even wider, light heavy differential. So those are some examples of, of earnings, upside, if you will, that don't really rely on polyethylene market getting better per se. And also when you think about cash flow, the lower CapEx this year should be positive as well. Thank you.
And our next question comes from Frank Mitch from Fermium Research. Your line is now open.
Good morning. And, Michael, nice to, to meet you at least telephonically. Look forward to meeting you in person.
Thank you, Craig.
Bob, I
want to come back to the Sinopec, awesome JV or the memorandum of understanding that you signed last month. You mentioned a little bit about the fact that you're going to be more exposed to styrene in China and have a better prognosis for that business over there. Obviously, this is a business that you have not expressed a lot of positive comments in the past. And I'm just curious, has your outlook for styrene overall change where do you see it going? Is this the first move of others?
Or was this just opportunistic, with Sinopec? If you could expand upon it, that'd be great.
Sure. Good morning, Frank. First of all, that joint venture is more about PO and less about SMB. So, it's really the driver for us to invest was, propylene oxide. We see a growing market there over time We have a great partner in Sinopec, an existing relationship that we're building upon.
They have great operational capability as well as capability to build plants, low cost. So in styrene, the styrene wasn't the reason we did this, who were undertaking this project. But on the other hand, we believe that, in Asia, certainly there's still some growth in styrene and we can place that volume when that plant starts up. So more about PO, less about Styrene, but, comfortable that we can place the Styrene and have considered in our economic the value of styrene. Thank
you. And our next question comes from David Begleiter from Deutsche Bank. Your line is now open.
Thank you. Good morning. Bob can you just discuss the prospects or your views on potential U. S. Polyethylene price increase in Q1.
I know Al just picked up in March April, but ethane is cheap, but you're seeing spot export prices pick up here. So what's your confidence on getting a PE price increase in February, March? Thank you.
Hi, good morning, David. First of all, as I mentioned earlier, the spot price has moved up. Posted on a posted basis, right? So, $0.03 to $0.04 depending on which publication you read, I think that says that, that there's some underpinning, for that increase. Secondly, inventories as reported, by ACC, IHS, indicate that inventories are low, at the producer level, anecdotally, we believe that the converter level inventories are also low.
We should see a seasonal uptick. We do every year, and I don't see why this year should be any different. And so some seasonal uptick should help. Lastly, something that, perhaps isn't everyone's radar is that, The turnaround season is pretty heavy this year. They're much heavier than last year on crackers in the U.
S. So we could see ethylene be tighter in, during the turnaround season as a result of, the higher, level of capacity that's out. So think all of those things, point towards, reasonable chances of improvements.
Thank you. And our next question comes from Jonas Oxgaard from Bernstein.
Thank you. Bob, I saw like you, you thought that NAFTA prices will come back down again in Q2 or so. I was wondering, how much of that is an industry view or how much of it is door lined out's view. And if it is an industry view, one of that suggests that the producers in Asia if they all know this, would just try to hold on until it crashes instead of shutting down?
Yes, Jonas, I think my comment on one of the earlier questions related to, I think it was Vincent who asked me about Asian PE margins. My comment was more that those margins should come up of from, from sort of below the breakeven point where they are today, don't know that necessarily that's going to come from NAFTA dropping. I think it could be that the E price rises and that's why the margins improved. So If I expressed the VR NAFSA, that was unintentional. My view was more about the fact that agent PD NAFTA spreads seem, seem untenable based on historic, data and, my sense is that those margins need to expand some so that they're not, cash negative for a significant part of the industry over there.
And our final question comes from John McNulty from BMO Capital Markets. Your line is now open.
Hey, thanks. This is Bhavesh for John. Good morning.
Good morning.
So for your Technologies segment, it has had a solid past couple of years. You shared some color for the first quarter. How should we think about the cadence and size of earnings for the full year And if you could just help with some of the underlying drivers for the growth you are seeing in catalyst sales, is it more about just grabbing higher market share or is it just linked to growing the growing industry capacity?
Yes, Father, it's Sean. First of all, in our technology segment, there are 2 components. There's catalyst and then there's licensing So the Catalyst business is very steady. And as we do these licenses, our Catalyst business steadily grows, that part isn't very volatile. And there's definitely an upward slope in terms of earnings and one that accrues for many years to come.
On the licensing side, it's much more variable. It depends on timing of payments and how many licenses we win. Your point is correct in that, We've been participating in many of these projects that you that are announced in, in China, primarily. But likely, the licensing side of the business will cool off some in 2020. We do expect some lower earnings from that segment.
On the other hand, as the license plant start up, our catalyst earnings should steadily increase over time. And that's really a great part of that technology business is that it provides stability of cash flow. All right. So I think that was the last question that we had. So, let me offer a few closing remarks before we sign off.
So our company has proven and continuous focus on operational excellence, cost management, and disciplined capital allocation, I think will serve us really well in this current challenging environment. We anticipate typical seasonal improvements for our businesses, as we progress through the year. Favorable resolution of trade policies and a rebound in industrial demand could potentially provide significant upside for many of our businesses. As I've mentioned several times in the Q And A, IMO 2020 is expected to increase, earnings at our refinery. We see increasing polyethylene volumes from our new Hyperzone investment And I think generally, we're really well poised, as a company to deliver, and and, continue our outstanding track record of cash generation, in this year to come.
So we thank you for your interest in our company and look forward to updating you in April at the end of first quarter.
Thank
you for
participation in today's conference. All parties may disconnect at this time.