Hi, good afternoon. I'm Jeff Zekauskas. I analyze chemicals for JPMorgan. It's my pleasure this afternoon to introduce the management of Lyondell. Representing Lyondell is Agustin Izquierdo, who's the Chief Financial Officer. I think he's only been Chief Financial Officer through events, whether it's Liberation Day, the conflict, the dividend cut. It's just, he has had an eventful year. He worked at BASF for 10 or 12 years, from 2009 - 2022. He has both an engineering degree and a degree in actuarial science. On top of that, I think he went to the U of C Business School. He's a pretty sharp guy. Accompanying Agustin is Dave Kinney, who's in the audience, who's retiring.
Dave has done a terrific job as the head IR contact at LyondellBasell for years, continuing a tradition where Doug Pike, who was the previous IR head, did a wonderful job. Next to him is the new IR contact, David Dennison, and we look forward to working with him. The format will be a fireside chat. Agustin, would you like to begin with a few slides?
Perfect. Yeah. Thank you very much, Jeff, and thank you everybody for joining us. I'll go over just a handful of slides that talk about our outlook, obviously the existing conflict in the Middle East and how we are positioned to take advantage of that situation, and then we'll open up for Q&A. As always, start with the legal disclaimers. We'll be talking about some forward-looking statements, and of course, any reconciliations to GAAP, you can look in our website to all the non-GAAP financial measures. Let's just take a few moments to recap where we are, and where we were even before February twenty-eighth, which now seems like a long time ago. If we just quickly go through the regions.
In North America, what we were seeing in Q1, especially demand was rising. January and February were okay-ish months, sort of following the normal seasonal demand patterns. We were getting a few bright spots, as you mentioned on the previous fireside. PMI was looking good for North America, and that's normally a leading indicator. If you get a few strong PMIs, that's usually a six to nine-month lag that really we have some recovery on the durable side, which is good news for us. What we've seen now, obviously, since the conflict started, we've seen quite an increase in terms of prices. The prices around PE and PP, of course, have increased. Our oxyfuels pricing has also benefited as it is linked to crude.
It's becoming obvious that North America is an advantage region in terms of feedstock and will continue to take advantage of that going forward, and we'll touch more on what happens in the other regions. In terms of Europe, we saw the pressures that they were seeing from imports from the Middle East and China. Obviously, since the conflict, the feedstock prices have also increased, and we'll also touch on the measures that we're taking. We're taking just a measured approach in general to operating rates to make sure that we were matching supply and demand. What we do continue to see is the rationalization in Europe, which has even increased at a faster pace than we had anticipated. In Asia, no surprises.
The continued oversupply that we had seen in the market continues. Now, the elevated cost of feedstock is playing an important role, and as you well know, on the polyethylene side, they're on the high end of the cost curve. After the conflict, what they have done is obviously secured sort of the feedstock for their own supplies. They've cut the exports of gasoline and diesel, which has also been supportive for our MTBE business. Petchems, except for those that are part of integrated complexes, we see operating rates coming down or in some cases even shutting down. Middle East, of course, the war, the conflict is creating quite a bit of disruptions in the Strait of Hormuz.
We'll touch on some of the capacities and how they're affected. The materials obviously become very, very constrained, both on the material that is trapped as well as the feedstock implications that it has for Asia. The operating rates, which we'll also touch on, we haven't seen much change actually in terms of operating rates in the Middle East, but they will start to run out of storage if the supply chain doesn't improve fairly quickly here. The constraints will also, even after the conflict is resolved, will take a few months to normalize. Moving into some of the dynamics that we were looking at before, sort of during the conflict. At the very left, on the left-hand side, we have the inventory days for PE.
If you recall, we finished the fourth quarter with inventory days around 37 days, PE. This is according to the ACC statistics. This is very low levels. We usually balance when we're around 45 days, this which was also very supportive for the January price increase that we got, the $0.05 per pound. As you recall, February was flat. Of course, after the conflict, we have nominations for $0.10 per pound for March, as well as April, with some producers even having nominations of $0.15 per pound. What we saw also, the February statistics just came down even though utilization rates increased, the inventory days at ACC level, you know, are 37.7 versus 37.1.
It hasn't been a massive increase, which still continues to be supportive. It just also shows that inventories were quite low. Now with the conflict, it makes it even more sort of dramatic, the situation in terms of giving support to the price increase. The second chart you've seen also in some of our earnings releases, and this is the rationalization that we have seen since 2020, and it's roughly 23 million metric tons of ethylene capacity that are coming out of the system across the world with an acceleration, I would say, particularly in Europe. We've also seen announcements in Japan in South Korea, the anti-involution measures that have been announced in China.
There's still more to come on the net, I would say from now until 2030, roughly 13 million metric tons, which we'll also talk about this, what's going on in the Middle East right now. We see a lot more sort of capacity coming out of the system that would net those 13 million metric tons. On the right-hand side, just the demand that we continue to see on the durable and non-durable side. Remaining demand in the U.S., hasn't really come down, continues to be fairly healthy at around the 2% or 3% even, you know, close to 4% here in 2025, and that gives us hope. Eventually, the cycle will have to come back, right?
All these durables that we bought during COVID, the replacement will have to come after five or six years, and that's what we're starting to see, which, as I mentioned at the beginning, combined with good PMI numbers that we saw at the beginning of the year, was giving us hope even before the conflict started, that there could be light at the end of the tunnel for the PE cycle and PP as well. We also wanted to just give you a sense of what are some of the implications and how does this, the war in the Middle East, sort of affect us, not only in terms of the margins that you can see here in terms of dollar per ton for increases, but also the material that is affected.
For the PE, we estimate that roughly 30% of the global capacity of PE is affected, either roughly 50% of that is material that is trapped in the Middle East that cannot leave because of the Strait of Hormuz and then another 50% or 15 million metric tons is related to shortages that you have related to feedstock. Here the 57% that you see here on the slide, that's the overall sort of PE that is touched, not necessarily the 30% that I just mentioned. You can see how leveraging it is in North America. A $100 per ton increase is $320 million of EBITDA for us.
If you recall, our operating rates of 85%, which we have listed here, we still have room to increase by 5%-10%, which is obviously very supportive for us. In Europe, a $100 per ton increase, as you can see it there, translates a little bit less. It's $280 million for EBITDA annualized, but our operating rates were much lower, so we have there room to grow by, you know, call it 15%-20% more. There's significant upside. In Europe, in addition, what you have is obviously you don't have the imports now from the Middle East and China coming into Europe.
Yes, we have increases in the raw materials, in naphtha in particular, and what we have done is, in this particular case, declare a commercial force majeure to make sure that we can talk to our customers and renegotiate terms and conditions and pricing to make sure that our pricing can, you know, catch up with the fast increases that we're seeing in terms of of raw materials. Oxyfuels, obviously very leveraging for us, strictly related there to the price of Brent. This is the metric that we've seen in the past. $1 per barrel is $20 million EBITDA for us. Very leveraging. We're one of the largest oxyfuels producers, and then we'll also talk a little bit about the vapor situation in a few minutes.
Roughly, you know, 11% of all the oxyfuels globally passes through the Strait of Hormuz. We have seen already prices in March for the raw material margin being in the $300 per metric ton, which is, mid-cycle is roughly around $240, so we're already seeing prices above that. In the case of polypropylene, which, you know, is the, we call it the sleeping giant for LyondellBasell, which, we haven't been able to push much, spread increase over the past few years. You can see how leveraging this is in terms of, $100 per ton. It's roughly $440 million for, EBITDA annualized for North America and Europe.
As we see now throughout the world that it's more difficult to ship propane, you see PDH rates across the globe coming down. I think we've seen rates in Asia even in the mid-50s%, which is quite low. Obviously the material from the Middle East is trapped in the region. This gives an opportunity for North America to actually start exporting polypropylene, and it can be quite leveraging for us. Hopefully this gives just a good sense and rules of thumb for everybody to get a sense as to the impacts that we can achieve and how leveraging pricing is across our different value chains. I believe that's our last slide.
Okay.
Well, we'll keep the numbers up. There you go.
Thank you for that. I hadn't seen the slides. Maybe the place to start is what's your expectation for price nominations in polyethylene in March and in April in North America?
Mm-hmm.
You know, how have you come to those numbers?
Sure. We have $0.10 per pound for March. We started with $0.07. You know, some of our competitors had $0.08, and then the market sort of came down to the $0.10 per pound. The same for April. We have $0.10 on the table for now. Some of our competitors have even $0.15 per pound on the table. I think this just gave us a little bit of price discovery and realization, right? We were talking earlier today during the meetings that during Katrina, I believe the most price increase the industry has pushed was $0.095. $0.10 per pound is sort of on the high end. But there's a basis for achieving it, right?
We've said inventories are at almost all-time lows at 37 days, 38 days. The inventories that we also see in China are 25% below what they normally are after the Lunar New Year, the inventories is quite tight. Obviously, the 30 million metric tons of ethylene derivatives that are not coming or being exported out of Middle East and China is quite significant. It gives a lot of room, I would say, and support for the $0.10 per pound. We see the order book. We were just looking at it right before coming here. The order book for April for both PE and PP is significantly higher than March and the highest we've had for the past three or four months. The $0.10 per pound is not scaring anybody.
Still we see, you know, healthy number of orders in the books.
I'm trying to remember what your Ethylene utilization rates were likely to be in the first quarter. Maybe 80%-85%?
I think it's correct. Mm-hmm.
You know. As a base case, should your utilization rates go to 90 or 95? Or are the utilization rates different for polyethylene than they are for ethylene, if you know?
Yeah, I mean, on the olefin side, you usually run the crackers at higher utilization rates.
Mm-hmm.
Those are normally in the mid-90s%.
Yeah.
What we normally talk about utilization rates is the blend of ethylene and polyethylene. What you'll see for Q1, you will see a tick up or closer to the 85% and above, because remember, January and February, we didn't run at the higher rates, right? Really the impact on the effects of the war on utilization rates will be more pronounced here in Q2.
Mm-hmm.
You will still see a tick up on utilization rates here in Q1, closer to the high eighties, you know.
Where will those pounds go?
Well, we have Europe, Latin America, Africa. We have demand everywhere.
You have demand everywhere.
You see export prices are also going up quite a bit, right? There the price discovery is much more dynamic. We've seen price increases in the $0.20 per pound, $0.25 and even $0.30 per pound.
Mm-hmm.
Orders keep coming. As you know, in this market, you need export prices to go up before you can push it in the domestic market. That dynamic is quite healthy. We can also flex a little bit our percentages of domestic versus exports based on that.
Mm-hmm. Again, I didn't have a chance to peruse your slides earlier. When I talk to my contacts in Asia-
Mm-hmm
What they say is even though polyethylene prices are rising $300 a ton, they're not keeping up with raw material cost inflation. That is, naphtha values are rising at a faster rate. The way they explain this is that there's still overcapacity conditions, and they can raise prices, but they can't raise them high enough to offset the raw material cost inflation. There's a dimension where the raw material inflation, at least for now, seems the more dominant market dynamic rather than shortage of polymer from the Middle East. Do you think that's fair or no?
Well, I think a little bit of both, right? If you think of the case in Europe, for example, yeah, it's definitely a raw material pricing story, right? There's availability of feedstock. That's not the issue. It's just prices have gone up quite significantly, maybe naphtha, $250-$300 per metric ton.
Mm-hmm.
That's why we declared the commercial force majeure, right? To make sure that we can catch up with those prices. We have a number of mechanisms as well to make sure that we are capturing the price and not losing on every sale. We have power surcharges and changing, you know, general terms and conditions. Europe, absolutely. I would say it's more of a catch-up story in terms of the prices. In Asia, I would say maybe it's two things, right? If you're an integrated complex and you have a refinery, you have
Mm-hmm
Four or five months of supply, you'll run for longer, and maybe it's not so much a pricing issue. If you're a non-integrated producer and you have to import naphtha and butane and other raw materials, then you're squeezed. I think those are the plants that will definitely start to rationalize faster and stop producing. You know, fairly soon will be both the raw material pricing and just product availability.
In Asia, so much of plastics capacity is back integrated all the way into oil, and the prices at which you buy oil now are different.
Mm-hmm
because Russia was constrained before Russian
Correct
... oil numbers were constrained. They have significant raw material inflation that's still to come, you know?
Correct. Yeah.
Yeah.
They'll be much more on the wrong end of the cost curve.
How do you manage working capital in this world? Off the top of my head, I think maybe Lyondell had an $850 million working capital benefit.
Mm-hmm
last year that you have to contend with.
Correct.
How will cash generation for LyondellBasell and working capital needs match up this year? If you can forecast that.
Sure. The level at which we finished working capital at the end of 2025 was very low. I mean, you
Yes
We released roughly a billion or more in the fourth quarter. For the full year, you're absolutely right, $800 million.
Yeah. Mm-hmm.
I mean, that's not repeatable, right? We are thinking that, and our forecast is roughly a consumption of call it $200 million-$250 million of working capital.
This was pre-war.
Pre-war, yeah. Of course, you know, you must have talked to Peter, but we have a lot of pressures to keep working capital, you know, flat or release as much as we can. I think, yes, we will build working capital. I don't think that will be significantly above probably $250 million or $300 million even.
Even with
I think we
Enhanced production.
Yeah. We'll work incredibly hard to do that. Yeah. Then we have the cash improvement plan in general that we have launched just, you know, as cash generation goes, the $500 million for 2026. You know, we did the $800 million for 2025, so we increased the size of the program from $1.1 billion - $1.3 billion. Largely the 2026 figure comes largely from CapEx. Of course, we'll consume some working capital, as I just said. We also have fixed cost reductions at least in the $250 million in savings. We have, I think, a good set of measures that to help us overachieve on the cash improvement plan for 2026. We have good visibility to overachieve the $500 million. Mm-hmm.
I see that you declared force majeure.
Mm-hmm
In some of your operations in Europe.
Mm-hmm.
What was the logic behind the declarations of force majeure?
Sure.
How do you envision your European operation?
The force majeure in Europe is what we call the commercial force majeure, so it's nothing related to our assets. Our assets are running fine. We have feedstock availability. It was really when we saw the disconnect on the increase on the raw material side. Naphtha was going up so fast, and we just couldn't catch up with our customers on the pricing because you negotiated at the beginning of the month, and then you have very high prices. We declared this commercial force majeure to make sure that we have the ability to renegotiate pricing, renegotiate terms, you know, put this energy surcharges in price and in place, and then continue to just increase prices to catch up, right?
If you have an increase on naphtha of $300 per ton, you need to improve your pricing at least, call it $450 or so, right? Or more. Without this force majeure, we would be losing with every sale. It's a protective mechanism to, as we go through this price discovery, as we discussed, to make sure that we are selling at a profit and not losing money.
Does that mean that your operations in Europe in March are challenged?
Correct. I think you'll see some margin squeeze in March as we're trying to catch up, but you will see the benefit then as we go into Q2, right? April, May, June, et cetera. Yeah, you shouldn't be surprised that March, Q1 and March in general will be a squeeze because, you know, it was very sudden, the increase in raw materials.
You're also selling assets in Europe?
Mm-hmm.
How is that transaction affected, 'cause there are different working capital needs?
Right.
You know.
I think in Europe, the situation is very interesting because now Europe is not receiving material from the Middle East and China, right? For the local producers, it's actually a good situation. Now, if they can adjust the prices according to the raw materials, it's a positive event. Actually, if you're the, you know, the private equity that bought our assets, you should be in a pretty good place right now. Supply is reduced in Europe, you have good assets, and you have the ability to increase prices. This is one of the events they were looking for. In terms of, well, upside for Europe, I would say, right? The transaction for us continues to be going on track. It'll close in the first half of 2026.
You know, we'll capitalize those assets, EUR 265 million, at the moment of closing.
Mm-hmm.
There's the working capital that is associated with those assets also transfers to them and, with that also all the liabilities. As you know, in the case that this situation does play out and material stops coming, they can increase prices. We also have built in $100 million earn-out as part of the transaction, so we can also benefit from any upside that comes from the region.
You have assets in the Middle East.
Mm-hmm.
What are they doing? Are they continuing to produce at normal rates and inventorying their product? What's the general tenor of the actions in those areas?
Sure. We have four joint ventures in the Middle East. Three of them are on the east side, so facing the strait, and then one on the side of the Red Sea. We have one of them in turnaround. It was scheduled turnaround that started before the crisis, and they're still in the turnaround. The rest of the assets are running at normal rates. Actually, I was talking to our team today, but this is a day-by-day situation now because soon they will run out of storage.
Even though we're moving product from east to west, but this is a lot of trucking and trying to move it out, the product from the Red Sea, but it's, you know, there's only so much you can do that way for the two JVs that are on the east side. It's likely that we'll end up reducing rates soon. As of now, and we're not alone here, operating rates haven't come down as much as we thought in the Middle East. The people are storing product wherever they can, and soon they'll run out of storage.
The joint ventures are building working capital?
Yes.
That's not your issue. I think NatPet
Mm-hmm.
is in Yanbu
Right.
or close to Yanbu.
Mm-hmm.
Is that you know, is it easy to get polypropylene tons out of Yanbu, you know, either down through the Red Sea or up through the Suez Canal? Is that turning out to be a very profitable, volume-growing venture, or are there different challenges that are more invisible to us?
No, so far, we have been able to move product out of Yanbu through the Red Sea and the Suez Canal without any issues. Probably as the conflict continues, we could see potential issues with, you know, shipping and containers, but so far, we've been able to move product without problems.
What about insurance?
Yeah, insurance rates have gone up, obviously. Also freight rates, but nothing that is materially disrupting operations from that joint venture.
I see.
Mm-hmm.
Lyondell had an outage in, I think it's propylene oxide, maybe connected to your MTBE units.
Mm-hmm.
in Texas.
Correct.
Can you describe the constraints you may or may not be under?
Mm-hmm.
With that facility?
Correct. Last Friday, there was a fire at our Bayport facility at the flare. You know, the Bayport facility. We have three plants for PO/TBA, total capacity of PO of 620 KT.
Yes.
Multiply that times two and gives you the TBA equivalent. It's roughly 40% of our global TBA capacity. The flare is a common, if you wanna think of it, the exhaust system for the site, right?
Mm-hmm.
There are other flares at the site, and we're right now evaluating the extent of the damage. The three PO plants are down, and it'll take a few weeks to reassess, you know, when to bring them down, what's the extent of the damage, and effects. We are down at the Bayport plant.
It's difficult at this time to know when that unit will come back up.
Correct. Yes.
It affects the TBA operations, but not the propylene oxide operations?
We have POSM, so PO with Styrene monomer at Channelview that we could ramp up for propylene oxide.
Mm-hmm.
In terms of TBA, our network has the Bayport site, which I just mentioned, has those three plants. Then we have the new asset in Channelview, which is 470 KT of PO and roughly 1 million tons of TBA that is running perfectly fine. We have the assets that we have in Europe, in Fos, France, and then in Botlek in the Netherlands, and those are running without issues. PO, we have the POSM sites to dial them up to get more propylene oxide. TBA, we're constrained.
Okay. You know, as CFO, you're going to have, as a base case, all of this cash coming in. Knock, knock on wood. What do you plan to do with it? Or, you know, how will Lyondell look different after this cash comes in?
First, let's see how long the conflict lasts.
Of course.
if it's sustained or not.
Yeah.
I think we want to make sure that we have reestablished our minimum cash balances, you know, again, at the $1.5 billion. Really, our capital allocation doesn't change much, right? Some of the other metrics that we've put forward. We will still wanna have leverage at 2.5 x through the cycle.
I'm sorry, at 2.5x?
Times.
Based on an EBITDA, a theoretical EBITDA of what?
Yeah. Net debt to EBITDA. Yeah. Well.
In other words, what would the EBITDA be that you want to be 2.5x of?
You have to be around $3 billion-$3.5 billion.
3 or 3.5. Yeah.
Yeah. Roughly.
Yeah.
We'll be, you know, continues to be very focused on our cash conversion, continues to do all this. None of the self-help measures go away, even if we have all this money. What I want to make sure is that we have now a sustainable EBITDA, and we start to go back to this mid-cycle level before we start doing any other big investments or capital deployments. Let's be just vigilant on how we manage through this cycle.
The real focus will be on debt pay down?
Mm-hmm.
Yeah.
I mean, for now, yeah, we've pre-financed it. As you know, the maturities that we have at the end of 2026 and early 2027, we issued the $1.5 billion bonds last year. There's no maturities then until 2030. Just normally the leverage and credit metrics will improve as EBITDA grows, yeah.
To go back to your European operations-
Mm-hmm
For a moment, that's an area where tons can come in from the Middle East.
Mm-hmm.
Those Middle Eastern tons are not coming into Europe.
Correct.
I think your utilization rates in Europe are really pretty low.
Mm-hmm.
Maybe they're in the mid-70s.
70s, correct. Yeah.
Is that, you know, an opportunity to raise your utilization rates there?
Yeah, for sure. I think that Europe is one of the regions that could benefit the most, right? Because you have imports from either the Middle East or China, Asia in general, not coming into the region. As I said, if you can catch up with your pricing to mitigate the raw material and energy increases, then you, for sure, can increase your utilization rates by, you know, 15%-20%.
Do you have sufficient raw materials for Europe?
Mm-hmm. Yeah. Correct. Yes, we do. We get it from Algeria, from Mediterranean. There's no shortage of really raw materials for Europe. It's really catching up to the price, but it's not a-
Yeah
... a raw material, or a feedstock shortage.
You have availability in Europe. The difficulty is that the value of the raw materials is higher.
Correct. Continue to catch up with that.
Whereas you don't have that issue in the United States.
Correct. Right. Now you've seen, really, prices stay pretty good, right? Meaning natural gas is not spiking, ethane is still at the $0.24-$0.25 per gallon. We haven't seen any dramatic feedstock price increases in the U.S.
Is polypropylene beginning to rise at a faster rate than propylene, if you know?
It's-
Polypropylene-
Mm-hmm
prices. Are they beginning to move a little bit faster than the propylene value increases?
Yeah. I mean, you know that polypropylene gets priced as a spread, right, over-
Yes
propylene.
Yeah.
We've now put for April a $0.10 per pound spread increase, which we haven't seen in a long time, right? As you know, the polypropylene cost curve is fairly flat around the world.
Yes.
Now with propane being much more expensive and operating rates coming down in Asia and material being trapped in the Middle East, we have really an opportunity even to start exporting out of North America.
Mm-hmm.
It's very, very leveraging for us. I think if you have it there on the numbers, right, the $100 per ton price increase for us, it's $440 million.
Mm-hmm
EBITDA potential for LyondellBasell. It's as I said at the beginning, the sleeping giant. We are seeing to your point, the spread increase that we're trying to push is going at a faster rate than the propylene price increase.
What was the previous year? You're looking for a $0.10 spread now?
In-increase.
Increase. What was the spread before?
I think it's around 20.
Mm-hmm.
Mm-hmm.
You have an acetic acid unit.
Mm-hmm.
Is that functioning normally yet?
We had a few not fully functional yet. We had a few issues coming out of the Winter Storm Fern. We also were doing a turnaround, if you recall at the beginning, at the end of last year.
Mm-hmm.
It's not running at full rates. It is running, but not at full rates, unfortunately.
Mm-hmm.
Yeah.
I guess just to sum up, in the first quarter, things aren't great because there's pressure in Europe. Maybe you get some price in, you know, for the last month or for the last couple of weeks. Then the world changes for LyondellBasell in-
Correct
the second quarter.
I think yeah, Q1 will be. It won't be a blowout quarter, right? Because precisely to your point, Q1, January, February were sort of not following the normal seasonal trends. We had the winter storm, and then we'll see in March if we do settle at $0.10 Per price.
Mm-hmm.
Price increase obviously will benefit. Really the most of the tangible benefits come Q2, Q3, and depending on the length of the conflict, right? Yeah.
Okay. Thank you very much, Agustin-
Thank you.
... for a nice, explanation. Thank you very much for your attendance.