LyondellBasell Contends with Feedstock Price Spike, Expects Higher Capex in Fourth Quarter

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Researched by Industrial Info Resources (Sugar Land, Texas)--Plastics, chemicals and refining company LyondellBasell Industries NV (NYSE:LYB) (Houston, Texas) grappled with rising feedstock costs in the just-ended fiscal quarter, but still managed to report net income of $1.1 billion, up nearly 3.8% from about $1.06 billion in third-quarter 2017, company executives said Tuesday.

Industrial Info is tracking more than $7.6 billion in LyondellBasell project activity.

Click on the image at right for a graph showing LyondellBasell's project activity by industry sector.

Chief Executive Officer Bob Patel said four of the company's business segments generated third-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) that were higher than those of a year earlier. "Our olefins and polyolefins business in the Americas achieved improvements in chain margins and volumes that overcame third-quarter headwinds from rising feedstock costs and new supply to drive increased profitability for the segment," he said in a press release.

During the third quarter, the company broke ground on what it says will be the largest propylene oxide (PO) and tertiary butyl alcohol (TBA) plant ever built. Located in Channelview, Texas, the plant will produce 1 billion pounds of PO and 2.2 billion pounds of TBA annually, following its planned startup in 2021. The plant will help meet rising demand for urethanes oxyfuels, according to the company. For more information, see Industrial Info's project report.

Capital expenditures (capex), including growth projects, maintenance turnarounds, catalyst and information technology-related expenditures, were $482 million during just-ended quarter, the company reported.

Capex should increase in the fourth quarter as the company accelerates construction of the Channelview PO/TBA facility and continues construction its 1.1 billion-pound-per-year Hyperzone polyethylene plant at its La Porte, Texas, complex, Chief Financial Officer Thomas Aebischer said during the company's earnings conference call. Completion of the Hyperzone plant is expected in third-quarter 2019. For more information, see Industrial Info's project report and August 8, 2018, article - LyondellBasell to Increase CAPEX in Second-Half 2018 for Key Texas Projects.

Also during the third quarter, LyondellBasell completed its $2.25 billion acquisition of A. Schulman Incorporated (Fairlawn, Ohio), to become a leading global supplier of high-performance plastic compounds.

But much of the talk during LyondellBasell's earnings conference call centered on a spike in ethane prices during the third quarter. Noting recent Mont Belvieu ethane price volatility of 25-60 cents per gallon, Patel said most supply and demand forecasts indicate the ethane tightness should be resolved by 2020.

He said more-than-expected ethane rejection in Y-grade natural gas liquids (NGLs) from the Permian Basin led to the higher ethane prices.

"I think that the thing that many of us missed was the fact that ethane was being rejected in the Permian in favor of more propane and butane moving on the Y-grade capacity, [through] the line capacity that's already there," he told investment analysts. "In the past, we were of the mind that the Y-grade that comes from West Texas is very rich in ethane, and it's been wetter and wetter as time has gone on. But when that ethane got rejected, the composition of the Y-grade that came to [Mont] Belvieu had less ethane."

Assuming that LyondellBasell's Gulf Coast crackers continued to use 80% ethane in their feedstock, a 20 cent-per-gallon rise in ethane prices could cost the company about $380 million per year in annual earnings, Patel said, but that assumption doesn't take into account a number of factors that could mitigate such a result, including the company's feedstock flexibility. On average, the company's Gulf Coast crackers can use as little as 25% ethane in their feedstock mix and as much as 65% naphtha, he said.

Also, a price increase in ethylene derivatives could benefit the company. A 3 cent-per-pound increase in both polyethylene and styrene could reduce the impact of higher ethane costs by $290 million per year, he said.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.