Second-half earnings to slip on US olefins price decline - Lyondell

07 May 2010 19:18  [Source: ICIS news]

Lyondell siteHOUSTON (ICIS news)--Second-half results for LyondellBasell will likely decline from first-half levels as once-surging olefins prices put early profitability at unsustainable levels, the company said on Friday.

Lyondell’s earnings before interest, tax, depreciation and amortisation and restructuring costs (EBITDAR) in the first quarter ended 31 March were $640m (€506m), putting it on a pace ahead of overall 2009 earnings of $2.26bn.

Of that $640m, $274m came from the Americas olefins and polyolefins chain – even as the polyethylene (PE) segment posted a loss from the margin squeeze brought on by rising ethylene costs, CEO Jim Gallogly said.

“We got a bump ending the first quarter and into the early second quarter with olefins prices blowing up because of operating issues,” Gallogly said. “That’s been a pleasant surprise.”

Also, new capacity in Asia and the Middle East has “not come on line as fast as predicted, so we’ve seen a quarter or two of benefit from that,” he continued. “But we expect that to fall off later in the year.”

As such, the second half of the year will likely be weaker, particularly in the olefins and polyolefins chain. However, that could be countered by a US economy improving at a slightly better rate than predicted, Gallogly said.

In PE, the company beat expectations, the result of a successful US export business. But the export window to Asia slammed shut near the end of 2009 and remained that way in the first quarter as exports were further cut in favour of domestic ethylene sales, Lyondell said.

Going forward, however, lower olefins prices could lead Lyondell to look to polypropylene (PP) and PE exports to play a more important role in its portfolio, it said.

“As monomer prices moderate, there is usually some shifting of margins from olefins to polyolefins,” Gallogly said.

The company also cited increased Americas demand for durable-goods-driven products such as PP compounds and propylene oxide (PO).

Outside of the Americas, the olefins and polyolefins picture was much more balanced, Lyondell said.

Of the $152m earned in Europe and Asia, PP and PE each contributed slightly more than olefins, behind seasonally improving volumes and improved spreads.

In refining, the company posted a $4m profit for the first-quarter as a whole, behind improved performance at its Houston refinery and a seasonal demand bump in March for oxyfuels, it said.

LyondellBasell, which last Friday emerged from nearly 16 months under US bankruptcy protection, said it had been given a second life through the support of the financial community and would execute a more specific and targeted plan than it did after the merger.

Also, Lyondell exited bankruptcy as an economic upswing appeared to be at its beginning, rather than at a near peak, as when the Lyondell and Basell merger closed, it said.

Lyondell said it hoped to be listed on the New York Stock Exchange (NYSE) by the third quarter and that administrative costs should be lower in coming quarters as a result of exiting bankruptcy.

($1 = €0.79)

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