Corrected: LyondellBasell sees no need to idle crackers and PE plants, but reducing rates – CEO
Correction: In the ICIS story headlined “LyondellBasell sees no need to idle crackers and PE plants, but reducing rates – CEO” dated 1 May 2020, please read in the 14th paragraph … a combined 6 cent/lb decline … instead of … 10 cent/lb … A corrected story follows.
NEW YORK (ICIS)–LyondellBasell does not expect to idle polyethylene (PE) or upstream cracker capacity but will reduce operating rates through the second quarter, its CEO said on Friday.
“We really haven’t seen demand decline to a level where we would consider idling polyethylene capacity,” said Bob Patel, CEO of LyondellBasell, on the company’s Q1 earnings conference call.
“Our sense is that in April, we were kind of seeing a near-term bottom in demand. I would imagine that as economies partially reopen, directionally that should help on the demand side,” he added.
And even after lockdowns are lifted, shifts in consumer behaviour towards working from home and eating in more often could provide longer lasting tailwinds for polyolefins consumption in food packaging, he said.
However, the company is cutting operating rates at its crackers and downstream PE units to reduce inventories.
“Inventory reduction has been a high focus for us in the last 75 days or so. We started reducing inventories in late February and early March, and so today for polyolefins we’re sitting at 30 days of inventory based on lower rates,” said Patel.
LyondellBasell is “short-cycling” its product wheel to preferentially produce products in high demand and only produce-to-order products where there is low demand or visibility, he added.
Through drawing down working capital, which includes inventories, the company expects to release around $500m in cash in 2020, with the bulk coming in the second quarter, said the CEO.
“Our expectation is that in the US, we’re going to run at 70-80% across our assets in Olefins & Polyolefins, and in Europe 80-85%. And we don’t foresee needing to idle for a long period of time, polyethylene,” said Patel.
US olefins and downstream industry operating rates are at around 60-80%, while LyondellBasell is running at about 70% today, said the CEO.
On 30 April, Dow announced it is idling three PE plants and two elastomers units in the Americas, taking out 2bn lb/year (907,000 tonnes/year) or about 10% of its global capacity, to avoid oversupply and stuffing inventories.
The plants being idled include a solution PE train in Freeport, Texas, and two gas phase PE units – one in Seadrift, Texas, and the other in Bahia Blanca, Argentina. Two elastomers units in Louisiana are also being idled.
Prospects for additional major price declines in US PE prices are diminished, said the LyondellBasell CEO.
“In terms of the outlook, with the ethane price rising like it has, it’s difficult to imagine that you’d have that kind of a large step down [in prices],” said Patel in response to an analyst question about consultants forecasting a combined additional 6 cent/lb decline in US PE prices for May and June.
“Packaging-related demand is very good, we’re coming into the summer season and as different state economies in the US start to open… outdoor activities… drive [more] packaging demand,” he added.
LyondellBasell’s Olefins & Polyoelfins (O&P) – Americas segment posted Q1 earnings before interest, tax, depreciation and amortisation (EBITDA) of $366m, down 29% from the year-ago period on 15% lower sales of $1.79bn. EBITDA excluding LCM (lower of cost or market) inventory adjustments was $477m, down 8% year on year.
The O&P-EAI (Europe, Asia, International) segment saw Q1 EBITDA plunge 36% year on year to $189m on 12% lower sales of $2.22bn. EBITDA excluding LCM (lower of cost or market) inventory adjustments was down by 24% to $225m.
Focus article by Joseph Chang
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