LyondellBasell Industries Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
January 28, 2022

There are 14 speakers on the call.

Operator

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 a question and answer session. I would now like to turn the conference over to Mr. David Kinney, Head of Investor Relations.

Operator

Sir, you may begin.

Speaker 1

Thank you, operator. Hello, and welcome to LyondellBasell's Q4 2021 teleconference. I'm joined today by Ken Lane, our Interim Chief Executive Officer Michael McMurray, our Chief Financial Officer. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call And is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results while making reference some forward looking statements and non GAAP financial measures.

Speaker 1

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 risk 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 also available on our Investor Relations website. Additional documents on our investor website provide reconciliations of non GAAP financial measures to GAAP financial measures together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.

Speaker 1

M. Eastern Time today Until February 28 by calling 877-660-6853 in the United States and 201-612 7415 outside of the United States. The access code for both numbers is 1,372,5132. During today's call, we will focus on Q4 and full year 2021 results, the current environment and our near term outlook. Before turning the call over to Ken, I would like to call your attention to the non cash lower up cost or market inventory adjustments or LCM that we have discussed on past calls.

Speaker 1

These adjustments are related to our use of last in first out or LIFO accounting and the volatility in prices for our raw material and finished goods inventories. During the Q4 of 2021, we recognized the non cash impairment of $624,000,000 that reflected our ongoing evaluation of strategic options Comments made on this call will be in regard to our underlying business results, excluding the impacts of the refinery impairment and the LCM inventory adjustments. With that being said, I would now like to turn the call over to Ken.

Speaker 2

Thank you, Dave, and good day to all of you. We appreciate you joining us today and As we discuss our Q4 and full year 2021 results, before we begin the business discussion, I would like to take a moment and Thank our Board of Directors for the opportunity to lead LyondellBasell as Interim CEO until Peter Vonneker can join the company at the end of the Q2. For the past 30 years, I've worked in the chemical industry in roles spanning manufacturing, major projects, strategy and business leadership With assignments in Asia, Europe and the Americas. Since 2019, I've had the pleasure of leading LyondellBasell's global olefins and polyolefins businesses. Our company is in great shape and we have good momentum.

Speaker 2

I want to emphasize that our strategy remains unchanged And I'll keep our company moving forward, continuing to execute our strategy and ensuring Peter has a successful start. I'll work closely with our Board, the LyondellBasell leadership team and our 19,000 talented employees to advance our growth projects, Actively manage our business portfolio and ensure we remain consistent with our goals of being the best operated and most valued company in our industry. Now moving on to the business discussion. As Dave mentioned, a set of slides accompanies today's call and is available on our website. Let's turn to Slide 3 and review some highlights for the past year.

Speaker 2

2021 earnings were $18.19 Per share with $9,300,000,000 of EBITDA. Earnings per share were more than 3 times higher than 2020 And EBITDA improved by 140%. Our company's growing portfolio of assets Delivered EBITDA that exceeded our previous best year by 15% and resulted in $7,600,000,000 of cash from operating activities. Altogether, we generated a 25% return on invested capital during 2021. Our results provide an indicator of how LyondellBasell's earnings power is stepping up relative to the performance we delivered over the prior decade.

Speaker 2

Our 2021 performance was supported by strong demand for our products, supply constraints across our industry and our growth investments. Favorable markets drove 7 consecutive months of contract price increases for polyethylene in the United States. In our Intermediates and Derivatives segment, strong demand for polyurethanes drove record earnings from our leading propylene oxide and derivatives business. A robust market for building and construction materials serve to increase margins across our asset tiles value chain. Also rebounding demand for transportation fuels, self help cost reductions and higher operating rates enabled our refining segment To return to profitability in both the 3rd and the 4th quarters.

Speaker 2

I want to emphasize We're maintaining our commitment to a disciplined approach to capital allocation. Our team worked diligently to convert our EBITDA Into $7,600,000,000 of cash from operating activities. After investing $1,900,000,000 to maintain our assets And fund additional profit generating investments, dollars 5,700,000,000 of free cash flow remained. We rewarded investors by deploying $4.44 per share in dividends and repurchasing over 5,000,000 shares. Last but not least, we delivered on our commitments and strengthened our balance sheet with $4,000,000,000 of long term debt reduction.

Speaker 2

Our strategy is to identify, develop and capture opportunities through all phases of business cycles. During 2021, we capitalized on those opportunities. Let's turn to Slide 4. Our core commitments to health and safety remain steadfast. The tragic incident that resulted in 2 fatalities and several injuries at our acetic acid plant last July Reminds us of why we work so diligently toward our goal of flawless safety performance.

Speaker 2

We learn from experience And seek to further bolster a Goal 0 work environment to prevent these incidents from recurring. On Slide 4, you can see that during 2021, Our team continued to deliver recordable incident rates that are among the lowest for our industry. I'm particularly proud Of our team's performance over the final months of 2021 as we engage the entire organization and leadership teams of our largest contractors to reduce recordable incident rates across our employee and contractor workforce each month during the second half of the year. Now please turn to Slide 5 to review our quarterly profitability. While increased costs for feedstocks and energy Continue to compress margins from 2nd quarter highs.

Speaker 2

Demand for our products remains strong. Our business portfolio delivered $2,000,000,000 of EBITDA during the Q4, exceeding the results of the prior year quarter by 60%. Increased energy costs were particularly impactful for our European O and P and I and D operations, where on Sundays in December, Dutch natural gas prices exceeded $50 per 1,000,000 BTU. Higher natural gas prices directly impact our fuel costs, But also show up as higher costs for our purchased electricity and steam. Nonetheless, seasonal patterns for our businesses typically trend downward The end of the year and the $2,000,000,000 of EBITDA we earned during the Q4 of 2021 is reflective of healthy markets for our products.

Speaker 2

The downward trends we saw in the 4th quarter seem to be abating with margins stabilizing in January. During the remainder of the Q1, We could see inflection on stronger seasonal demand and supply constraints. With most economists expecting 2022 global GDP growth rates to historical averages at roughly 4%. We remain constructive on the outlook for our businesses. New capacity will come online in 2022, but will largely be needed to meet growing demand from well funded consumers, Address order backlogs as supply chains normalize and support further global reopening from the pandemic.

Speaker 2

Slide 6 provides a historical view of LyondellBasell's profitability over the past decade. During the period from 2011 to 2019, we delivered an average of $6,700,000,000 of EBITDA. Our performance in 2021 exceeded the 2015 peak by 15%. While 2021 was a particularly Strong year for our core markets. We have confidence that the growth investments we brought online since 2018 We'll drive a sustainable step change improvement in our profitability over the next decade.

Speaker 2

The formation of our Advanced Polymer Segment in 2018 provided visibility into LyondellBasell's sizable legacy compounding business. The businesses we acquired that year from A. Schulman added approximately $200,000,000 in annual EBITDA. Since 2018, the APS segment has been challenged by production constraints in their largest market, plastic compounds used in vehicle production. Despite high consumer demand, automotive production has been held back by COVID related manufacturing shutdowns and shortages of semiconductors.

Speaker 2

With global vehicle production expected to rebound by 9% in 2022 and an additional 10% in 2023, We expect to reach higher utilization across our APS segment. Increased capacity utilization will enable the realization of volume driven synergies. In 2020, we commissioned the 1st world scale plant utilizing LyondellBasell's proprietary Hyperzone technology for high density polyethylene. We have a long and successful track record of introducing new polyolefin technologies. Each new generation of technology encounters initial challenges We are making good progress working through those with our first Hyperzone asset.

Speaker 2

Our manufacturing and R and D teams have been working diligently to improve reliability. In the Q4 of 2021, we decided to bring down the Hyperzone plants and make some modifications. While it's still early days, we are highly encouraged by performance of the plant since restarting in December. It's my expectation that we will realize a greater share of the volume and margin benefits from this investment during 2022. In 2020, we invested in integrated cracker joint ventures in China and Louisiana where new assets were fully built And generated immediate returns.

Speaker 2

In 2022, we are starting up 2 new propylene oxide plants, A joint venture in China and a wholly owned asset in Houston that will expand LyondellBasell's ownership capacity for propylene oxide by nearly 50%. I'm pleased to report that the China plant is already producing on spec products and rapidly ramping up rates. Our larger POTBA facility in Houston is progressing on schedule for start up during the end of this year. Both propylene oxide facilities are starting up with Tight markets and all time high margins for this intermediate chemical that is essential for the production of polyurethanes and other downstream products. Taken together, our growth investments give us the confidence that we will step up earnings in the current decade.

Speaker 2

On Slide 7, I would like to highlight how we are also stepping up our progress on sustainability. In April, we introduced our Circulant family of polymers Produced using recycled and renewable based feedstocks that reduce our reliance on fossil based raw materials. These products are targeted at the rapidly growing market for sustainable plastics. In October, we extended the Circulon brand To the compounds and solutions provided by our APS segment. All of this is part of LyondellBasell's commitment to annually produce and market 2,000,000 tons of recycled and renewable based polymers by 2,030.

Speaker 2

2022 will be an exciting year for our In December, our team commissioned upgrades to our pilot facility, Enabling us to determine the extent of our technology advantage and guide an investment decision for our 1st commercial scale facility. This technology provides LyondellBasell with an opportunity to be a leader in the rapidly growing markets for circular plastics. In late September, we announced accelerated targets and a goal to achieve net 0 Scope 1 and Scope 2 greenhouse gas emissions From our global operations by 2,050. We also increased our 2,030 ambition and now aim to reduce absolute emissions by 30 set relative to a 2020 baseline. In the near term, we don't expect significant increases in our overall capital budget As reduced spending associated with the completion of our POTBA project in 2022 should offset an increasing share for circular and climate related investments going forward.

Speaker 2

With that, I'll turn the call over to Michael for him to describe our financial and segment results in more detail.

Speaker 3

Thank you, Ken, and good morning, everyone. Please turn to Slide 8, and let me begin by highlighting our substantial cash generation During 2021, LyondellBasell delivered record cash from operations and free cash flow in 2021. Our team worked diligently to efficiently convert 82% of our EBITDA into cash for the year despite increased working capital needs To support higher prices, after accounting for sustaining capital investments, we achieved a 23% free operating cash flow yield Relative to our market capitalization, let's continue with Slide 9 and review the details of how we deployed All of this cash last year. During 2021, we paid dividends and repurchased shares to provide a total of $2,000,000,000 in returns for shareholders. In May, we increased our quarterly dividend by 8%.

Speaker 3

2021 represents our 11th consecutive year of annual dividend growth. At the same time, we reduced our long term debt by $4,000,000,000 and further bolstered our balance sheet By paying down $300,000,000 of short term commercial paper, net interest expense increased to $510,000,000 Higher than our guidance at the beginning of 2021, largely due to debt extinguishment costs. Our current portfolio supports Our solid investment grade balance sheet and we do not see the need for additional debt reduction. We ended the year With $1,500,000,000 of cash and short term investments and $5,400,000,000 of cash and available liquidity. Now I would like to provide an overview of the results for each of our segments on Slide 10.

Speaker 3

As Ken mentioned, Our business portfolio delivered $2,000,000,000 of EBITDA during the Q4. Our results reflected strong demand for our products, Offset by higher costs for feedstocks and energy, primarily in our O and P Europe, Asia, International, I and D and APS segments. Let's begin the individual segment discussions on Slide 11 With the performance of our Oltons and Polyolethons Americas segment, Q4 2021 EBITDA was $1,300,000,000 $306,000,000 lower than the Q3. Margins declined on lower pricing for both olefins and polyolefins. Olefin results decreased approximately $190,000,000 compared to Q3 2021 due to margin declines driven by lower ethylene And propylene prices, although we operated our North American ethylene crackers at 97%, sales volumes remained relatively unchanged As we built inventory to support maintenance downtime planned for the Q1, combined polyolefin results approximately $120,000,000 lower than the 3rd quarter, primarily due to a decrease in polyethylene and polypropylene spreads Over to Montmir.

Speaker 3

Polyethylene, however, posted record volumes driven by strong demand and increased production from our Hyperzone facility in December. O and P Americas posted record EBITDA of $5,300,000,000 for the full year, dollars 3,500,000,000 higher than 2020. Margins increased for both olefins and polyolefins as higher product prices outpaced higher cost. Demand for non durable packaging and consumer goods remained strong and led to increased volumes for both ethylene and polyethylene. Based on increasing seasonal demand and tight industry supply due to higher industry cracker maintenance, we expect Robust margins to continue into the Q1.

Speaker 3

Let's turn to Slide 12 and review typical seasonal trends In the U. S. Polyethylene market, after tight markets escalated prices over the 1st 3 quarters of 2021, Declines in polyethylene contract prices during the Q4 of last year captured market attention. As illustrated by the green line on the chart, demand typically rises during the Q1, stabilizes in the 2nd quarter And grows again during the 2nd season of Q3. In the Q4, orders for Polymers slow due to holiday downtime And as market participants strive to minimize their year end inventories.

Speaker 3

The blue line indicates that polyethylene pricing Logically follows these seasonal demand trends. Simply put, lower 4th quarter prices are a common occurrence. In contrast, the industry usually sees a rebound in demand and pricing during the Q1. Orders increase As customers resume full production, during February March, export demand often improves following the Lunar New Year holiday. In 2022, industry consultants are forecasting planned maintenance for U.

Speaker 3

S. Ethylene crackers will be 3 times higher than normal, With about 15% of U. S. Capacity taking maintenance downtime. Similarly, about 10% of European ethylene capacity will be down for maintenance During the first half of twenty twenty two, ethylene cracker outages often constrain downstream polyethylene production.

Speaker 3

In summary, the confluence of seasonal trends, industry downtime and robust consumer demand should provide for polyethylene pricing during the Q1 of 2022. Now, please turn to Slide 13 To review the performance of our olefins and polyolefins, Europe, Asia and International segment, higher costs And lower spreads, reduced margins and volumes in our EAI markets resulting in a 4th quarter EBITDA Of $155,000,000 $319,000,000 lower than the 3rd quarter. Olfin's results declined approximately $180,000,000 as margins decreased driven by higher feedstock and energy costs, despite higher ethylene and propylene We operate our crackers at a rate of 70% due to planned maintenance. Combined polyolefin results decreased Approximately $100,000,000 compared to the prior quarter. Lower seasonal demand drove declines in polyolefin price spreads relative to monomer cost and reduced volumes.

Speaker 3

Declining polyolefin spreads and higher energy costs also affected our joint venture equity income by about $15,000,000 Full year EBITDA increased $923,000,000 compared to 2020. Olefins margins declined Due to higher feedstock cost outpacing increased ethylene and propylene prices, combined polyolefin results and our joint venture equity income Increased by more than $815,000,000 $125,000,000 respectively, driven by higher margins with increases in polyolefin prices. In Europe, we expect typical seasonal improvements as we progress through the first half of the year. Please turn to Slide 14 as we take a look at our Intermediates and Derivatives segment. 4th quarter EBITDA was $252,000,000 a decline of $96,000,000 from the Q3 of 2021.

Speaker 3

Compressed margins For Oxyfuels and related products, Enlactin First Step inventory valuation charges of about $95,000,000 muted margin improvements in our propylene oxide and derivatives and intermediate chemical businesses. 4th quarter propylene oxide and derivatives results remained relatively unchanged with higher margins offset by lower volumes due to plant maintenance. Intermediate Chemicals results increased about $65,000,000 with the resumption of our acetyls production. Oxyfuels and related products results decreased approximately $85,000,000 as margins declined due to higher butane feedstock costs. For the full year, strong demand and a tight market drove margin increases in most businesses, resulting in EBITDA of $1,400,000,000 $535,000,000 higher than 20.20.

Speaker 3

Volumes declined due to reduced exports of our propylene oxide and derivative products. In the Q1 of 2022, we expect margins to improve For our oxyfuels and related product business with lower butane feedstock costs, our volumes are expected to increase during the Q1 Supported by continued strong demand for our propylene oxide and derivatives and acetyls products. Now let's move forward and review the results of our Advanced Polymer Solutions segment on Slide 15. Customer supply chain constraints and high raw material costs hindered results with 4th quarter EBITDA of $24,000,000 $97,000,000 lower than the Q3. The segment incurred last in first out inventory valuation charges of about $55,000,000 during the quarter.

Speaker 3

Results for the Compounding and Solutions businesses decreased due to margin declines driven by higher raw material costs. Volumes decreased with continued supply chain constraints in the automotive manufacturing market. Results for our Advanced Polymer businesses were relatively unchanged With margin improvement offset by volume declines. Full year EBITDA for the segment was 409,000,000 A $28,000,000 increase over 2020. Compared to the prior period, results benefited from a $35,000,000 reduction in integration costs.

Speaker 3

Margins increased with higher spreads and volumes, increased with higher building and construction demand for our Advanced Polymer businesses. We expect volumes to improve As automotive manufacturers begin to ramp up production, particularly for products from our Compounding and Solutions business. Now let's turn to Slide 16 and discuss the results of our refining segment. 4th quarter EBITDA was $150,000,000 A $109,000,000 improvement compared to the Q3 of 2021. Results excluded a non cash impairment charge of $624,000,000 reflecting our ongoing evaluation of strategic options.

Speaker 3

Results for the quarter benefited from approximately $50,000,000 due to LIFO effects from reduced inventory volumes. Results for the Q4 were driven by an improvement in margins Due to a better product mix and an increase in the Maya 211 benchmark crack spread to about $23.58 per barrel, We operate the refinery at near full rates of nameplate capacity with an average crude throughput at 266,000 barrels per day. Full year EBITDA increased $289,000,000 compared to 2020 or breakeven for the year. Comparisons exclude impairments Taken in the Q4 of 2021 and the Q3 of 2020, approximately $45,000,000 of LIFO Changes benefited the segment for 2021. Refining margins improved with higher demand for gasoline and jet fuel, which drove the Maya 211 spread From a historically low point in 2020 at an average of $12.63 to 20 point $0.87 per barrel in 2021.

Speaker 3

Crude throughput improved to 231,000 barrels per day in response to higher market demand. Refining margins are expected to improve slightly with crack spreads estimated to be about $25 per barrel. We plan to operate the refinery At more than 90% of nameplate crude capacity during the Q1. Please turn to Slide 17 as we review the results of our Technology segment. All time high levels of licensing revenue and Catalyst volumes drove EBITDA to new records of $173,000,000 For the Q4 $514,000,000 for the full year.

Speaker 3

Based on the timing of anticipated licensing milestones, We expect the Q1 technology business profitability will be lower, similar to levels in the Q1 of 2021. Before I turn the call over to Ken, let me address some of your annual modeling questions for 2022 on Slide 18. We are planning to invest approximately $2,100,000,000 in capital expenditures during 2022. Approximately $900,000,000 is targeted toward profit generating growth projects with a balance supporting sustaining maintenance. The majority of our 2022 growth investment is associated with the construction of the POTBA plant in Houston.

Speaker 3

We have a fairly typical schedule of planned maintenance for 2022 With a total of 3 major cracker turnarounds, we will also have a couple of turnarounds in our I and D segment during the Q2. Based on expected volumes and margins, we estimate that lost production associated with all of this maintenance downtime Will impact 2022 EBITDA by approximately $265,000,000 While routine maintenance costs are expensed, Maintenance costs arising from turnarounds of major production units are capitalized and included in our capital expenditure forecasts. The U. S. Cracker turnaround is scheduled for the La Porte, Texas site in the Q1 and expected to impact O and P Americas quarterly EBITDA by approximately $125,000,000 The European cracker turnarounds will occur at our French cracker during the first and second quarters And our smaller cracker in Wesseling, Germany during the 3rd 4th quarters of 2022.

Speaker 3

The maintenance is expected to impact O and P EAI quarterly EBITDA by approximately $25,000,000 $15,000,000 $10,000,000 $10,000,000 in the first through 4th quarters respectively. Plant maintenance at our butane dial facility and 1 of our 2 propylene oxide Units located in Channelview, Texas is expected to impact 2nd quarter EBITDA for our Intermediates and Derivatives segment by approximately $80,000,000 We expect 2022 net interest expense will be approximately $340,000,000 after netting capitalized interest of about $95,000,000 2022 book depreciation and amortization is forecasted to be approximately $1,300,000,000 We plan to make regular pension contributions in 2022, totaling approximately $70,000,000 with approximately $55,000,000 Pension expense for the year. We currently expect our effective tax rate to be approximately 20% and our cash tax rate To be lower than our ETR. With that, I'll turn the call back over to Ken. Ken?

Speaker 2

Thank you, Michael. So let me summarize the year's highlights and our outlook with Slide 19. In 2021, LyondellBasell maintained our disciplined focus on safety, operational excellence and reliability to maximize returns During the year of exceptional markets, our 2021 results were 15% above prior benchmarks and are indicative of how LyondellBasell's profitability Stepping up from prior levels. Many of our growth investments are providing returns today with further contributions expected over the next several years. In 2022, we will expand our propylene oxide capacity by 50% with the start of 2 new plants in China and Texas.

Speaker 2

We are improving the performance of our Hyperzone polyethylene technology to deliver enhanced product performance for our customers. As supply chains normalize and automotive production begins to catch up with high consumer demand, we anticipate higher volumes and earnings from our APS segment. Also improving markets for fuels bodes well for our oxyfuels and refining businesses. Our disciplined approach carries through to our capital allocation strategy. We're providing shareholders with increasing returns from higher dividends And the resumption of share repurchases.

Speaker 2

In 2021, we deleveraged our balance sheet and demonstrated our commitment to a strong investment grade credit rating. With our strong credit metrics, we have no near term need for further deleveraging. In 2022, about 40% of our capital expenditures Will be allocated toward profit generating projects, including our new propylene oxide facility in Texas. The rapidly growing market for more sustainable plastics represents one of the greatest opportunities that lies ahead for LyondellBasell. We have launched Our Circulon brand and we're committed to producing and marketing at least 2,000,000 tons of circular and renewable based polymers by 2,030.

Speaker 2

At the same time, we'll reduce our greenhouse gas emissions in line with our commitment to achieve net 0 scope 1 and 2 emissions by 2,050. At LyondellBasell, we believe our work and sustainability is both good for our planet and good for our business. In summary, we'll continue on our disciplined approach and build on the strong momentum to deliver sustainable value for all of our stakeholders. We're now pleased to take your questions.

Operator

Thank you, sir. And ladies and gentlemen, at this time, we will begin the question and answer session. We do ask that you limit to one question. Our first question comes from the line of Bob Koort with Goldman Sachs. Please go ahead.

Speaker 4

Thank you very much. Ken, I was curious if you could tell

Speaker 5

us what your expectation is on the profile of cash flow and usage over the next I mean, it looks like you'll have $2,000,000 or $3,000,000 in excess free cash after Divvy, after CapEx. And along those lines, can you give us a sense of what the options and A tight on the Sasol option

Speaker 2

are? Sure, Bob. Thank you for your question. Like I said Previously, there is no change to our capital allocation strategy. And what I'll do is just ask Michael to talk a little bit more About the options going forward and then maybe I'll come back and talk about Sasol after that.

Speaker 3

Perfect. Good morning, Bob. I mean a couple of things that I'd say. I think first and foremost, I'd say really good execution by the team in 2021 and converting EBITDA into free cash flow. It was a record year of cash generation both from an operating cash perspective, but also from a free cash flow perspective as well.

Speaker 3

And we also delevered the balance sheet by $4,000,000,000 last year, which I think is pretty impressive. And then on top of that last year, We returned $2,000,000,000 to shareholders in the form of dividends and buybacks. So as we look forward, we're expecting another year of strong cash generation. The balance sheet is in great shape. So there's no need to do any further delevering.

Speaker 3

Our growth investments are paying dividends, Which is good news. Working capital this year should be a source of free cash flow. Last year, it consumed a significant amount of free cash flow And then CapEx is largely flat year on year. It's our expectation with our current outlook that we'll responsibly grow the dividend. As you saw in the Q4 and also in Q3 of last year, buybacks are in the mix.

Speaker 3

So we restarted buybacks In September of 2021 and when we see value, we will continue to buy our shares. And from an M and A perspective, you can expect that LyondellBasell is going to And with that, I'll turn it back to Ken to give a few comments about Sasol.

Speaker 2

Yes, Bob. So for Sasol, we've commented before that it's our desire and intent to own the other half Of that joint venture, we're very happy with the partnership. It obviously performed very well in 2021. But of course, there's a buyer and a seller And our mutual interests are going to have to be aligned in order to be able to come to a conclusion on the transaction. So timing is a little bit hard to predict, But I would still say that it is going to be in the midterm.

Operator

Thank you. Our next question comes from the line of Jeff Zekauskas

Speaker 2

Cash balance at the end of the year to be very different from what it is right now. And our cost Pressures in your European olefins business in the Q1 greater than what they were in the 4th?

Speaker 3

So, hey, good morning, Jeff. I'll take the first question and then I'll let Ken take the second one. So, we ended the year with about $1,500,000,000 of cash on sheet. I think you heard me just say in my previous answer that we will grow the dividend responsibly. We will buy our shares when we see value.

Speaker 3

That said, as we move throughout the year, it's possible that we could build a little bit additional cash on sheet.

Speaker 2

And just in terms of the cost pressure in Europe, yes, we saw really an unprecedented spike in Energy costs in Europe in the Q4 and we started taking action then to be able to Give us a little bit of insulation from that and started to move some surcharges into the market to be able to share some of that burden. So that is going to help us in the Q1 offset some of that. But the cost pressures that we saw in Europe are obviously Going to be continuing as you look at the energy prices where they are today. But we're doing what we can to offset where possible.

Operator

Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.

Speaker 6

Hey, good morning. Just curious on your thoughts on pricing for polyethylene near term. There are a couple of announcements out there For February March and given that there is some capacity, a lot of capacity coming on in 2Q and In North America and the rest of the world, just any thoughts on how you see that unfolding over the year And whether you think that capacity can be absorbed? Thank you.

Speaker 2

Sure. Thank you for the question, Mike. Look, we continue to see strong demand for polymers and we expect that to continue in 2022. As markets recover from the pandemic and especially the largest market in China And these supply chain constraints are worked through. We do expect that the market growth is going to be able to absorb a lot of the new capacity that's Coming online, we still expect to see effective operating rates for polyethylene at greater than 90% and And that's obviously going to be supportive of margins going forward.

Speaker 2

We did see a downward trend in the prices in the 4th quarter, But we are seeing pricing find a floor. And as we come into the seasonally higher demand of the second quarter, I do expect that there's going to be good support for price increases going forward. We're already seeing spot pricing increasing Pretty much in all regions, which is a good indicator. And remember as well, just going back to volume, December was the 2nd strongest demand month of which is pretty unusual when you look at historical demand patterns. With that and the combined Impact of all of the downtime that we're expecting to see on both sides of the Atlantic in the U.

Speaker 2

S. And Europe, we're going to Martin's markets continue to be tight and we expect that to be supportive for pricing going forward.

Operator

Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

Speaker 7

Hey, good morning.

Speaker 8

This is Bhavesh Ladaya for John. So on the refinery, you are competing with few other refineries looking for a potential transaction. Could you provide an update on the strategic review process or a potential sale of the refinery? And then what would be the next best option if you're not able to Do the transaction because clearly earnings are pretty strong these days. Thanks.

Speaker 2

Sure, Bhavesh. Thank you for your question. Look, as we've communicated before, we're exploring strategic options for this business and we do continue to believe that the asset has a higher value as Part of an integrated network. I'm sure you can appreciate, there's really not more that we can say at this We're in the middle of that process as we speak. And with where we are right now, I hope to be able to provide more details of the outcome in the next few months.

Speaker 2

But that's really all that I can say at this point, Michael. I don't know if you wanted to add anything.

Speaker 3

No, I think stay tuned.

Operator

Thank you. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Speaker 9

And I guess, yes, I just wanted to delve in a little bit more on polyethylene and polypropylene. So On polyethylene, obviously, we have seen some price deterioration in the last couple of months. However, there seems to be some feedstock support As you go into Q1, that's keeping prices up a little bit. Some of your competitors have announced price increases as well. So Do you think that those are more tactics to prevent price erosion or is there a real opportunity to get some price as we move through Q1?

Speaker 9

And then on polypropylene, it doesn't necessarily have the same issues with capacity additions that polyethylene faces. So is there any opportunity for increased pricing in polypropylene, especially if auto production kind of surprises to the upside? Thanks.

Speaker 2

Hi, Arun. Thank you for the question. Well, listen, like I had said before, I really do believe that With the robust demand that we're seeing in the markets and the pent up demand that is still in the market yet to come, we saw In the second half of the year last year, the largest market in China weakening in the second half of the year as they were approaching The Olympics and trying to keep the pandemic under control, there's a lot of demand that I believe is still yet to come back and we're See that I believe sometime in the middle of the year in the spring. And so that is going to be supportive overall. I don't think that this is Related just to feedstock, it really is that demand is strong and supply is tighter than probably most people would expect.

Speaker 2

For polypropylene, certainly we are optimistic for polypropylene this year where our portfolio is about 15% or so exposed to automotive and that market is going to come back this year and that's also going to be supportive for polypropylene As we move forward in the year.

Operator

Thank you. Our next question comes from the line of Frank Mitsch with Fermium Research.

Speaker 10

Yes. Good morning and nice to speak with you again, Ken. I appreciate the Slide 18 that That talks about your planned maintenance impact for 2022 of $265,000,000 Can you put that into context as to what your plans And more importantly, what your unplanned impacts were in 2021. And to that extent, Also, if you can comment a little bit about the propylene oxide capacity additions, when should we anticipate seeing financial impacts From those capacity additions. Thank you.

Speaker 2

Yes, Frank. Good to hear from you as well. Thank you for the question. So look in 2021, obviously, the biggest impact in terms of unplanned outage was winter storm Yuri, which we don't Expect that to recur obviously in 2022. So that had an impact of $400,000,000 to $500,000,000 So That was one that is, I guess, the most material as you would call it.

Speaker 2

Then we had some other downtime in acetyls, As well as at our La Porte Olefins cracker. So net net that downtime last year It was very high relative to history, the unplanned downtime. We certainly don't expect to see that level of downtime This year, now if you look at the planned outages, the net impact of the planned outages from 2021 to 2022, it's going to be about a $50,000,000 headwind, because we're going to have a little bit higher planned downtime this year. In the Q1. In the Q1, yes, sorry.

Speaker 1

I would just add, I would caution this is Dave Frank. I would just caution that you shouldn't just add back that $400,000,000 because margins really inflated on our downtime. So that's why we've been hesitant to try to quantify the unplanned downtime from last year because there's chicken and egg effect between margins and volume.

Operator

Thank you. Our next question comes from the line of Chris Parkinson with Mizuho. Please proceed with your question.

Speaker 2

Great. Thank you very much. So your team actually appears quite content with the Sasol deal and I understand we'll have to await an outcome on that front. But are there other similar facility and marketing deals your team would be interested in across the globe, perhaps anything else in the U. S.

Speaker 2

Or Asia? So look, thank you, Chris for the question. We have been in the last couple of years, we've been implementing several growth projects, including new joint ventures in China and the We're always looking for opportunities that provide good returns to the company and especially in our core businesses. And we will continue To do that, especially to look for opportunities through the cycle. And right now, there's not anything that I can say.

Speaker 2

Specifically, we've talked about the Sasol opportunity, but there's really nothing more that I can comment on at this time.

Operator

Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Speaker 11

Yes. Good morning. I was wondering if you could provide an update on your circular economy initiatives. I think you have a goal of 2,000,000 tons by 2,030. How do we get there from here?

Speaker 11

Maybe you could just talk about what's going on at QCP and Moartech and What the decision tree looks like in terms of growth and potential capital needs to fund that growth?

Speaker 2

Sure, Kevin. Thank you for the question. Yes, we've set some ambitious targets for circularity and it is it's our intent to be a leader in the circular plastics Space. We do see this market developing rapidly and it's an exciting area of growth that fits really well with our capabilities. So it's going to be a clear focus for us.

Speaker 2

Both mechanical and advanced recycling are going to be areas That we're concentrating on as well as renewable products. As you know, we've mentioned previously that we're developing our own technology for advanced recycling Called Moartech and we expect really to be able to assess the extent of that technology's advantage here in the next few months. Following that, we'll be deciding on an initial commercial investment that should be completed around the middle of the decade. At the same time, we're looking at other paths to be able to reach that volume target and we'll be doing things like buying recycled and renewable feedstocks That we can crack in our existing assets and that of course requires little or really no capital investment. So all of these things are going to be levers that we're going to be pulling, working very closely with our And innovating with them on applications that we can roll out over time.

Operator

Thank you. Our next question comes from the line of Duffy Fischer with Barclays. Please proceed with your question.

Speaker 12

Yes. Good morning,

Speaker 9

guys. Three questions around the PO plants coming up. So first is just technically, Is there any reason to think we may have issues with the ramp up of this, let's say, like Hyperzone? Or is this an older technology that you feel more comfortable about The ramp up. 2, what will the ramp up look like?

Speaker 9

I mean, when you look at the market today, how long will it take to get those Plants, at least the product from those plants mostly sold out. And then the third one is just given the market you see today, Is the EBITDA contribution from these plants similar to what was expected historically?

Speaker 2

Thank you for the question Duffy. Look the technology that we are building, the TBA technology that we're building is the most competitive in the world. So I do want to just make sure we point that out. We're very confident in the technology. It's technology that we operate today.

Speaker 2

It's a very large and complex plant as you can imagine. So I'm not going to say that there is No risk, but from a technology standpoint, I really don't see a risk. Then to your question just Around the ramp up, we'll be ramping up beginning next year and we see Very good demand and our teams are making very good progress on contracting the volume from that asset. I can tell you as well for the plant in China, the markets are very good there and the growth in polyurethane is going to be able To absorb this new capacity that we're bringing on stream. In terms of the EBITDA impact, I would say yes, for modeling purposes, you should be expecting the EBITDA contribution to be similar to what we've seen in the past.

Speaker 1

And Duffy, just for numbers, this is our 6th PL GBA plant that we've built, so Good experience with it. Definitely not number 1.

Operator

Thank you. Our next question comes from the line of John Roberts with UBS. Please proceed with your question.

Speaker 3

Thanks. Was the technology segment just timing or Has something happened there that shift the historical range up? So when it drops off here, your guidance is for it to come back down. But does it come back down within the normal range or has the range Moved up here as well. Yes.

Speaker 3

Thank you for

Speaker 2

your question, John. Michael, you want to comment on that?

Speaker 3

Yes. Sure. Hey, John. So listen, the technology business had a great year overall. So record EBITDA, all time Licensing revenue and catalyst volumes, primarily driven by Asia.

Speaker 3

You're right. So Q4 did exceed even our expectations. There were a number of licenses that we're expecting to book in the Q1 that got done in the Q4. So you shouldn't expect that trend to continue. And it's kind of our expectation that the Q1 of this year should look a lot like the Q1 of last year.

Speaker 3

But it is a great business. It's kind of like a razor blade business, right? So you sell licenses and then you continue to sell catalysts for a long, long time at Great profits.

Operator

Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.

Speaker 13

Good morning, Ken. Wanted to revisit near term sort of pricing dynamics in polyethylene, just want to get a bit more granular. Look, I mean, we know for Q1, roughly, call it, around $0.08 a pound worth of price spikes on the table. And you guys sort of pointed out that around 15% of U. S.

Speaker 13

Capacity is undergoing maintenance in Q1. So obviously that's supportive. My question really is that, I mean with roughly 8,000,000 tons of polyethylene capacity expected to come online this Pierre, I mean, could there be a situation where it's a strong first half and then we sort of go down a cliff In the back half of the year in terms of pricing and just following that with the demand side, Look, I mean, if all of that 8,000,000 tons of capacity comes online this year, for demand to keep pace with that, Global demand growth would need to be north of 7%. So are you guys sort of as you talk about Demand strength, are you looking for demand growth at those elevated levels?

Speaker 2

Good morning, Hassan. Thanks again for the question. Listen, if you look historically, Years following when we have not seen good global growth, especially coming out of a year like we did with 2020, You can see double digit growth rates, even in China. And those types of Growth years do typically occur once we see a snapback and they're hard to predict, But they have occurred in the past. So you can never bank on that, but my expectation Is that the 8,000,000 tons, there'll be a combination of things that you see.

Speaker 2

All of the capacity is not going to be coming online Exactly as we expect. Everybody understands that there are some constraints in China around that, especially with the dual control limitations. But the demand is going to come back and we have seen that in the past. So a combination of some slower ramp up of the Capacity coming on, stronger demand, I certainly don't see a cliff in the second half of the year. I see it completely be opposite to that right now, That's our view going forward.

Operator

Thank you. Our next question comes from the line of P. J. Juvekar with Citi. Please proceed with your Jen?

Speaker 12

Hey, good morning, Ken. Just a couple of questions. First on, there have been some news that co monomer availability like hexene It's been in short supply. Is that impacting production for the industry and for you? And when do you think you'll normalize that?

Speaker 12

And then I think last quarter you guys had talked about reducing your scope 1 and Scope 2 emissions by 30% by 2,030, how much capital spending do you think you need to have in order to achieve that? Thank you.

Speaker 2

Thank you, P. J, and good morning. Yes, so there is a shortage of hexane in the market And that combined with downtime at some of the linear low plants both in the U. S. And in Europe has tightened that market Pretty significantly.

Speaker 2

Now, I'll tell you that we are not having any constraints on hexene with our linear low business. So that's good news. But for the industry, yes, there is tightness in that market and I expect that that's going to continue in the short term. Now going back to your question around our targets for Scope 1 and Scope 2 reductions that we have announced, In the next few years, we'll be able to accommodate all of the things that we're looking at with our $2,000,000,000 capital spending. Our focus really in the next few years is going to be capturing the low hanging fruit, really to make the first significant steps In the process of ramping up to the target in 2,030, and that's going to include things like improved energy efficiency And some emission reduction programs at our sites that really require little or no investment.

Speaker 2

Another low capital enabler for our carbon reduction targets is also going to be the increased utilization of renewable energy. We expect that within the next few years, the amount of capital that we've guided to the $2,000,000,000 is going to be adequate for us to be able To get started on meeting these commitments and then we'll be identifying projects and developing detailed plans To achieve the full target in the second half of the decade and that's likely to result in some increased capital, But we'll have more to communicate on that later.

Operator

Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank.

Speaker 10

Ken and Michael, can you just discuss Oxyfuels, how what was the earnings Klein in 2021, what are you expecting for ramp up, but return back to some higher normal high levels of profitability in 2022?

Speaker 2

Sure, David. I'll start, then I'll hand it over to Michael, let him comment a little bit. Oxyfuels, we had especially in the 4th quarter, We had lower volumes. We had significantly lower volumes and margin challenges with butane feedstock prices running up. We are seeing that Improving coming into the Q1.

Speaker 2

So we will see the volumes coming back and some relief with the butane feedstock pricing. Michael, I don't know if you want to add something to that.

Speaker 8

No. I mean, just maybe just

Speaker 3

a couple other comments around the IND business for the quarter and around oxyfuels. So don't forget in the quarter itself there was a $95,000,000 LIFO charge, which obviously will not be there in the Q1 of this year. And then maybe to put some numbers around kind of the feedstock drag in the quarter within Oxyfuels, it was about $85,000,000 So it was pretty significant Related to butane. And as Ken said, butane prices have already started to ease off and it's our expectation as we move through the year that that's going And then maybe one other thing I'd just point out about this business. In this business is kind of the Karl Malone or kind of mail person Of Chemical Businesses, it has a long track record if you look back over the last decade of earning kind of 400,000,000 Plus EBITDA.

Speaker 3

So go back and look over the last 10 years, we're confident it's going to get back to its historic earning power.

Operator

Thank you. Our next question comes from the line of Steve Richardson with Evercore ISI. Please proceed with your question.

Speaker 7

Hello. Hi. This is Kishan Reddy on for Steve. So in the last few weeks, you've seen a real run up in Brent Price is also on nat gas. So I was just wondering what are your views on the possible tailwind we might see in a re widening of oil gas ratio If we see a supply response on the nat gas side.

Speaker 2

Sure. Hi, Sean. We definitely see going forward the oil to gas ratio being favorable for our position In the U. S. Markets, the higher oil prices is certainly going to continue to pressure margins in Asia and Europe.

Speaker 2

But overall, net net, we are expecting to see a continued favorable oil to gas ratio.

Speaker 1

Yes. In Asia, it's really tight, Sean. I mean the spread between naphtha and polyethylene is like $200, $300 per ton. That's historic lows. It just can't stay there.

Speaker 1

So oil is going to pressure polyethylene prices upwards in Asia and that's good for us.

Operator

Thank you. Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

Speaker 4

Thanks. Good morning. Maybe sticking on feedstocks, do you have any thoughts on overall ethane availability? We've seen the ethane premium to natural gas move out to about $0.10 I think last year it was closer to $0.05 and Maybe that's a function of some new plants starting up, but what's your outlook on this going forward?

Speaker 2

Good morning, Matthew. Well, listen, ethane inventories are still healthy and production is improving, especially in the Permian and the Bakken. So even with the new crackers coming online, there's still excess ethane that's being rejected. And as As production recovers and natural gas prices normalize, I do expect that ethane is going to remain the preferred feedstock. I'll just add too that ethane rejection has only decreased slightly and still is about 800,000 barrels a day and with recovery having increased, There's really plenty of supply available.

Operator

Thank you. I am showing that there are no further questions. I will turn it back to Mr. Lane for closing comments.

Speaker 2

Okay. So listen, thank you again for all the thoughtful questions. Just before we close, I want to emphasize that our strategy remains unchanged. We've got great momentum And we're going to continue focusing on safety, operational excellence as well as our disciplined approach to capital allocation. So thank you very much for your interest in LyondellBasell and we look forward to updating you on the progress at the end of April.

Speaker 2

Have a great weekend and stay safe.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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Earnings Conference Call
LyondellBasell Industries Q4 2021
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