利安德巴塞爾 (LYB) 2005 Q1 法說會逐字稿

Good morning and welcome to Lyondell Chemical first-quarter 2005 earnings teleconference. At the request of Lyondell Chemical, this conference is being recorded for instant replay purposes. Following today's presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) I'd now like to turn the conference over to Mr. Doug Pike, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good morning and welcome to Lyondell's first-quarter 2005 teleconference and Web cast. This is Doug Pike and I'm joined today by Dan Smith, our President and Chief Executive Officer; Morris Gelb, our Chief Operating Officer; and Kevin DeNicola, our Chief Financial Officer. The agenda for today's call will be as follows, I will review our first-quarter performance and Kevin will then review some financial metrics. Before we open the call up to your questions, Dan will speak to the current status of the business. The call is scheduled to last 60 minutes.

Before we begin, I'd like for you to note that statements made in this teleconference relating to matters that are not historical facts are forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially from those forward-looking statements. For more detailed information about the factors that could cause our actual results to differ materially, please refer to our earnings release issued this morning and please also refer to Lyondell's, Equistar's and Millennium's annual reports on Form 10-K for the year ended December 31, 2004 which were filed with the SEC on March 16, 2005. Also, Lyondell's Equistar's and Millennium quarterly reports on Form 10-Q for the quarter ended March 31, 2005, which will be filed with the SEC in May of 2005.

I'd also like to point out that a replay of today's call will be available from 1:30 PM Eastern time today until 5 PM Eastern time on May 6. The replay can be accessed by calling 1-800-945-0145 or 1-402-220-3525; the access code at both numbers is 5549. The replay can also be accessed beginning at 2:30 PM Eastern time today at the Investor Relations page of our web site, www.lyondell.com/earnings.

Reconciliations of non-GAAP financial measures to GAAP financial measures together with any other applicable disclosures including the earnings release are currently available on our web site at www.lyondell.com/earnings.

Now let's proceed to a discussion of our earnings. During the first quarter of 2005, Lyondell had net income of $254 million or $0.98 per share on a fully diluted basis. This compares to net income of $16 million in the fourth quarter of 2004. The improvement versus the fourth quarter is primarily related to a full quarter of ownership of Millennium and with it 100% of Equistar as well as significantly improved results in the ethylene coproducts and derivatives segment and the propylene oxide and related products segments.

Additionally, I'd like to remind you that the fourth quarter included a charge of $64 million which is not repeated in the first quarter and is related to the Millennium acquisition.

Finally I'd like to point out that both the first and fourth quarters include $12 million charges related to the early retirement of Lyondell's debt. Versus the first quarter of 2004, net income improved by $269 million. The improvement was driven by the Millennium acquisition which added the remaining 29.5% share of Equistar and by stronger results of each of the operating Companies, particularly Equistar, which improved by approximately $325 million pre-tax.

Purchase accounting for the Millennium acquisition had a minimal impact on first-quarter net income. Should you be interested in further details, I would suggest that you review Lyondell's S-3 filed with the SEC (ph) on April 11, 2005. This filing provides additional details of the impact of purchase accounting on a 2004 pro forma basis.

Regarding our tax rate, we estimate that Lyondell's 2005 effective book tax rate will be 36%. Due to be expected utilization of previously accumulated net operating losses, our 2005 cash taxes are estimated to be quite modest.

Finally, our outstanding share count at the end of the quarter was approximately 247 million shares. To determine the share count on a diluted earnings calculation I would suggest that you add approximately 15 million shares; 10.5 million related to the Millennium converts; 1 million for the oxy warrants (ph); and 3.5 million to account for "in the money options".

Now let's turn our attention to the ethylene coproducts and derivatives segment performance. The primary products of this segment are ethylene, ethylene coproducts including propylene, butadiene, benzene and tolulene, and derivatives of ethylene, which include polyethylene, ethylene oxygenates and vinyl acetate monomer or VAM. First quarter of 2005 was the first quarter of Lyondell's ownership of 100% Equistar and the acetyls business. In order to simplify the analysis, the following discussion will compare first-quarter results to fourth-quarter results with all the products on 100% ownership basis for the full quarter.

Our first-quarter segment EBITDA was $486 million. This includes the best results ever reported for the Equistar product which represents the majority of the segment. The key contributor to the quarterly improvement was increased ethylene derivative product pricing. The quarterly average price for the principal ethylene derivative products increased by approximately $0.06 per pound, with the exception being ethylene glycol where the average price decreased by approximately $0.03 a pound versus the fourth quarter of 2004. During the first quarter, ethylene prices averaged approximately $0.01 per pound greater than the fourth-quarter average price.

Raw material costs continued to increase during the first quarter, but these were more than offset by increased propylene butadiene and fuel coproduct prices. Sales volumes were approximately 170 million pounds or about 5.5% below fourth-quarter levels. The majority of this reduction was in polyethylene exports while ethylene and vinyl acetate monomer sales were also somewhat lower. The lower ethylene sales were related to scheduled maintenance activity at one of Lyondell's large customers.

During the past several months increased polymer industry inventories have been a focus of investor attention. Indeed, our polyethylene inventories increased during the quarter as we elected to take advantage of slower first-quarter sales to prepare for a scheduled July maintenance turnaround of our Clinton, Iowa ethylene in polyethylene facilities.

Performance of our acetyls products were relatively unchanged compared to their full fourth quarter results and in general margins increased while volumes decreased versus the fourth quarter.

Comparison of the first-quarter segment results to the year-ago quarter indicate the following trends. Margins increased based on higher prices while our cost of ethylene production metric was relatively unchanged as coproduct prices offset higher raw material costs. Ethylene and ethylene derivatives sales volumes were relatively unchanged. Hence, the majority of the substantial financial improvement can be attributed to increased margins.

At this point in the second quarter, sales volumes have increased moderately from March levels but there have been some product price declines including $0.02 per pound in polyethylene prices. Our cost of ethylene production metric is currently estimated to have declined from March levels. The recent price in volume volatility make it impossible to predict whether these trends will continue throughout the quarter.

Now let's turn our attention to the propylene oxide and related products segment. This segment includes propylene oxide, derivatives of propylene oxide, tolulene diisocyanate, MTBE and styrene. During the first quarter of 2005, EBITDA for this segment was 146 million, which is a $109 million increase over fourth quarter 2004 results. Versus the fourth quarter, the improvement in PO and related product performance came primarily from an increase in propylene oxide and PO derivative product margins.

Margins in these products improved relative to the fourth quarter as prices averaged between $0.04 and $0.13 per pound above fourth-quarter averages. These price increases more than offset a $0.065 per pound average increased in PO's key raw materials propylene. Sales volumes for the PO and PO derivative products were unchanged versus the fourth-quarter levels.

Our results in MTBE improved significantly versus the seasonally low fourth-quarter results. During the first quarter, MTBE benefited from a combination of continued high gasoline prices and improved supply/demand balance in the U.S. Consequently, raw material margins increased by approximately $0.16 per gallon resulting in comparatively strong first-quarter results.

Results and TDI showed moderate improvement versus the fourth quarter due to slightly higher prices and the absence of expenses related to fourth-quarter maintenance at our Lake Charles facility.

Styrene results were unchanged versus the fourth quarter as price increases offset raw material increases. This pattern of significant price increases with commensurate margin -- without commensurate margarine improvement has continued for several quarters; however, since Lyondell produces both the styrene's key raw materials, ethylene and benzene, we've been a position to capture value from the styrene chain. This value is realized in the ethylene coproduct and derivative segment rather than the PO segment. T

Thus far in the second quarter, market conditions for this segment's chemical products are relatively unchanged from March. The exception being the deicer sales volumes which are reduced due to the end of the aircraft deicing season. MTBE margins have increased following typical seasonal patterns and I'd also like to point out that during early April, we experienced a labor strike and subsequent outage at our propylene oxide plant in the south of France. The plant has been restarted and we estimate it will negatively impact second-quarter pre-tax results by less than $10 million.

The next segment I'd like to review is in organic chemicals and the primary product in this segment is titanium dioxide. In order to make the following business discussion meaningful, I'll base my comments on a comparison to the entire fourth and first quarters of 2004 despite the fact that Lyondell did not own the productline until December of 2004.

So as compared to the fourth quarter of 2004, titanium dioxide sales volumes were unchanged during the first quarter. Sales prices increased by approximately $60 per ton. And relative to the first quarter 2004, prices increased by approximately $230 per ton while sales volumes decreased by 25,000 tons. The lower volume is a result of 2004 inventory reduction efforts and therefore the comparative decrease in volume is not representative of current market conditions. Thus far in the second quarter, the titanium dioxide business is following typical seasonally stronger sales volumes and related to the painting season.

Now let me turn your focus to the refining segment which consists of our 58.75% ownership in LCR. LCR's first-quarter net income was $110 million. This equates to EBITDA of 146 million, a $47 million decrease versus the fourth quarter. During the first quarter, the refinery continued to operate at strong rates, processing 262,000 barrels per day. This figure excludes blue boils (ph) which are typically 5 to 6000 barrels per day.

PSA volume from PDVSA averaged 219,000 barrels per day while spot crude processing averaged 43,000 barrels a day. The decline in CSA volume is attributed to a January production upset that limited the refinery sulfur processing capabilities. Availability of crude under the contract continued at the full contract level and would have been processed if not for this limitation.

Aromatic margins continued to be very favorable during the quarter and contribute an additional $20 million to LCR in the first quarter versus the fourth quarter. The fourth quarter results were limited by a scheduled maintenance turnaround.

As we had anticipated, timing factors related to some of the variables in the CSA contract resulted in lower first-quarter results versus very strong performance under the contract in the fourth quarter of 2004. These period-to-period timing variations are related to the volatility of market prices but they equalize over time and hence do not impact long-term profitability under the contract.

When compared to the first quarter of 2004, results improved by approximately $15 million as spot crude margins and stronger aromatics profits more than offset the impact of unfavorable CSA contract timing factors.

Looking ahead to the second quarter, results are expected to decline from first-quarter results due to scheduled maintenance turnaround. Turnaround is estimated to impact pre-tax profits by 30 to $50 million, and crude processing rates are estimated to decline by approximately 80,000 barrels per day versus first-quarter rates. The direct turnaround spending is estimated to be approximately $25 million, the majority of which will be amortized.

This concludes my prepared remarks. I would now like to turn the call over to Kevin to discuss some of the elements of our cash management efforts.

Thank you. Let's start by addressing debt reduction, distributions and cash balances. During January, we paid off $200 million of debt that we had called last December and in March, we called an additional 300 million which we paid on May 2. After making this payment we will have repaid 800 million of debt since September of 2004.

Regarding cash balances as you can see from our consolidated balance sheet, Lyondell finished the quarter holding $689 million worth of cash. You might also notice that during the quarter net distribution from LCR were 71 million, and there were no distributions from Equistar. In the case of LCR, the partners elected to keep some cash in the joint venture due to the current maintenance activity. In the case of Equistar, we elected to delay distributions since financially there was not a significant difference which entity held the cash balance. Of course with Lyondell's debt repayment and some interest payments due on May 2, Equistar will resume or has resumed making distributions to the partners.

On a consolidated basis on March 31, our total liquidity was 1.8 billion, that's consisting of the 689 million cash balance complemented by 1.1 billion of undrawn revolver, facility capacity after accounting for letters of credit. Based on various analyst reports its quite clear that working capital management and more specifically, inventories, remain firmly on your minds. Since this is the first quarter of fully consolidated financial, I'll address receivables, inventories and payables on a consolidated basis but also discuss some of the operating metrics that we use to run the business.

From a financial standpoint, our receivables stood at 1.9 billion on March 31st, that's an increase of $329 million versus year end. The majority of that increase is really related to the $200 million reduction in utilization of Equistar's accounts receivable facility. The overwhelming majority of the balance is related to price increases, and particularly at Equistar.

We see a similar trend in our payables which increased by 117 million, again a majority being related to Equistar. Inventory values increased by 127 million primarily in the ethylene coproducts and derivatives and in organic chemical segments. The increase within inorganic chemicals followed seasonal trends while we increased polyethylene inventories in preparation for upcoming maintenance activity.

From the standpoint of operating metrics, we also monitor days of receivables, inventory and payables at the Equistar legal entity level and the Millennium legal entity level. Operationally, the days remain within our target levels as Equistar's metric declined by slightly more than a day and Millennium's metric increased by approximately 13 days; again in preparation for seasonal paint demand.

The final point that I'd like to mention today is that capital spending remains on track. During the first quarter, capital spending was 37 million in the ethylene coproducts and derivatives; 14 million in PO and POS related products; 5 million in inorganic chemicals; and 34 million at LCR. Total consolidated capital spending of 56 million compares to 178 million of consolidated depreciation and amortization. At LCR, depreciation and amortization for the quarter was 28 million.

As you can see, we continue to support the operation of capital spending levels significantly below our ongoing depreciation and amortization.

That's a quick summary of our cash position. Now I will turn the call over to Dan for a brief review of the current market.

Thanks Kevin. We certainly are proud of our first-quarter results and believe they validate the points that we've made over the past several years regarding the leverage that our assets have to the cycle. Of course, the market looks forward and I expect that the question that rests in your minds this morning is whether the business fundamentals that created the first-quarter strength remain intact.

Let's start with the fundamentals that drive demand growth. If we consider this on a regional basis, I think that the fundamental trends that support industry forecasts continue to advance. Development in China has certainly been a leading driver of increased demand and the last EDT data that I saw seems to indicate a continuation of that trend.

Recent domestic economic data has certainly added confusion but in general the outlook for continued GDP growth continues to be in tact, and I would add that European demand growth has not been a major factor in the forecast. As I said before, our products tend to trade based on multiple of GDP. I would remind you we need only moderate growth to keep our supply/demand balances moving upward. Thus far, the numbers that I've seen should keep us on this trend.

More specific to our business, for some time the outlook for 2005 has been for domestic effective ethylene operating rates to average in the mid 90s, with name plate (ph) operating rates in the low 90s. Indeed this seems to be the case. It was really only following very strong sales early in the fourth quarter of 2004 that producers and customers began to believe that utilization rates were ahead of this pace. This temporary over exuberance coupled with the start-up of some capacity in China, appears to have led to a period of overproduction. Things seem to be smoothing out now and assuming that it continues, it appears to me that the industry remains on track if not ahead of the past forecasts.

Consistent with this volumetric volatility, during April we have experienced some polyethylene price softness. However, when you step back and put it in perspective I think you'll realize that reducing prices by $0.02 per pound after increasing them by $0.11 per pound between September and January is a trade that I would make any day and I think you would as well. Again I think that the industry is making an adjustment but remains on track with historic forecasts.

One last point that I would like to make is that we should look at the industry a little more broadly than just the current ethylene chain dynamics. Over the past year we have often spoken about our increased product breadth and I think it's important to look at how these other products are performing. This perspective can help you distinguish between product specific events and broader economic events.

The relative strength that we are seeing in our fuel products, our propylene oxide derivatives and titanium dioxide, leads me to believe that there has not been a fundamental economic shift. If you step back and think about it, gasoline and propylene oxide have very different end uses. One being the ultimate consumable and the other having a very strong durable goods component. And they are both performing quite well. In fact it's fair to say that both product areas have been essentially sold out.

So to summarize, we did have a very good first quarter, in fact in many ways it surpassed expectations for this stage in the cycle. Operating rates and margins are still very good, and the majority of the economic data appears to indicate that the global economy is healthy.

Thank you and I would now like to turn the call over to you, operator, to get the questions from our listeners

(OPERATOR INSTRUCTIONS) and Don Carson with Merrill Lynch.

Good morning. Dan, just talk a bit about the inventory situation and how long you would see this current softness lasting and to what extent did your customers build up inventories? Do you see any evidence in your order patterns that they've start to draw down those inventories and are back to a more normal level of ordering from you -- thinking specifically in the polyethylene business?

Yes. There is always an element of guessing to this, Don, as you are dealing with customers. Clearly if we thought they were building inventory, we probably would have taken some different actions sooner. But as soon as we did realize there was some inventory build in the chain, we worked very hard to try to match our production with our actual sales.

I would tell you that I think we are pretty near where we need to be at this point in time. You can see from our numbers we went up a little bit in the first quarter but I think we've made the majority of the adjustment now and I would say we think within the next few weeks here, we're going to be where we need to be. I'm not so sure that that applies across the board to everybody in the industry. But I can't speak for the rest of them.

And how did your operating rates progress during the quarter? I understand you were at fairly high operating rates when Shell Deer Park was down. Did you bring that down towards the end of the quarter and what are you running right now?

We did bring them down. And I think we are pretty consistent with where the industry is. We think the industry was in the mid 90s on an affective basis in the first quarter and is probably in the upper 80s to low 90s. At this point in time, if those are reduced and we pretty well match those.

Finally, just a question on the intermediates business. I know you've often said to track propylene glycol margins as a proxy for that overall business. I noticed quite an improvement in the first quarter with further upside this quarter. Yet, Doug, your comments seemed to be somewhat less optimistic about near-term outlook for intermediates.

I think it's safe to say that PO remains very tight. We generally recommend you look at propylene glycol because that is really the only visibility that you have very easily out there through consultants, etc. Now we've looked at the PO chain and it's continuing to be very strong and continuing to move forward.

Thank you.

Nancy Traub with Credit Suisse First Boston.

I wondered if you could give us a little more outlook on the prices for Ti02?

Well, Ti02 prices have gone up and I think you'll see the realization of those start to appear in the second-quarter numbers. I think that is all that's out there. Do you want to add anything to that?

I think, Nancy, you've seen various announcements from people within the industry that have been in the press, and Ti02 much like PO looks pretty tight and things seem to be moving forward quite well.

I know there's always a big lag with the prices going in and you mentioned that the prices have gone up in the first quarter. We should expect a couple -- a few more cents in the second quarter?

If you look at the past -- if you look at the past indication of where pricing was, there was a price increase in January. There's one in April so as you go to the lags -- you typically have seen about a three-month lag in Ti02 industry. Of course it's a little different in Ti02 because you're not buying crude oil. It changes price daily. Put that lag in a little different perspective for you.

So things look good? You said volumes had picked up. What kind of operating rates do you have in Ti02?

I'd say Ti02 is pretty tight and things are running pretty much full at that (indiscernible) as you would expect -- were in the key season for that product.

Thanks.

Michael Judd with Greenwich Consultants.

Congratulations on a great quarter. Can you talk a little bit about what's going on in the international markets and more specifically the Asian market, relative to spot and contract prices, where they are in terms of volumes, what's happening in terms of U.S. export volumes, just that whole dynamic, please?

In Asia in the ethylene chain, we have the phenomena of new capacity coming on and that has had an impact out there. The BP plant we understand is up and running and the Bodisure (ph) plant is not far behind. But generally we think demand is still pretty good out there. Prices -- or net backs, I should say, are a little bit lower than they have been, and as a result there isn't as much material moving from here to Asia. But we see economic activity there still fairly very strong, and as this capacity is absorbed we have a pretty positive outlook going forward.

Do you have a sense how much of the domestic operating rate -- how much has this impacted the domestic operating rate in the first-quarter and any sort of sense of what impact that could have on the second-quarter?

I don't think I could tell you specifically. Doug, do you have any --?

Exports are typically in the 10 to 15% range, and you kind of pulled back off of there for economic reasons. It's better to place your pounds here.

One thing that might be helpful, if we think about it from the domestic production capacity in ethylene, it's somewhere around 70 billion pounds. If domestic GDP is running arguably in the 3% range and we run a multiple of 1.4, so that would indicate that you've got an increased consumption, although this doesn't work on a day-by-day, month-by-month basis, it does work over a longer period of time. That's 4.5% or so which is 3 some odd billion pounds of additional consumption. That's a pretty powerful lever right there considering there's not 3 billion pounds of supply coming on.

So you're going to continue to tightening supply/demand over this period of time. And then you move over to Asia, and look at these two new plants coming on, which if you look at the growth rates in Asia, they don't look like they supply the growth rates we're seeing. So you see continuing supply/demand tightening from that region.

So it's really only Europe that seems to be lagging with a very slow GDP growth. Worldwide I think the story is in tact that you expect to see supply/demand continue to tighten through the course of the year. But unfortunately for all of us, it doesn't work minute-by-minute, hour-by-hour, month-by-month exactly the same way. And I think that's what we're seeing is some pertivation (ph) for the force at this point in time. But I think it will get straightened out.

Secondly, related to higher gasoline prices than I guess people had anticipated, that has a big impact on the value of some of the coproducts that you produce in your crackers. Given your favorable mix there, could you just comment a little bit about the second quarter? People seem to be overly concerned about ethylene and polyethylene. But you do produce a lot of these coproducts and how that sort of mix might work out, please?

I think that is a good point. We make gasoline components in really each of segments except for inorganic chemicals. About a 25% yield from the liquid crackers are various fuels. So they're going to be moving with raw materials and should open up a little bit as you hit the typical summer, strong margin period.

I think the other piece of the gasoline market that you didn't mention, was MTBE, and we're currently seeing very strong MTBE margins as gasoline prices have been strong and benzene prices have moved down as they typically do seasonally. Margins at this point in time -- I think industry raw material margins are in the $0.50 plus range.

I think the president is calling more attention to this in the last couple of days as well. As we continue to talk about a shortage of refining capacity and refined products. So it doesn't look like this is going to be a trend that reverses very quickly either. So we expect we are going to get strong fuel growth through the driving season and on into the rest of the year.

Lastly, were you pleased with the passing of the energy bill? I guess it limits the potential liability on the MTBE side, right?

If the bill were passed, we'd be happier. It passed the House. We still need a similar bill from the Senate and then it needs to be passed by both Houses which I think is going to take longer. And I think the president is going to stop trying to get more impedance to get a bill passed in the Senate. On balance, yes, that would be nice. It removes a nuisance. If we don't have the defective product liability claims out there. Realistically it's been more of a nuisance than anything else.

I think it is important to get an energy bill passed. We would be the first to tell you like anybody else that this is not a do all, end all, but you've got to start somewhere. I think clearly this would start the country in a direction that it has needed for some period of time on a broad base.

Thanks again and a great quarter.

(indiscernible). You may ask your question.

A couple questions related to one subject which is LCR. In the past few weeks there was some news on industry consolidation there in LCR and (ph) taking factors and talked about as a possible candidate. If you could please remind us what your strategic view on LCR states and also conceptually if it makes sense for you to you to monetize it to reduce leverage? Or Equistar cashflow through the particular (ph) cycles should be sufficient for that?

First of all, it's a great asset as others have commented; it's a great asset existing in a golden age for such assets. I think we practice monetizing that asset on a daily basis. And we intend to continue to do that. But as far as commenting any further, I think we've said all that we intend to say about all the other rumors flying around out there.

It will take me some time to digest that. Second question was --.

I didn't mean to be mysterious.

You were in a way. I'll follow up later on. Another question on polyethylene. I'm a little bit surprised that you said a decline in volume was due to withdrawal from the export markets. I didn't you participated as much. So perhaps if you could comment -- (multiple speakers).

I think we were talking about industry decline and exports.

So for you, you still focus on the (indiscernible) market, right?

No, our export volumes were down as part of the ethylene and derivative. (multiple speakers)

It's not nearly as substantial piece for us as it is for many.

The piece that is not so substantial for us is we're not large in the Asian and Chinese markets. We do export polyethylene.

NAFTA volume still count as exports in a lot of this. And we do a fair amount of NAFTA volume.

Kevin McCarthy from Banc of America Securities.

Good morning. Dan, I'll follow up on LCR in a slightly different vein. Does the recent industry consolidation among refiners change your view about whether LCR is a core strategic asset?

I think, Kevin, we've described over and over again core strategic assets are ones that make a lot of money. We don't have quite the same view that some people do. Counter to that, if somebody wants to pay us a lot more money than any asset is worth, we would certainly always entertain discussion. But we are not and have not commented further than to say we're not doing anything here. We've been pretty clear. I don't think it's productive to speculate further in this situation.

Fair enough. Shifting gears to your PO and related products segment, awfully strong quarter there. It strikes me that you have deicers down typically seasonally in the second quarter, MTBE usually up. Any thoughts about whether the first-quarter profitability level is sustainable moving to the second quarter?

Yes, I think we like the shape of the second quarter. I think that's what we were indicating. We continue to see upward momentum and MTBE is a much stronger influence than deicers. So MTBE is certainly stronger in the second quarter than historically. That's driving season so you would expect it to be stronger there.

With propylene and benzene softening just a little bit in recent weeks, are you still cracking it as heavy as you can at this point?

Yes, the incentive is still there to crack the heavy slate. There is still a substantial liquid advantage over an NGL. That stays throughout most of the last 15, 20 years. It may get very thin from time to time but we've never seen it stay longer than a few days at an NGL advantage in the last 15 or 20 years. So we're almost always on the heavy slate. We vary severity, depending on how strong propylene and other coproducts are compared to ethylene. But it's always on a heavy slate.

Thanks. I'll get back in the queue.

Barry (indiscernible) with Duetsche Asset Management.

Really good quarter you guys. Just a couple of quick questions. I think what everybody is focusing on is the polyethylene price and I was wondering if you could talk a little bit about the margin sensitivity with the fall -- the drop really in oil and maybe even in NAFTA prices? And the second question is more broad. I mean what President Bush talked about yesterday with respect to military bases being converted to refining.

I love that one.

If you could just talk a little bit about that? What is your opinion?

Let's go back and Doug can give you a more precise, but on the polyethylene price versus margin, is the question, and (indiscernible) to ethylene or most of these others. We are in a zone now where the relative balance on supply demand has moved where you're basically pricing off of that relative balance of supply demand, not so much a cost push or a cost pull. We are in that zone that if feedstock prices come down, then you would anticipate open margins. If they go up you're going to get margin squeeze because it's really the supply demand driving the price settlement.

I think where we are with the softness we have seen, we've seen that against the backdrop of energy prices being higher and so that was eroding some margin. But it balanced out over a period of time, so it's about the same when you compared each period. Then you go back and look that through the fourth-quarter we raised prices, I think a sum total of $0.11. So if they come down $0.02 in April, you're still 9 better off than you were before that in energy prices roughly somewhat. The balance of the quarter, I don't know. If energy prices soften, you could argue that -- gee, we ought to open up more margin, and we'll have to see. If the energy prices don't soften and they go the other way, then I think we are hard pressed to get that back real quickly.

Just one other question then on, I guess, the inventory question with respect to ethylene and polyethylene is what everybody -- polyethylene is what everybody is paying attention to. But the build did not seem to be that significant. Is it safe to assume that it's a very short-term phenomenon?

We think it is. We think we have ours in really pretty good shape. We are not exactly where we'd like to be, but we think we will be in short order. I am less comfortable with where everybody else is, I just don't know. Unfortunately it's one of these situations; we'll probably figure it out about a month after it's really apparent in the marketplace. It's just not easy to put your finger on it that quickly and that precisely.

Now, onto the military bases. I was joking with people since we have I think six or seven military bases around San Antonio, Texas and people always talk about well you've got a lot and if you closed bases, one of this might be closed and indeed some of those have been closed in recent years. I have asked our people just what kind of draft tanker we can get up the San Antonio River to get to one of these bases to build a refinery there. Since that river is about 6 feet deep I don't think we can get much of a cargo up there.

I think one the problems with the President's comments, if it's a military base and they're very satisfied and people are used to it being there, then it's a plot of ground that you could use. But unfortunately I don't know of a whole lot of those that are on deepwater terminals and we're still an import regime for crude oil. So I would think anybody building a refinery either needs pipelines that are there or can easily be there as far as any deepwater. I don't think this is going to be a straightforward solution.

So if I were to interpret what you're saying, you need substantially higher crack spreads to attract the kind of capital?

No, I was talking about the market. We are not going to build a refinery, period.

No, I didn't mean Lyondell but I meant the industry, the refining industry in general.

No, I think the crack spreads where they are, people think they're going to stay anywhere near this for any length of time could potentially attract investment. But I think the nagging doubts that people have -- it's not just the investment pattern that we've seen thirty-year cessation of refineries, it's more the "not in my backyard" concept that people have just been unwilling to permit refineries or substantial adjustments and size of refineries in this country.

I think the permitting probably is as important as the economics. The economics they're not at replacement quite yet for most but if you were going to build a heavy crude refinery, I think they are at replacement. I believe that those heavy differentials are going to last and I would remind you that when we did our refinery deal, we thought it was important to lock in the heavy crude that we understood what it was going to cost, therefore how profitable it was going to be at the same time we modified the refinery.

I would argue if you just go out and build a heavy refinery without having the crude locked up that what you tend to do is raise the value of the heavy crude. But once you built that refinery its most efficient to own that crude so you're going to preferentially buy it which is going to tend to close that differential.

I think there's a need for more refining. I think there is the need for more heavy refining and I think the best way to do it frankly is for the owners of the heavy crude to get together with the places that demand the refined products and work a deal where it all works together. And I think that could have a happy outcome. Just debating where we have where for the Saudis say we can produce more crude, but it is heavy, you need to build more refining. It is going to an argument until somebody puts the deal together I think.

Thanks.

Gregg Goodnight with UBS.

Acetyls, the way you report now we lose a little bit of visibility with respect to the probability of acetyls the teals. Could you comment if you've done the numbers what acetyls did sequentially and then year-over-year at least in a percentage term?

As we said from fourth to first it was relatively unchanged, Gregg. I think you'll have pretty good visibility. Remember we're going to report Millennium stand-alone and we're going to report the consolidated segment. I think you will have to have good visibility. In the medium term, fourth to first was really unchanged as volumes came down a little but prices moved up.

You're saying in the 10-Q that is coming out?

Yes, and you can see the Millennium, overall Millennium earnings in the earnings release.

Second question, when you announced the Millennium acquisition you made mention of a $50 million cost improvement target. Could you comment on, number one, has the target changed? Number two, to date how much of that have you been able to deliver on?

Both. When we say targets, that was intended to be an approximation of what people ought to look for to understand the value of the deal. Remember about a third of that was people, about a third of it was what I would call general buying power, etc., and about a third of it was systems kinds of things. The biggest part of the people were done when the deal closed. So you can count basically a third of that was done.

The systems work particularly in the SAT and other areas we're working through is going to take a little longer to get there. If anything that number is probably a little bigger than we thought it was. And the purchasing power things, we're probably half to two-thirds of the way there. But as we go forward, but you'll realize it on a month-by-month, quarter-by-quarter bases. So I'm still very comfortable with the 50. We haven't been very rigorous in reporting against it because frankly it wasn't that meaningful in the overall scheme.

The important thing is what we have found is as we got into understanding a little more about the businesses, we see some real upsides in the TiO2 business and we see some real upsides in the flavor and fragrance business which is small enough we don't talk about it a lot. We are -- they're doing some instrumentation work that will greatly modernize their controls and looks like pretty phenomenal returns on a small amount of capital that frankly we're going to expend about twice as efficiently as Millennium would have because of the purchasing power and worldwide contracts.

The TiO2 primarily is a lot of hard work to be done over the next three to five years and the basic blocking and tackling to get the reliability of the titanium dioxide facilities up to industry-leading and currently I think the reliability there lags by arguably 7 to 10 points. And that is a lot of capacity and a lot of money. But it's literally hundreds of small things to be done and those are being done day-by-day, week-by-week, quarter-by-quarter as we go forward. And that was a large piece of what you saw in some of the increased capital that we announced in the Millennium segment. That's going to take more years but it's going to be much more meaningful than that 50.

Thank you for that answer. If I can ask one more follow-up question, or one more question. This morning in the Dallas call they mentioned something about a June price increase that I assumed was for polyethylene. Could you give us the status of the price increases, say the January -- $0.05 or March $0.04? What are for polyethylene what are the plans to either finally implement those? Have they been rescheduled, or are they just gone now?

Gregg, this is Doug. Our policy is really we're not going to discuss those price increases like this. We will pursue price increases with our customers etc., but we're going to by policy (multiple speakers).

We're not trying to be cheap but our legal staff tends to think that that smacks of price negotiation and conference calls would prefer do the price negotiation with customers. So we're trying to hide the ball or anything. We just don't think it's appropriate.

Okay, thank you very much.

Jeffrey Zekauskas with J.P. Morgan.

Good morning. Just a couple of questions. Dan, in your personal opinion do you thank Occidental will have same stake in Lyondell that it has now three years from now?

That is a tough question. What I understand they are on the record as saying that they don't intend to go through another downturn. I'd like to say yes if that means we wouldn't have another downturn before (indiscernible). But honestly I have no idea. I just think if you look at the situation having seen a $35 share price it's probably hard for them to sell at 25 or 24 or whatever. I don't know, if I look at them just as an outsider, I don't see that there's any pressure one way or the other but I certainly have no idea what their intents are and I'm sure I will know about a second after you to.

Maybe if I can just follow-up on this question with Kevin. Are there tax sufficient (multiple speakers)?

He wouldn't know either.

Do you like that answer from Dan?

Are there tax efficient ways that Occidental can extricate itself from this stake? Or are there not?

You are really asking questions that you have to ask Occi (ph). You honestly do for them to answer those kinds of questions.

I don't know. It would seem to me that the CFO of Lyondell would have insight into.

I have some insight. We've seen it before in other things. If you go back and look at the history of ARCO and there are different things that could be done, but we don't have any insight into what Occi does in thinking. And what their tax attributes and how they could deal with those.

Sort of a second question is in round terms assuming that the cycle is relatively healthy for a period of time, is Lyondell's goal to pay down roughly -- I don't know 750 million to 1 billion in debt annually? Is that the right order of magnitude?

No, we'd like to see this accelerate.

I think what we said is we think we've taken the free cash flow that we aren't using for interest and dividends and CapEx and we're applying it to debt reduction. Part of it is just timing it to when we can get to the debt. As you well know, we have 200 million left of one traunch and then we won't see another ability to call debt until December 15, when the next traunch is available. But I think we did pretty good, as well as you could in trying to figure out how to get enough flexibility to do that and match it to your cash flows. That has been our objective is to take the free cash flows beyond those three items I told you about and apply it to debt reduction. We will do it as fast as we can get to it.

I think realistically you're going to see as the cycle continues to strengthen, you're going to see that accelerate and we'll have more available to do more sooner.

As a last question, it's always difficult to really get a lot of insight into the propylene markets. But it seems that sort of refinery grade propylene has come down a little bit and sometimes that sloshes into the polymer market. Is that something that you are seeing" Do you see it as a shorter term trend? Do you see it as a more significant trend? Sort of what is the magnitude of the trend in your opinion?

That's a typical spring phenomenon really that you start to see the fluid units come back on after turnarounds and things and those are the producers of the refinery grade propylene. So they will -- there are powers facilities upgrade that to chemical and polymer grade but they have a defined capacity. So it's typical that you see more propylene come on the market for a while as the fluid units start ramping up and running full.

Now you're not seeing an expansion of fluid units really in North America but with the strength of the chemical products, the refiners have to make a little bit of a trade-off. They have very strong chemical product options but they also have strong gasoline demand that they are trying to balance. And different people make different decisions on that.

I think the more important trend is the longer term trend and that is it's not a new trend. For the last 20 some odd years if you sum up the rate of growth of propylene derivatives around the world and compare it to the rate of growth of ethylene derivatives around the world, the propylene growth rate is faster.

So you have a demand that's growing on a relative basis faster than ethylene but if you look at the ethylene production facilities planned to come on for the next 10 years, the vast majority of those are based on ethane (ph) feedstock which means they are not going to produce propylene. We see there's going to be a shortage of propylene that's going to have to be met and its well beyond the several year trends what can met by refineries which is going to necessitate on propylene production either by dehydrogenation of propane or by metastasis using ethylene and butylene.

We think that while you'll see these seasonal trends, you're generally on an upward slope for propylene to become more dear.

I guess if I may, just a last question. Last year polyethylene demand in the United States was exceptionally strong. Do you think that -- and by exceptionally strong, I mean excluding export demand. Maybe we had low double-digit growth. Do you think that we really borrowed quite a great deal from demand growth in 2005 or do you think this was a small borrowing?

No I think we caught up from recession. If you go back and go through recessionary cycles over the last 30 years, the phenomenon has always been when you come out of a recessionary period, you get kind of two-for one growth in the year that you come out of it. The odd thing and we talked about this in many of our analyst meetings over the past couple of years was the industry consultants that everybody follows, the CMAI people as they projected the growth rates and demand seemed to be forgetting that when they were looking at recovery because they did not have that catch up in any of their projections.

But in truth, if you look back now, we saw that catch up in "04 as we came out of the recessionary period. I think it's just the normal that you see. I don't think it was borrowing against future because again I would argue that prices were very high compared to where they had been and there was not much of an emphasis to try to go out and build a bunch of inventory there.

You know Jeff, the same phenomena occurred in the '90s. In the early part of the '90s, you saw it come out of the downturn with very strong first year and then you continued and got back on your typical growth curve of 4 or 5%.

Thank you very much.

Kunal Banerjee from Morgan Stanley.

Good morning, Dan. The first is just regarding LCR. I'm just trying to get a normalized level of EBITDA that we would have seen in the first-quarter because obviously you had the CSA disruption. Could you -- the point I'm trying to get to is how much should I take off of the level that would get me to a second-quarter level?

You've already outlined the 30 to 40 million -- or the 30 to 50 million hit from the turnaround -- I'm just trying to establish a level for the first quarter because if the CSA (ph) volumes come back, I don't know whether that is necessarily a benefit or an opportunity cost there.

Kunal, this is Doug. Let me try and help you a little bit on this and we'll see if I can. In the size of this contract and the timing of where you price things, you can get these variations from quarter-to-quarter. But like I say, over a course of year, they tend to wash themselves out and they are not really a factor at all. So if you think about the fourth and first quarters, fourth quarter you had crude going from 55 to 47 and then it turned around in the first quarter and went back up to 55. That created a lot of differences.

If you looked at last year and you say operations were good, CSA crude supply was crude supply was good and the spot margins were generally pretty good -- a little stronger in the second half than first, that tends to give you where the refinery has been running. I think it will give you some idea of a good run rate if conditions stay the same.

Would the aromatics contribution persist into the same level -- persist in the second quarter here?

Yes. I think the aromatics are xylene recovery and I think you should still the see that continue pretty solidly.

Just a couple of other puts and takes here. The 10 million that's going to hit you from the French outage? That's all of it in the second-quarter, right?

Yes, it was probably something less than 10 million we estimate. That would be all second quarter. That was all the first week of April is when that facility was down for a little while.

Would there be a debt refinancing or early extinguishment cost because you haven't outlined any other callable debt until December. Right?

In the second-quarter, we'll have the 300. So you (multiple speakers). I'd remind you that we were paying about a 5% call premium and that's selling half on May 1. So it will be about a 2.5% premium.

Which is the primary reason we waited until May 1st to do it.

Next quarter, you will be about the same. About that 10, $12 million range.

Just on Equistar, I know Terry talked about the possibility of oil going down. If you were to just look at current conditions and assume that the $0.06 is partially successful, would there be a scenario under which Equistar would earn at the same level as the first quarter or is that a stretch at this point?

I guess you go back to what I'd mentioned to where we are through April. You've seen some of these prices come off. You've seen the polyethylene come off a couple of cents. But I made the comment earlier on the cost of ethylene that we've also seen that come down a little bit through April. It awfully hard to talk about it with the volatility we're seeing everywhere. It's hard to talk in the specific to this one quarter, etc.

In your experience what has been the worst month-on-month decline? Has there ever been an instance where you've had three months in a quarter pretty much see declines of $0.02 or $0.03 a pound each month in ethylene?

Not in the kind of economy and market conditions we think we are in, no.

I don't remember it period, but that doesn't give you much comfort because we've never seen times like (multiple speakers) with energy prices and the tightest the world commerce is and all the other factors. I think as we talked before, cycles are cycles but none of them are precisely the same because the things that cause them and the things that cure them are always a little bit different. (multiple speakers)

Do you think there's sufficient utilization support right now for you to hold onto your price increases if oil backs off -- sorry, hold onto your prices for a period if oil backs off?

I think to come back again to what I was really saying, it's supply/demand balance that determines it. And clearly we think if you're above 95% operative rate, then you are in very good shape. If you're between 90 and 95, you've got a fighting chance. And it all comes down to behavior of participants.

But we're in that more in that 90 to 95 than we are in 95 to 100 at this point in time. If you put in that prospective, if you have 5% of the excess supply, in ethylene because it's the biggest, that's 3 something billion pounds of excess supply, which people can get into mischief with. It comes down to behavior in that situation. The only time I'm pretty confident is when nobody has any supply and then they can't get into mischief. I think the fundamentals are there that it could be there but the behavior could also dictate that it might not.

You're kind of sitting right at that inflection point and you saw that in the fourth quarter. It tightened up. Things really moved forward so you're kind of sitting right at that point right now, Kunal.

Thanks a lot, guys.

(indiscernible)

I've already -- the question has already been asked. So I'm okay.

Kevin McCarthy with Banc of America Securities.

I just had a quick follow-up. I think you mentioned that the Clinton cracker was going to be for maintenance turnaround. How long would that be and is there any meaningful cost associated with that we should be thinking about and any other turnarounds in the quarter please?

There are no other turnarounds in the quarter and that is a third quarter event and I would think that costs -- do you have it in there?

That cost would be somewhat less than what you see when you bring down the big (indiscernible) with crackers. I don't think I'd have a precise number right now.

It would probably be about what -- six-weeks?

It would probably be a five, six week downturn -- down time.

Clinton, half a million tons.

Yes. The other thing I think we did mention was that has something to do with how we were handling our polyethylene inventory because when that facility comes down, we lose some polyethylene grade (ph) that we don't make elsewhere. We were inventorying to take care of some of that which -- the one place that we will take those steps to make sure that we can cover our customers when we have that outage and you have to prepare a month in advance for that.

Thanks very much.

Jim Stanley (ph) with SAC Capital (ph).

Good afternoon. Actually I think Kunal really asked you this question that I wanted to ask you sort of having to do with your thoughts of how this may play out sequentially over the next few months. But maybe just to add a little bit more on the question front. There is a lot of talk about -- wow, we are going to lose $0.02 in May and June. This April was just the start. And you guys have mentioned the fact that we really should be focusing more on the margin than the price. The price goes down sort of depends on what happens to raw materials as well.

So I guess maybe the additional question would be and you sort of already answered it, you're on the precipice it could go either way. But we've seen some margin degradation from March to April. Do you think that -- what is your opinion of further -- not price degradation but margin degradation from April whether raw materials go up or down? And that kind of asks basically to what degree do you think where we are in the demand/supply situation to either hold steady or not and possibly lose some more margin? Where do you think we are?

Let me see if I can frame some of this. Part of where we are if you want to look at week by week which is really kind of the way people are focusing, is where are our competitors inventory situations and their relationships with their customers vis-à-vis ours? We're pretty comfortable where we are and if everybody were where we are, we would say that this is ought to wash through and later in the quarter you all would have considerable firming and everything back on track.

If however, some other people or in a little weaker position inventory-wise than we are, then it could take a little lover. And during that time when you're doing this, I think the dynamics can be all over the map. I would come back and say it almost doesn't matter. The real term that we're looking at here because this is a pertivation (ph) that will get corrected. It's not a fundamental shift.

To be a fundamental shift, we would have to be looking at negative GDP. All of the consternation about 3.1 versus 3.5 or whatever, we've only piled on I think if I read the chart right this morning, this is the eighth or ninth consecutive quarter of GDP north of 3%. That is nice but put it in perspective. If we get 2.5, that's nice too. If we get 2, we will live with that. It's not negative and it would have to be negative for this trend to be a trend to continue -- to continue to see erosion of margins that were longer period of time.

I think you've got a very temporary inventory correction. I think we've got a lot of furor in the market as we adjust from gee, we're not going to be seeing 4.5% growth, we're only going to be seeing 2.5 or 2.75 or 3. But for our industry, for our products, because of the unique supply/demand balances that we see, it is not that big a deal and it will work out over months, not quarters.

I think we will be back where we need to be. Now there are other parts of the economy where the utilization rates are still in the high 70s or low 80s where that is not true. We get washed into all of the general economic but then nobody goes back and separates the specific on a common metric basis. And I think it's important to do that.

Maybe a follow-up. What is your impression of -- we know a lot about where producer inventories are but we don't know a lot where customer inventories are. What's your impression of where they are at this point?

I think the visibility that we have is in the polyethylene where they are. We've seen them coming down. We saw them move up in December, started down beginning in January and have continued on a trend like that. We see they are in pretty good shape. We don't see big problems there.

In monitoring our rail fleet is the most direct way we have and the phenomenon of small consumers will often times use your railcars as storage. And they will prebuy and the railcars will sit on their sitings longer. We've seen some of that happen in the first quarter. We've seen that pretty well reverse itself for us at this point in time. And when I keep talking about other people, I just don't know the fleet movements in other people.

I did talk to somebody in one of the large railroads just a couple of days ago who I know and he was saying they actually had some of the phenomenon that caused the (indiscernible) problems and that is railcars on sightings and then starting to block some of their trackage. He said they don't seem to see any of that at this point either which is just an anecdote -- I'm not sure it means a whole lot else.

We just don't think there is a lot there. If you look at the retail end, I think when you look at same-store sales and so forth and you watch the Wal-Marts and other people, things are not wonderful, wonderful, but it doesn't look like there's anything building anywhere -- stuff is flowing through to the consumer still. I just don't think there's a large amount in the chain. But you don't need a large amount if you're not quite there on the tightness.

Any little bit can be used and certainly we deal with a lot of smart people and if they see a chance to maneuver the prices lower, they're going to do it. Just as we will try to do that on all of our raw materials supplies. So until things are just so tight they can't move, I don't think you're going to see that straight upward price movement. You are going to see the to-ing and fro-ing week-by-week.

Thanks a lot.

(indiscernible) with Bank of America securities.

You mentioned potentially accelerated debt pay down if you generate more free cash than previously anticipated. What lines of business do you think would generate that free cash? Clearly your ethylene business has got the most operating leverage, but is there something else that we might be missing here?

We're seeing very strong momentum in the propylene oxide chain. And in fuels generally. So whether it's manifested in MTBE in the propylene oxide segment or the fuels component of Millennium or strictly out of the LCR side, so very strong in both of those. We think the ethylene chain continues to strengthen and we thank Ti02 is moving into a much stronger zone than its been in the past probably five or six years.

We think we're going to be generating cash in all of these and again, our CapEx is running about a third of depreciation. Our depreciation is higher than it used to be because they were write-ups in some of these as these deals were concluded. I think we're in a very good position to have very strong cash flows. We see strong cash flows now. We think the cycle improves from here with these stronger cash flows and our intent is to put all of those to bed in repaying debt.

Now Kevin alluded to that's not a straightforward as we might like it to be because not all of the debt is eminently callable. But we're working on creativity to find out how you get to more debt quicker should we have that happy occurrence that we discussed as cash building up and can't get the debt taken care of. I think we'll figure out how to do that.

We've got a long way to go. I think our net debt is somewhere around 7 billion at this point in time. That means that on our target, we need another two plus still paid down but if we've got a chance to pay down four plus, that would be good. So we'll just keep slugging away and whatever cash we generate, we're going to file into the debt repayment and get there as quickly as we can.

You mentioned increasing your TI02 CapEx. Are there any other lines that you might increase your --?

Let's put it in perspective. We increased in Millennium a total of 15 million per year. I don't think it rises to the level of the importance there. No, we don't have other -- we're doing the regulatory things, remind you that we built two world scale facilities in the propane oxide chain during the downturn. And as a result, we're not really in the market to do that instantaneously. I think over the balance of the decade, we will invest some more in that business. But it is not in the immediate future.

I think to summarize, plans haven't changed. We're consistently moving forward on it and we're going to do it as quickly as we can to claim the debt reduction.

Thanks a lot.

Richard O'Reilly with Standard & Poor's.

Good morning gentlemen. Two questions if I can ask? One on the refining segment. The first quarter performance versus the fourth quarter. Aromatics was better by 20 million. There was the absence of the maintenance problem of the fourth quarter which you previously indicated as 20 million unless I'm double counting that. But that would imply that the base CSA business might have been down as much as 90 million in profits.

You are double counting on the aromatics. So it still leaves a large number -- (multiple speakers).

Still leaves a large number.

It is a big difference. And as I said, its really -- if you look quarter-to-quarter you can confuse yourself a little bit because it's all within the contract. The contract really sets this margin over time. It's just that quarter-to-quarter you can see changes because we're going through some very rapid changes in gasoline prices and crude prices right now which can affect you when you put a line and cut things off either on January 1 or March 31.

So if you recall in the fourth quarter I said we enjoyed some benefit from the timing of the CSA contract and in the first quarter I said it turned around the other way. So the delta looks large because it's funded one direction one in the other.

It's more contract timing than the volume decline?

Purely contract timing. That's what it is.

Second thing, your interest expense line looked a little less than what I would have been thinking.

No, Rich, you might be picking up and I think you are looking at the consolidated. That is probably because some of the purchase accounting and how that works through it. So I think that's what you're looking at there.

What's a better number?

The thing I would suggest to do at the beginning of the call I mentioned I referred you to the S-3 that we filed. I think that will define everything for you very clearly and you can get a chance to sit back and look at the various purchase accounting.

Thanks a lot.

But you are telling in simplifying, we haven't quite gotten there yet, right?

Robert Koort with Goldman Sachs.

Good morning. Understandably a lot of focus from folks on the near-term. I was wondering if I could ask you a longer-term strategic question, Dan? And that is another small commodity chemical company this morning got on their call and talked about the advantage they have in global reach and scale. I'm just wondering while I know you're already getting the debt down in the near-term, what do you see as opportunities to diversify the asset-base and maybe dilute some of the exposure you have from an asset intensity standpoint to the North American markets?

I think we've said before that our strategic view of long term is that while we built we think a nice portfolio of assets; we still would like to be broader. We would like to be deeper. And go further into derivatives because I think you can control your destiny a little better there. We think we need more geographic spread than what we've gotten.

That is kind of the nice to have list. How you get there is not as straightforward. And so the way I would look at it is we think that the best thing for us right now is to concentrate on shaping up the balance sheet, enjoying the cyclical upturn of what we've built, but we constantly keep an eye on opportunities out there and the businesses that we think we should be growing organically, the ones where we have true economic advantage like the propylene oxide chain, we'll continue to monitor and figure out how we do that.

Those you can choose where you put things. I would expect that as we move forward in propylene oxide and derivatives, you'll see us spreading out geographically more in the future. Ethylene, we're not builders of grassroots ethylene plants and would not say for some really super feedstock arrangement that gave us a true competitive advantage over a long period of time. We are more likely if we were going to grow in that or related businesses to do it by an acquisition. And that is what is available when and doe it work and does it fit any of the other criteria? And most importantly, is it a good economic position to do it?

So I don't think you could say we're going to go out and just magically build another business line because I don't think we have the technology position to do that, we're not resident with technology that would command that. We don't have any other commanding piece that would say that we really ought to do that. So, what I'd say is really there's nothing on the radar screen like that. And we're content to just do the humdrum, repay several billion dollars and debt and enrich all of you as bondholders and stockholders.

I appreciate the last part of your answer there. Does that mean it would be more likely that we would see you continue to invest in North America but go downstream where you are a little more protected as opposed to searching out feedstock advantage in the commodity spectrum?

No I wouldn't put it in terms of putting a lot of investment in North America. When I talk about one of the broader and deeper -- I think we have some pretty good depth in the ethylene chain already. I wouldn't be looking at a lot of investment there. The propylene chain, the propylene oxide, yes, and we continue to find any uses and offshoots of the technology where we get into smaller things but continue to grow the propylene oxide demand faster. We will continue to do that. But again, that's no more here than anywhere else in the world. That's pretty balanced around the world.

If I can follow up with just one last question. You mentioned earlier I think the disparity in growth rates of propylene chain and ethylene chain. What do you see is the conclusion of that over the next maybe five to six years as all these light truckers come on in the Middle East?

I think you're going to see what you've started to see and that is more announcements that propane dehydro (ph) or metastasis units being built and these cheaper feedstock regimes trying to generate some propylene. But those are pretty high-cost solutions and so we think the net upshot of that is while we are at five to six billion pounds of propane production and we consume three something, we're very long in propylene. We think that is going to be more valuable and the margin is going to be higher and we're going to enjoy that. We're very comfortable with where we are. And we think it bodes well for profitability.

Great, thanks very much.

At this time, I show no further questions.

Thank you, operator. And thank you everybody who might still be on the call. We appreciate your interest.