利安德巴塞爾 (LYB) 2005 Q4 法說會逐字稿

Hello and welcome to the Lyondell Chemicals fourth quarter 2006 earnings teleconference. At the request of Lyondell Chemicals, this conference is being recorded for the purposes of instant replay. Following today's presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

I would like to turn the conference over to Mr. Doug Pike, Vice President-Investor Relations. Sir, you may begin.

Good morning. 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 fourth quarter and full year 2005 performance. Kevin will then review some financial metrics and activities, and before we open up the call to your questions, Dan will summarize the events for the year and provide a foundation for our outlook into 2006.

The call is scheduled to last 60 minutes.

But before we begin, I'd like for you to note that statements made in this teleconference relating to matters that are not historical fact 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. Please also prefer to Lyondell's Equistar's and Millennium's annual reports on Form 10-K for the year ended December 31st, 2004, quarterly reports on Form 10-K for the year -- quarter ended September 30, 2005, and annual reports on Form 10-K for the year ended December 31st, 2005, which will be filed with the SEC in March 2006.

I would also like to point out that a replay of today's call will be available from 1:30 PM Eastern time today until 6:00 PM Eastern time on February 3rd. The replay can be accessed by calling 866-490-2543 or 203-369-1699 and 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 website at www.Lyondell.com/earnings.

The reconciliations of non GAAP financial measures to GAAP financial measures together with any other applicable disclosures, including the earning release, are currently available on our website at www.Lyondell.com/earnings.

Now let's proceed to a discussion of our earnings. During the fourth quarter of 2005, Lyondell had net income of $141 million or $0.54 per-share on a fully diluted basis. This compares with net income of $10 million in the third quarter of 2005. Now the fourth quarter includes a pretax charge of $12 million, related to an industry mutual insurance consortium, and 24 million for costs related to the shutdown of the Lake Charles toluene diisocyanate facility.

Additionally the fourth quarter includes a $17 million charge related to the early retirement of debt. Now these charges reduced fourth quarter earnings by $0.13 per share. And for purposes of comparison, the third quarter included $231 million in charges related to the shutdown of the Lake Charles toluene diisocyanate facility -- Industry Mutual Insurance Consortia and debt reduction.

Additionally the fourth quarter LCR results were significantly impacted by lost production related to Hurricane Rita. And the hurricane is estimated to have impacted LCR results for the quarter by approximately $130 million and this equates to approximately $0.20 per share in Lyondell earnings.

As compared to the third quarter, the underlying fourth quarter earnings mix is quite different as the ethylene segment was the strongest performer. Propylene oxide segment results declined, following the typical seasonal MTB margin trends and as I mentioned LCR's performance declined significantly.

For the full year of 2005 Lyondell had net income of $531 million or $2.04 per share. This is an improvement of $477 million versus 2004 and it continues a trend established during 2004 when annual earnings outpaced 2003 by $356 million. Lyondell's ethylene and propylene oxide segments benefited from year-to-year improvement while LCR's performance declined. Additionally, Lyondell benefited from a full year of Millennium ownership.

The Lyondell's final book tax rate for 2005 was 29%. But looking forward I would suggest you use the 35% statutory rate year 2006 earnings model. And our cash taxes during 2005 were modest.

However we have utilized a majority of our previously accumulated net operating losses. Therefore I would adjust that your forecast assume a more conventional cash tax situation during 2006. And finally our fourth quarter average outstanding share account was approximately 247 million shares and the corresponding share count in the diluted earnings calculation was 260 million shares.

Now let's turn our attention to our ethylene coproducts and derivative segment. As most of you know the primary product for the segment are ethylene, ethylene coproducts including propylene, butadiene and benzene and derivatives of ethylene, which include polyethylene, ethylene oxygenates and vinyl acetate monomer or VAM.

Our fourth quarter segment EBITDA was $438 million up from $116 million during the third quarter and the key contributor to the quarterly increase was higher prices and margins. Ethylene and [alkylene] derivative prices increased significantly versus the third quarter, leading to the majority of an improvement. Specifically ethylene prices averaged $0.15 per pound higher in the fourth quarter than the third, while the corresponding increase for polyethylene was $0.18 per pound and for ethylene glycol $0.07 per pound.

On the cost side the quarter to quarter change in our cost of ethylene production metric was quite modest, increasing by slightly more than $0.01 per pound. An increase was attributed to natural gas-based raw materials while our cost production of crude oil-based raw materials was essentially unchanged. Volumetrically ethylene and ethylene derivative sales were relatively unchanged as increased ethylene sales offset a decline in the ethylene derivative sales volumes.

Gas fields results declined versus the third quarter by approximately $5 million. Its price increases did not fully offset higher natural gas in ethylene cost. So on a full year basis the key performing stats for 2005 compared to 2004 is as follows. Average price increased by $0.09 per pound for ethylene, $0.13 per pound for polyethylene and by $0.03 per pound for ethylene glycol.

Our cost of ethylene production metric increased by slightly more than $0.04 per pound with the majority of the increase attributed to natural gas-based raw materials. An $11 per barrel increase in our liquid raw material cost was largely offset by coproduct price increases. Ethylene and ethylene derivative sales volumes declined by approximately 500 million pounds or 4.5%, including vinyl acetate monomer -- including ethylene vinyl acetate monomer portfolio decline with a price of $660 million pounds -- excuse me. Percent change in our sales volumes appear to be consistent with reported industry data.

Looking forward, January sales for the ethylene segment have increased from the December level, and are now at more typical levels. However in general, product prices have declined from their November highs and we expect margins to decline from fourth quarter levels.

Overall we expect a strong first quarter although not as strong as the fourth quarter. Raw material costs have been quite volatile and our raw material mix is temporarily shifted to a lighter slate. We don't have any scheduled maintenance turnarounds during the first quarter or, for that matter, all of 2006.

Now let's turn our attention to the propylene oxide-related products segment. This segment includes propylene oxide, derivatives of propylene oxide, toluene diisocyanate, MTBE and styrene. During the fourth quarter of 2005, EBITDA for the segment was $104 million which is a $217 million decrease from the third quarter 2005 results.

Lower MTBE margins were responsible for the majority of the decline as MTBE raw material margins fell by $0.95 per gallon. The majority of the decline occurred in November when raw material margins fell from atypically high levels of more than a dollar per gallon to more seasonally normal levels of approximately $0.15 to $0.20 per gallon.

To a lesser degree, results were negatively impacted by reduced production related to the scheduled maintenance turnaround at our Bayport PO plant. The combined impact of these items was a $220 million reduction versus record third quarter results.

Propylene oxide and PO derivative products continue to have strong results in the quarter, strong volumes in prices offset increased raw material costs with styrene results improved by approximately $15 million while toluene diisocyanate results were unchanged. Ongoing TDI business positions improved but severance costs related to the shutdown of our Lake Charles TDI facility offset the improvements. And as of year end we've incurred approximately $24 million of the $65 million of Lake Charles TDI shutdown costs that we estimated in our December 8-K filings.

At this time we expect that the actual spending on these items will be approximately $20 million less than originally estimated. Looking back at the year, 2005 proved to be a very good year in the PO segment. MTBE results were obviously very strong improving by approximately $325 million versus 2004. In addition PO results improved substantially, adding approximately $200 million primarily through improved margin.

Unfortunately TDI results did not respond to the recovery in the same fashion as increased raw material costs were not offset by price increase. And for the year, TDI operating results declined by approximately $65 million, including Lake Charles TDI shutdown-related costs.

Now thus far in the first quarter business conditions for PO and derivative styrene and TDI are relatively unchanged from the fourth quarter while MTBE margins have remained at typical seasonal levels. During March, we will begin scheduled maintenance activity at our PO TBA and BDO plants in Rotterdam. However scheduling an inventory effort should minimize any earnings impact of this activity.

The next segment I would like to review is inorganic chemicals and the primary product of this is titanium dioxide. Fourth quarter sales volumes were relatively unchanged versus the third quarter while prices increased moderately. Stronger U.S. prices were largely offset by lower dollar based prices in Europe and Asia; and during the quarter we met the unseasonably strong sales demand through a further reduction in inventory, ultimately bringing year end inventories to low levels.

While overall results improved from quarter to quarter it (technical difficulty) despite a number of headwinds including elevated natural gas costs both in the U.S. and UK that impacted results by $5 to $10 million. Difficulties ramping up production following our third quarter operating rate reductions and continued sales from inventory that due to their high inventory carrying value did not significantly contribute to quarterly profits.

So on a full year basis sales lives declined by approximately 7% versus 2004, and we believe this is roughly in line with industry trends. Our sales price averaged $180 per ton higher than in 2004 but increased ore and utilities costs offset a significant portion of the price increase. And thus far in the first quarter, titanium dioxide sales have remained reasonably strong. Production has been good and natural gas prices have eased. In summary we believe the majority of the headwinds we encountered in the fourth quarter are behind us and the business is poised for a better performance in 2006.

Now let me turn your focus to the Refining segment which consists of our 58.75% ownership in LCR. LCR had a net loss of $35 million in the fourth quarter and this translates to EBITDA of (technical difficulty) $123 million decrease versus the third quarter. And the decline in quarterly results is attributed to the hurricane-related shutdown of the fluidized [cap cracker]. This unit was down during October and November resulting in significant reduction in crude throughput and suboptimum operations of the refinery.

The fluid unit was restarted early in December and the refining operations returned to normal at that time. As a result the refinery crude throughput only averaged 169,000 barrels per day during the quarter versus full capacity of 268,000 barrels 268,000 barrels per day. For the full year segment EBITDA declined from $645 million during 2004 to $348 million in 2005. And the declines are principally related to the planned and unplanned maintenance in the second quarter and hurricane-related downtime during the third and fourth quarters.

And as a result average daily crude throughput declined by 48,000 barrels per day in 2005 versus 2004. But through the first months of 2006, crude throughput, operations and spot crude margins have all been strong.

This concludes my prepared remarks. I'd like to turn the call over titanium to Kevin.

Thanks, Doug. As you all know our key financial goal has been to maximize cash from operations and apply it to debt reduction. Progress continued during the fourth quarter as we paid down additional $422 million of debt. Now specifically we repaid [300] million of Lyondell's 9.5% 2008 bonds, retired $100 million of Lyondell debentures that matured in December. In addition we purchased approximately 22 million of Millennium bonds on the market.

In total, since September 2004 we have paid down 1.66 billion of debt -- about 1.4 billion at Lyondell parent company and the balance at Millennium. Our consolidated debt finished the year at 6.4 (indiscernible). I think we made great progress during 2005 -- probably more than most people expected.

We also have kept our commitments to you regarding liquidity. In fact, we finished 2005 with more liquidity than when we entered the year and our cash balances or strong. We closed the year with 593 million of cash. Year end cash position the individual operating companies were 99 million at Lyondell parent, 215 million at Equistar and 279 million at Millennium. Revolver and asset-based facilities finished the years drawn to the same extent that they were when we entered 2005. 75 million of Lyondell's asset-backed facility capacity was utilized and 200 million of Equistar's facilities were utilized.

That result was that our total year end available liquidity including the cash was 1.9 billion. The ethylene business was one of the key sources of cash for the debt reduction effort. Over the course of the year distributions in Equistar to its owners totaled 725 million. A combination of the hurricanes and other operating disruptions made LCR a much smaller source of cash than we anticipated when we entered the year as net distributions and LCR to Lyondell declined from [341] million in 2004 to 175 million in 2005. However the strong performance in the PO segment more than offset this decline.

The capital spending finished the year below our original estimates as we were able to meet the needs more efficiently in some areas such as environmental spending. On other areas some spending was delayed. For the full year, capital spending was as follows. 155 million in ethylene coproducts and derivatives, 36 million of PO and related products or 51 million including capital contributions, 53 million in inorganic chemicals and 176 million at LCR. Total consolidated capital spending was 249 million plus 15 million in capital contributions to PO JVs. We issued a press release this morning with our capital spending plans for 2006.

And in summary we met or exceeded our goals for the year and we continue to manage cash very closely and efficiently. Our assets are generating significant cash flow. We are utilizing this cash as we said we would in improving our balance sheet. Now I will turn the call over to Dan.

Thanks Kevin. I would like to start by briefly looking back at 2005 and then providing some insight into our thinking for 2006.

As we anticipated, 2005 turned out to be a pretty strong year. Tightening conditions in ethylene, propane oxide and the gasoline markets all contributed to a significant increase in earnings. Our results were bolstered by the late 2004 acquisition of Millennium and with it, the ownership of 100% of the Equistar ethylene assets.

The timing of this could hardly have been more favorable for us. Equistar enjoyed its most profitable year in history and we anticipate continued strong performance for several years. The past year also reinforced our view that our ethylene and Refining assets are well position. For example our liquid crackers enjoyed continued strong results as coproduct prices offset the majority of a $15 per barrel increase in annual crude price.

Conversely ethane based ethylene plants improvements were somewhat more modest as they did not enjoy the benefits of the coproduct leverage. In the fuels area, heavy crude refining proved to be the sweet spot in a very strong market. This heavy life differentials grew to record spread and MTBE also benefited from the tight gasoline situation.

But there is room for improvement. The past year also includes several events that negatively impacted our profit. Most significant among these were the hurricanes and shutdown of the Lake Charles TDI facility. Collectively, items such as these reduced 2005 after-tax results by nearly 300 million or approximately $1.05 per share.

Obviously, we don't anticipate a recurrence of these events in 2006.

Despite these negative factors, we still regard the $477 million net income improvement in 2005 and I believe that we will see continued improvement in 2006. I expect that Lyondell and LCR will realize reimbursement of their insurance claims arising out of the hurricanes and, additionally, earnings will continue to benefit from our ongoing debt reduction efforts.

Assuming that we continue at the pace established over the past 16 months we could benefit from approximately a $100 million reduction in annual interest versus 2005. These interest savings payments alone are expected to add $0.25 per share to 2006 earnings. So even if current year market conditions were identical to 2005, I see the potential for significant earnings improvement.

Looking ahead I see continuation of strong conditions in ethylene, propane oxide, titanium dioxide and refining. In fact I expect economic growth will continue to tighten each of these markets as we progress through 2006. However I should caution you we don't expect a straight line quarter to quarter or even week to week.

The market seemed to be sitting very close to the tipping point between solid balanced operating rates and significant tightness. We saw markets move into the very tight range several times during 2005, creating a very significant margin volatility and we would expect the same to occur in 2006. Unfortunately high and volatile energy costs are also likely to continue adding volatility to our earnings.

With this much noise in the system it is important that we all consider the fundamentals rather than being swayed too much by daily news or spot prices. While we expect continued strong performance in the majority of our products I have to acknowledge the MTBE's future in the U.S. is less certain. Logic suggests that a very tight gasoline tool and projections of $3.00 per gallon gasoline at the pump will create summer MTBE demand and margins similar to those experienced during 2005.

However several refineries have discussed plans to discontinue MTBE blending beginning in the second quarter. Should this occur we have several options available to us including [iso-octene] or ETBE productions as well as export to other countries for demand for MTBE and ETBE is continuing to grow. Regardless of the outcome of the MTBE situation we expect global gas line demand to continue to growth and all options yields high octane low vapor pressure blending compounds. These are the properties the market, environmentalists, regulators and refiners are looking for. So our product should command good value in the marketplace either here in the U.S. or elsewhere.

In summary, we think that 2006 looks very positive. Supply demand balances for the majority of our products are balanced to tight. Economists predict continued economic growth around the globe and that should increase product demand. Global capacity expansions should continue to encounter delays. Going forward, our outlook is very positive and I believe our assets and people will deliver very strong results in 2006.

With that let's open the call, Operator, for questions.

(OPERATOR INSTRUCTIONS) Christopher Miller. J.P. Morgan.

Good morning. Wanted to circle a little bit. Maybe start with the MTBE. The sense or the tone seems like maybe you've turned a little bit more negative on it than you were previously as you look out. I mean, obviously we know the pressures that are on that business. Has there been something that has kind of changed that view or changed your view in terms of how you are thinking about that market going forward?

I think the fact that we have people talking about discontinuing use in addition to where you are seeing some state bans before, there is a change in the picture. But I would remind all of you that this product has been dead supposedly for five to six years and five or six years ago we had a very sloppy market for gasoline. So I think the thing to look at is why we are cautious because we really don't know what impediments there are in the way.

On the other side of it, I'm less cautious. The world is in need of energy, specifically gasoline. This is a great gasoline blending component. If you take it out of gasoline you create a hole that is not easy to replace.

So I think what we see here is we see people taking it out, as we see pipeline companies saying they are not going to transport it, you create impediments to the movement. But I think what you are going to see is a rebalancing of the energy needs around the world. Now as crazy as it seems what we may find ourselves doing is exporting quantities of MTBE to other parts of the world only to reimport gasoline blending components to make up the deficit and the transporters will make out more than anybody else on that.

The reason that we are cautious and the comment is we can see some disruptions coming that we are going to have to work around. And we have done all of our planning all along so that in the event we see a disruption so great that we can't get over it we will switch to either ETB or the [diisobutelyne] that also are blending components and notably on today's market selling at about the same levels that MTBE is.

Now we don't want to do that and I remind you why we don't want to do that. We switch to DIB we lose if you will, the blending in of methanol to make the gasoline from. So while the margin is about the same on the products, the volume is lower. You only make about 60% as much volume in the DIB case.

So obvious to you and to us we want to continue to make MTBE we want to continue to enjoy the profitability from it. I think it will be there, the rest of the world is continuing to grow and outside the U.S., demand for MTBE is about double over the past five year period. So there's a good market for it out there but may not be exactly the same path day-to-day, month-to-month that we have been following. And that is why we are a little more cautious in what the outlook is for any one period of time here. Does that make sense?

Yes it does. Thank you. Two other quick maybe bigger picture questions. Obviously you've done a great job in terms of cash generation and debt paydown. You have a lot of accessible debt within the Lyondell box. When we think about the capital structure in its entirety, as you look forward, is there a point where you see it makes sense to begin to try to simplify your capital structure a little between Equistar, Millennium, and Lyondell and (indiscernible) how do you see that developed?

That question comes up a number of times. I think what we look at is we continue to pay down the debt. We can move that way in its worst days probably by 2008 by just letting it happen naturally and we haven't seen a reason to and so we incur additional cost. You know we are spending a lot of money every quarter. We tell you how much that is to bring that debt in early. We haven't seen the economics tell us we need to do that.

We don't have the restrictions that really require us to do that. We can move cash pretty freely around with the exception of Millennium and Millennium has debt that can be repaid and is generating the cash from the Equistar portion of it. So it hasn't just been a top priority for us.

Lastly, big picture. Anything you look at from an M&A perspective over the next 12 to 24 months? Or is it your, definitely, debt paydown that as the major focus?

I think the way you all look at this is that we have built this Company largely from M&A. We don't stop looking at any particular time. But we've looked continually through the years. We actively look today. We'll actively look tomorrow. The picture of how you would go about doing things changes by where you are situated. We clearly still have too much debt. So our priority is to get the balance sheet in shape that gives us more room to do more things more economically.

Does that mean we can never do something at the current time? No, it doesn't. It means that it is more difficult. It has to be a much better opportunity to get your interest there. So I think that the right perspective is the one you have got. Our priority is repaying debt but I think we'd be foolish not to monitor what is going on in the industry restructuring around us, and always evaluating what the options look like to make sure we don't pass on something that people think we should have looked at.

Mike Judd. Greenwich Consultants.

Good morning. Just ask some further questions on the MTBE question. As you look at last year, how MTBE did on a quarterly basis, and you consider some of these various options that you have, the first question really is what do you think -- how does the earnings outlook look for the product as you go through the year? Secondly, if you do decide to export or produce some of these other products when would you be making a decision to do that? Is this something that you already have the matrix laid out and you can move quickly on or are there further work that needs to be done?

The modifications to make DIV and the existing facilities have been under way -- continue to be underway. We could do that probably sometime in the summertime, if we chose. I would tell you in any circumstance we would not be in a position we'd want to move quicker than that. Because I think you are likely to see some to'ing and fro'ing in this market. If there are disruptions here, I think you are going to see them redistribute and we stand ready with the ability to ship to other parts of the world should we need to. And I think you would want to see how the balances work out because I would highlight again that while the modifications we are making are switchable, they are not really switchable in real time. You lose about a month every time you switch.

So you want to be pretty sure that you want to be in DIV production. You don't want to just start out that way and think, "Well, I will switch back to MTBE the next month." So I think what you are going to see us do is stay the course in MTBE until we understand how this shakes out. Because we still -- in my opinion -- have the strongest position in this market and I continue to think that there is not going to be enough gasoline to go around. I continue to think that much of what is being done in trying to take MTBE out of the market has motives other than purity behind it. I think it has a profit motive behind it and I think when the shortages are very apparent then the market is going to clamor for more volume and that is going to help redistribute things.

Now how that happens, I can't tell you. We are going to have to feel it out week by week as we go through this but we are not panicked by any of this. We are very confident where we are. We think you are going to see very strong margins in gasoline. And as a result you are going to see strong margins in MTBE but I have got to tell you we couldn't have predicted the margins last year. We couldn't have predicted the margins through most of the last five years before that. So we are not going to be any better at predicting them this year. But there ought to be pretty good margins sometime during the year as the gasoline market develops.

Switching over to petrochemicals I think you mentioned that it looks like the economics on cracking NGLs is perhaps better than [NAPTA]. Can you provide a little bit more detail on that and what your outlook is perhaps for natural gas prices and liquids?

I think the perspective on this that everyone needs to keep is these are not market forces working. What you really saw -- I've described a little bit differently -- you saw crude prices zoom up on geopolitical fears. Specifically, fears that Iran was going to be subtracted from the world oil market. And as a result of that the price of crude traded well up. While natural gas tended to trade more and supply demand balance less impacted by the geopolitical.

So when you had that relative balance change, the cost of manufacturing ethylene from liquids went way up, the cost of manufacturing ethylene from ethane did not. What also happens is we -- with switchable capacity like others -- switch to [light fee] plates. What'd we move, Morris?

2, 2 billion.

2 billion pounds of ethane production. So when you do that you dry up coproducts. So as a result you see shortages now of propylene, butane, benzene etc. occurring and price movements up on those which start moving the margins back up and so they are going to re-equilibrate. You see these things happen for weeks, even a couple months and supply and demand does catch up and they start moving back the other way.

So it's not that liquids are at a great disadvantage. They just lost the very significant advantage they had had before that. And the resulting coproduct movements are going to have to rebuild that advantage which we think they will over the coming weeks.

Yes, we see no reason that the historical advantage liquids have enjoyed is fundamentally going to change.

It does look like if we continue to have warm weather with inventory levels of natural gas where they are isn't possible we could see further reduction in natural gas liquids prices?

Well I hope we do because that's good for all of us. But I don't think that's fundamentally going to mean that you have a cheaper ethylene from ethane. It's the coproducts really that you have got to look at and if the coproducts are not there, then the prices are going to move up until they are there. You have to create the supply by sufficient pricing and that is really what is going to drive the margin.

But, lower gas prices across the board would be good. Would be good for demand. It would be good for our utility costs. It would be good for our competitors as well but that is okay.

Jeff Cianci, UBS.

Big picture. It's pretty clear that going forward, ethylene looks better, poly, the refinery is up and running, the [TIO2] pricing and so on and MTBE, I understand the question marks. So the mysterious part, to solve for X here, would probably be the PO and related urethane markets which I would gather could be even a bigger swing here than MTBE. Would love to hear a little more on what the supply demand balance looks like there. Is the demand tipping point really Asian imports of polyurethane and can you comment on how the balance looks?

No the balance is very very tight and has been for some time. We expect it to continue. There is a PO plan that Shell is building that's expected to start up I guess some time in the first half of this year in China. But the industry is essentially operating at full capacity. So I don't think that there is going to be much change in that. As Doug mentioned, year on year in '05 versus '04, we had a $200 million in the PO and delivered it business in terms of margin and I would expect the tightness to continue and strong financial performance to be there.

So that is my question. Would that new supply you think be readily absorbed and still stay very tight?

Keep in mind. We have a 11 12 billion pound market. And we are bringing on a plant that makes 5 or 600 million pounds of PO. That's about the only capacity that is scheduled to come on in the next couple of years.

Is there a growth rate you put on that market?

Typically this market grows at 4 to 5%. You'd look at it first as the size of the PO plant. About every 18 months or so you need a plant -- one of the major plants to come on. We brought on a plant at the end of '03. This will be a plant in '06. So that kind of tells you that the tightening we've seen in the market overall and so it looks pretty good.

Edlain Rodriguez. Goldman Sachs.

Good morning. Quick question on polyethylene inventories. Are you surprised that the inventories are so low at the converters levels? And also what's your expectation of the buying pattern of customers over the next few months even you announced price increases and maintenance turnaround scheduled?

I don't know if we are surprised but we certainly are pleased. It's not just the converters. The industry's got very low inventories as well. We see the demand picking up and in the polyethylene marketplace and I would expect that that is a trend that is going to continue.

So you think the success of the $0.05 price increase is good in your view?

While it's something that we obviously would like to see happen and we are optimistic.

Let's go back a little bit here we've got a lot of noise in the system here over the past really two plus quarters. The hurricanes and the massive amount of outage in the United States caused a lot of disruption in this market. Drove pricing very very high, very very quickly. Created a big gap between here and other parts of the world.

Most analysts out there said, "Well, that means we have to collapse back to those world levels." Indeed what's happened is, the world levels have risen, prices have come off here so you meet in the middle, maybe a little higher than the middle. And in that I think the thing that people miss is, there wasn't enough inventory to go around. Moving the volumes around the world you were doing it with not enough volume left to meet all the needs.

So we basically through that period of time had taken inventories industry-wide down to lower levels. Meanwhile, you have good fundamental economic growth underlying all this. So as you get that noise out of the system, you've got some prices that adjusted and so forth. But I think the price improvement situation is good at this point in time because you have growth and you have more volume that you need, and you don't have inventories to supply it. So it's got to be supplied by encouraging more production which usually means you have to raise prices.

So I think the prospects are good for the price increase. I think that pattern you are going to see continuing through the year but it's driven by supply and demand balance.

Sergey Vasnetsov. Lehman Brothers.

Good morning. I want to ask you about your fourth quarter results in your Equistar division. Came slightly lighter than I would have expected looking at the margins and so part of the reason now becomes clear that your volumes in polyethylene, although significantly down, both sequential and year over year. Given that your plants have been running -- I believe, all of them in operation through the entire quarter -- while the rest of the Gulf was struggling with some other issues, can you talk about the reasons why?

First of all, I think we look at ethylene as a system overall and volumes were equal quarter to quarter. So some derivatives were up, some were down. Some movement on that. But I think we all know that when you reached December and you have very high prices you typically do have a downturn in December in polyethylene demand. And so you saw some of that. That was all natural and expected by us and we saw prices move up quite rapidly in there.

So, if you overestimated things versus what we saw, I think it is probably likely in pricing and pace of pricing as it went through in the volume mix so I think that's what you see. But we look at our volumes. They were good, third to fourth quarter. We did operate throughout, in fact, remember we were down for about eight days in the third quarter because of the hurricanes and got up and ran. And I think we took pretty good benefit of the market opportunity available from the fact that our manufacturing in ethylene responded quickly.

So it sounds like you sold more of the ethylene as compared to polyethylene in the month of December?

I think over the quarter, yes. That's what I said is, we saw the derivative down, you can see the data in our earnings release so ethylene was up and offsetting it.

I believe, Doug, you commented in your statements that you are looking for the sequentially lower results in Equistar as compared to the fourth quarter?

Yes I think you have seen, we saw in December, we saw some prices adjust. We have seen some in January. Now we are looking and seeing whether the momentum turns the other way, whether we are past those adjustments but also remind you that you started the discussion around volumes. And we said volumes are back to more normal levels after being slow in December.

So we will see how it all turns out. I guess the key thing we really talk about is, there is a lot of volatility in the system so we will see how it all turns out. I think people have to watch pretty closely because, over the past month, things have changed pretty quickly from week to week and -- in terms of the cost in price pictures.

Thank you.

Steve Schuman. Prudential Equity.

Can you comment on have you reestablish your exports out of the Gulf Coast and into, for example, South America?

Yes we have. Export volumes come back strongly this month.

And just if you have a rough number do you -- how much do you think the exports typically over the course of a year as a percentage, if you will?

Somewhere around 10%.

Also comments. Are you hearing any comments out of Iran? It looks like one of their crackers is going to come up particularly probably in second quarter. But they are also saying that operating rates are going to be if they are lucky 80%. And the derivative plants, almost half of them haven't been built so they are going to try to export ethylene out of Iran. I know you don't export ethylene but can you give us a feel on the economics around that?

Is this the plant that was supposed to be up in 2001?

Most likely. This is (indiscernible) '07.

This whole Iranian situation is very interesting to meet. On one hand we are preparing for no crude to be coming out of Iran but yet we are still paranoid that all the other things are going to come out of Iran. I think there is much ado about little here. And I think it will be what it is but it has been a lot less than people expected. And, frankly, I continue to expect it to be a lot less than people are expecting over the coming quarters.

So exporting ethylene per se is a difficult thing to do if you have a lot of infrastructure. structure. I think one of the big problems they have in that country is they don't have a lot of infrastructure. So power be to them to do whatever they think they are going to try to do. But it is a difficult path to do what you described.

I don't think we have any special insights. Another thing I would remind people on the exports that Morris mentioned, that 10%. The majority of that is in Africa, yes (MULTIPLE SPEAKERS) South America Central America region.

Kevin McCarthy. Bank of America.

Was a little surprised to see your capital plans for 2006 up about $140 million, or more than 50%. Can you talk a little bit about how that breaks down in terms of maintenance environmental expenditures and what you have penciled in for growth?

Let me start off, Kevin, and let people join. I think in the release we talked about the base kind of capital spending, for base support and minor plant efficiency projects at about 335. Most of the rest is actually environmental programs that we have been under. Finishing up [NOCs] and sulfur and things like that. That is where most of it is.

The one thing -- the number is up obviously from our '05 actual spending but if I took you back one step further and I said what did we really at this point in time a year ago intend to spend, we thought our '05 capital expenditures for the consolidated company would be about 330. We came out around 265. Basically some of that is delayed and moving into the next year but, historically, we haven't always spent everything. You look at where we are above what we would call the base and it's the refinery in Equistar and the environmental and regulatory areas.

To say it a little more positively, we are not spending a great deal of money on growth opportunities. This is all maintenance capital and environmental and regulatory-driven spending.

(MULTIPLE SPEAKERS)

-- more efficient and spend less we're happy so back to Doug's comments.

Shifting gears to refinery now that the cat cracker is back up and running there, can you talk a little bit about where the spreads are both the crack spread and what is going on with the [Mayan] WTI spread? I'm trying to get a sense for how first quarter EBITDA might compare say to the third quarter when your plant was running at a full operating rate. Are we looking at a profitability level that is higher, about the same or perhaps lower than that?

I guess the first thing to remember, Kevin, is that the 85% coming under this PSA contract is pretty much locked in on the margin. But to talk about the spreads I think, 321 crack spread has been about $7, $8 so far this year. The WTI Mayan has been about $17, $18 so you see in that heavy spread still for the spot material has existed. I think if you think back over the past couple of years and you look at good average EBITDA for quarters when operations were pretty steady, it has probably been in the 120 up as high as 193 in one quarter. It has been somewhere in that range over the past two years.

So we don't see anything that suggests the quarter be any other than a normal quarter this time.

So if you go back, you were comparing to third quarter and third quarter was 130 of EBITDA?

We got, I think the first quarter would be that level or higher.

Okay that sounds good. Finally, Dan, a clarification. In your press release, you made a comment that you see a return to positive price momentum in a number of areas as early as February. Seems in the ethylene chain, we are seeing erosion with ethylene down $0.03 in January, polyethylene down $0.04. Were you referring to pieces of your portfolio outside of ethylene? Or are you also optimistic about February pricing in that chain?

We are pretty much across the board, Kevin. I think if you look at what is going on we've announced polyethylene price increase. Others have. We think demand is recovering rapidly. Our January volumes are up over December as Doug talked about. I think our traditional Mexico/South America export markets have recovered nicely. We have up price initiatives -- ethylene, propylene, glycol, polyethylene, benzene.

I think, across the board, customers are indicating significant drop in derivative imports. We saw our finished goods coming in but the derivative imports came to be well down from October and November timeframe and if you don't have inventory and you have less imports, looks to us like things are moving up.

So with the low inventories and the good volumetric movements I just think the sentiment is there to get some of these price increases and expand margins somewhat. Railcar tracking is also a metric that a lot of you watch and we watch as well. And it is frankly the lowest level that we have measured. So that is another indication that inventories are very low.

I just think the situation is good and the backdrop still is we continue to see economic growth continuing across the globe. And as long as those two things are going on, I think it is a good picture.

Thank you for the color.

Greg Goodnight. UBS.

Good morning, gentlemen. Would you comment on operating rates currently in the industry and perhaps your own Company for now in the first quarter with -- and moving into the second quarter -- with the shutdowns? Where are we and where are we going?

We are currently operating our ethylene system let's say in the mid to upper '90s and I believe CMAI is reporting that the first quarter effective operating rate for the industry is going to be about 94%. And they are talking about scheduled down time of about 11% in the first quarter. Our [Palmer] plants are also operating in the mid to upper '90s. Our PO plants are operating essentially at full capacity. LCR is operating at full capacity obviously and even now our TIO2 plants operating -- running as hard as they can. So that is the picture.

And moving into the second quarter with ethylene?

We think that ethylene is going to continue to be in that operating zone. I think CMAI has forecast for the year something like 92 to 94%, with significant downtime. I remind you again that as Doug mentioned earlier, we have no schedule outages no maintenance turnaround in our ethylene system this year. So in a tight situation with all of our plants available, we believe we have reason to be optimistic.

The other thing to remember here is we've had such volatile conditions over the past several years. We've sort of lost sight of this fact. But the ethylene chain traditionally has its strongest quarters in the second and third quarters growth-wise, operating rate-wise. And typically the end of the year seasonal slowdown is there because a lot of converters frankly shut down during the periods of that time. So it is not at all uncommon to see a seasonal weakness in the fourth and slow pickup in the first and typically the second is stronger.

Frankly the last few years it has been lost in the noise of what was going on in all the volatile energy prices. But I think underneath all this, the business still does behave traditionally and I think the supply demand parameters would indicate strengthening through the second quarter.

Second question, if I could, have you taken the time to quantify the ex-LCR hurricane impacts or costs are for either 3Q or 4Q? Are they significant or have you put a number on the?

Excluding LCR?

Yes.

I can try to re-create without all that. I think Doug has tried to do that.

Yes I think if you -- I refer you really to the earnings release. We tried to quantify the production losses and if you recall, the third quarter, we thought we've probably impacted production lines $75 to $100 million. Now a portion of that was LCR and, then, in the fourth quarter basically the impact was the LCR impact that we spoke about today and it's in our earnings release.

So the Delta impact for fourth quarter was (indiscernible)?

Quarter to quarter? Yes you are up, really, about a bush. You had about the same impact in the third as you had in the fourth.

And that quantity in the third quarter was what?

We said a $75 to $100 million pretax impact in the third and, then, if you look at the LCR impact on the fourth quarter that was about a $75 million impact on us.

Net to Lyondell.

Net Lyondell on us, so.

Jeff Zekauskas.

Just to flip back to MTBE. So I guess that there are some announcements coming out of companies like Volaro and Colonial concerning their intentions about MTBE? Can you just give us a better sense of sort of why you are more cautious in concrete terms, having to do with your customer base in general? And, secondly, if it turns out that the United States is not a large buyer of MTBE any longer, doesn't that create much too much supply in offshore markets? Or are there more subtle issues?

Let me start with the second part. When you talk about the global picture, of course now you are into the global gasoline pool. This is octane and barrels. It's a very tight global gasoline pool. So, realistically, when you look at it in that vein, MTBE is relatively small volume piece of the whole thing. Now it's very important here in the U.S. because it's providing octane to upgrade a number of materials that just aren't going to make it in our opinion into the gasoline pool without it.

So how is it going to impact? Are you going to run into each other if you try to export? No, I think you have to look at it as the gasoline pool, not as MTBE in that world. So I think you have that situation is the way I would suggest you look at it. We remind you that when you look in other places of the world what you're seeing saint is growing use of MTBE and ETB because they are facing the same issues of a tight gasoline market. This is one of the solutions that they've chosen.

Not an issue, where they've chosen this as a solution and you're seeing MTBE and ETBE grow around the world. It helps people in terms of their Kyoto commitments, it provides octane. It is low sulfur. People are still -- it's hard for us sometimes to relate but elsewhere in the world people are still removing lead from gasoline and they are removing aromatics.

So the direction is tightening. We just happen to sit in a little bit different situation here in the U.S.

But I would also say, Jeff, that I don't think we are more cautious. I think we are just reacting to what some of these people are saying and saying, "Okay if they do that, then how are we going to respond and what are our actions going to be?"

So if you take from this that we are more cautious, we are really not. We think there are still should be a very viable market here. The pattern in that market may well be different. As you adapt to that pattern, there's some potential for missteps along the way because it is not a smooth transition. But we think it works out and we think that there is a very viable MTBE market going forward and we intend to participate in that.

But we can't promise you that it is going to be flawless in the transitions because we don't understand exactly what those transitions may be and at what point they may occur.

Certainly the colonial announcement is a disruption and I don't understand what they're doing or why they're doing it. But if they carry through on that, that impacts about 25 to 30,000 barrels a day of MTBE. So you got to revector that as an industry and that is something that is not just an overnight 'Gee, that is easy to do.' But I think it will occur.

That's very helpful. I guess secondly your balance sheet is just much stronger that it was before.

It's getting there.

Are there refinancing opportunities for Lyondell over time?

Yes there really are. We again as I answered a question a little bit earlier, we are actually focused on paying down debt and what's available is just to pay down as we get the cash flow from operations. But there's also opportunities to actually refinance at lower rates and we've got them on a balance sheet now. I'm -- clearly as we go forward, we can continue to look at that. We know what is facing us in maturities as well that are not callable so we are looking at that carefully.

I think we'll be able to get some improvements in overall rates on that basis as well. We are definitely going to look at the balance sheet over the long-term basis and take advantage of what is still out there as opportunities.

Don Carson. Merrill Lynch.

Couple of questions. Going back to Equistar margins, I would have thought they were higher, even given your lower volumes and variable unit margins. Was the difference that you are just paying so much more for your plant fuels? And as you go into Q1 presumably that turns positive for you. Doug, can you just remind us of how much you spend quarterly on gas to run your plants?

Yes with ethylene $1 is $6 million per month. $1 in gas is 6 million a month.

So clearly that was a drag that is not captured. You just look at volumes.

Yes. That's been a drag. I think it's a good point, Don. A lot of people have missed that as we've gone through the year. We've kind of become accustomed to these continually rising costs and prices. But we saw a pretty significant move up in natural gas over the course of the year.

That's why I made the comment that lower gas prices is good for us as well as for other people.

Two other questions. Dan, Lake Charles cracker doesn't really look like it's needed even things could be tight in the first half of the year. Have you given any thought to just closing that permanently? And then final question would be we've seen a number of cases where people have bought equipment to try to debottleneck and try to come off their maintenance turnaround. And it didn't quite work as scheduled. Are you anticipating more of these sorts of problems, with the very heavy maintenance turnaround schedule in the first half of this year?

Not with us because we're not trying to do any of those things.

Right, no, I was asking you to judge others, not yourselves.

No. I'd always be hesitant to judge anybody else. I think big plants are kind of like big airplanes. The toughest times are takeoffs and landings. When things are operating it's easier to operate them well but startups and shutdowns are fraught with difficulties. These are complicated big pieces of equipment and a slight misstep that can cost severely particularly if it's in a compressor train because that's huge equipment. Takes a long time to dismantle and repair, etc.

So you always, all of us face those challenges with startups and shutdowns. And if you modify things you changed something that you were used to doing and it makes it more difficult. So it's not unreasonable to expect you would have some missteps. And we have those all the time but we don't pay much attention to them if the industry's sloppy.

Industry is operating pretty tightly. A misstep makes a big difference for the person affected but it makes a big difference for the industry as a whole. So we are subject to much more impact from that kind of thing in the supply demand balance it would be right now.

But back to your Lake Charles question. We continue to monitor the supply demand situation and look at that. I would tell you that the last month or so is the first time that we have NGL crackers as profitable as liquid crackers in six years, seven years. So it gives you pause. Do you want to get rid of that facility altogether when you have a tight supply demand and it is not clear whether or not that tight supply demand is going to last for years or more years?

I think it's premature to make that decision still so we obviously had not made the decision to restart. And I think the clock is running. At some point if we continue to not make the decision to restart in effect, we will be making the decision never to restart. But I don't think we're there yet.

And when do you think that you are at that crossover point?

When we make the decision.

Okay. That clarifies it.

Nancy Traub. Credit Suisse.

Question about running your ethylene crackers. Morris mentioned how you switched 2 billion to ethane. I assume that's like 17% or so out of your 11 plus billion?

It's around 20%.

Well I look at it as 2 billion out of the liquid crackers. So the gas cracker is always strong on gas so he's talking about you moved an incremental 2 billion to ethane.

So it's a bigger percentage than the 17. It's probably more like 25, 30.

Is now on gas?

For that, yes.

Now what's the highest you can get?

On pure ethane, we've probably about exhausted where we think we can go. We could obviously do more on propane and butanes and other things. But, again, I think when you look at this you always have to look at where you're going to move to and how long as it going to stay there, etc., and it doesn't look valuable to us to take extraordinary measures beyond where we are.

Because frankly the price movements we are seeing in the market are pushing any back products back up and so it's not like you are at a big disadvantage. You are -- a lot of these you are very close to parity, and likely moving back in the other direction. So I don't think you're going to see us make a whole lot of movement further than this. But if we are wrong and the price movement and the fee stocks are different we will react accordingly.

One other thing. You touched on how things look pretty good for the ethylene chain. How would you compare '06 and '07 to the year we've just come off?

I think '06 will the stronger than '05 and how much stronger than that -- then, I think dictate whether we think '07 is yet stronger than '06 or about the same. So but it looks to us, Nancy, like we are in a zone where we ought to be in very good profitability for both '06 and '07 and as you well know, when you start hanging about peaks, the best way to measure a peak is after you've been there and we still don't think we've been there.

So we continue to see things moving up and I think we are going to enjoy a couple of years of very very good profitability and continue to pay that debt down.

Anthony [Depesko], Empire Oil.

Good afternoon. I'm talking about this hurricane. I was wondering what strategies you picked (indiscernible) ?

I'm sorry Anthony. Could you repeat -- ?

Preparations to make sure that hurricanes don't have that kind of impact.

So that we just see impacts and capacity, what strategies you (MULTIPLE SPEAKERS)

What we had, Anthony, we had a very very unusual situation in hurricane season this last year. And if I could spend just a moment the impact that you had in New Orleans from Hurricane Katrina -- and it's important to not that new Orleans really didn't take the brunt of the storm. The Mississippi Coast is what was devastated. But what happened in New Orleans was all the flooding and all the human impact on a large number of people. What it did was call into question civic officials, city, county, state and how they responded to storms. When a mere couple of weeks later you had Hurricane Rita approach, it entered the Gulf and it was not clear whether it was going to strike anywhere from the Mississippi Coast all the way down to the tip of Texas.

What you saw was an unprecedented move by civic officials to evacuate the coastal areas. Remind you that the mayors as far down as Corpus Christi, Texas order forced evacuations of the population and that was true all the way back through Louisiana. Well it just so happens that the petrochemical industry in this country resides 75 to 80% in the Crescent between Corpus Christi and Baton Rouge, Louisiana.

So what you had was all of our plant areas which are all roughly coastal. The whole industry, you had people forced from their homes and therefore you didn't have a workforce. You didn't have the infrastructure. You were forced to shut down. We shut down basically the entire Gulf Coast petrochemical industry for a period up 7 to 10 days. Never happened before in history and I doubt seriously will ever happen again in history.

Now have we done extraordinary things beyond that. No. What we've done is tighten up all of our procedures about how we man our plants and how we work through storms because, frankly, we never anticipated that you have that broad a forced evacuation. Our plans call for, when an evacuation is called that you send your team who is going to ride through the storm home, let them get secure and then they come back in.

Forced evacuations they can get out but they couldn't come back in. So we lost the ability to man some of these facilities through the storm which forced us to take more severe measures. We're certainly looking at our procedures there and we will probably exit people center at our process so we can get them back in before there were would be a forced evacuation. But we are not building dikes around plants or anything like that. Not really very plausible solution.

I think you are always going to be subject to some natural disaster no matter where in the world you live and, unfortunately, on the Gulf Coast hurricanes tend to be the big one. But again history would dictate did you don't get very many of these in a 100-year period so -- .

Prashant Juvekar. Citigroup.

Question on CO2, hasn't been a question there. You've got destocking you've got impairment charge in this quarter, and you lost money when 20% of North American capacity was down with Dupont's Mississippi plant. What was going on there and did Millennium underspend on CapEx? Are you having problems now? Was that as good as you thought it was?

You've got about 17 questions there. Let's go back and pick them up one at a time. Let's talk first about the environment metal. The [Lajave] plant was written off and our convention is, as we make capital improvement in that plant we write them off. We don't put him on the books. So specifically I think the charge you are talking about is related to that policy with regard to expenditures at Lajave.

Underspending CapEx, yes, we did underspend CapEx. We don't have all the capability in place to do the things would like to do in TiO2. So the budget gave the division the capability of spending the money but to the extent it couldn't efficiently do it, it didn't do it. So I think you'll see the spending pick up a little bit in '06 as the capability improves but plain and simple, we weren't able to get everything done that we would like to have gotten done efficiently and you're better off not to do if you can't do it efficiently.

Now the rest of the profitability. Remind you that we decided that we were going to take inventories down to very low levels compared to history. And the reason we've done that was because we don't like the pattern that has been established in this industry where you build huge amounts of inventory and you always have whatever any customer wants when he wants it and therefore he only wants some of the time and he uses that to beat you up on price.

If you look at the supply demand pattern in the industry in North America over the past ten years, there is a very zigzag effect and that is people anticipate the [coding] season and they build inventory into it. Sometimes it materializes well; sometimes it doesn't. And it's this long-term kind of thing where you have long inventories, where you have price protection going out multiple months. This just makes for a very sloppy market.

So we can't change the market but we can change our behavior within the market and we just don't think it's prudent that the amount of money we're making or not making, continues to give all of this advantage away in the market. So we have become much more rigorous in our control of our inventories and we were doing that well before the hurricane took down the 20% of capacity you are talking about. Now when it took down that capacity, there were extreme shortages and it sped up our inventory reduction. And then we moved back to trying to manufacture more rapidly and, frankly, we didn't get as much out of our plants as we hope we would get out of them. That's also tied back to some of the capital expenditure you're talking about.

So, the profit picture is very difficult to define through the third quarter, fourth quarter moving into this year. But I think the words that Doug used when he was going through the notes are right on, that that's pretty much behind us. The other thing I failed to mention was when you saw natural gas prices hit $25, $26 a million in the UK where one of our big facilities is, that has a slight impact on the cost there as well.

That's come down there. More normal conditions everywhere. Our inventories are great shape. The price increases that resulted from the storages in the industry -- surprise surprise, because you have price protection are starting to take effect now that didn't take effect in October that took effect in January. But those are taking effect.

Looks like the industry is poised for good performance in a coding season this year and that is probably a safer bet because they had a lousy one last year and the zigzag would indicate every other year it's decent. So that's aligned pretty well. And I think you'll see good performance from our facilities going forward.

Now is it as good as we would like it to be? No because we can identify more things that we would like to see improved than we think if we had those in place we would be even better. But I think it would be an easy '06 much better than '05 kind of situation. But we see potential beyond what we are going to be able to generate quarter by quarter as we move forward.

Aloo Chopra, Oppenheimer Capital.

My question is on China and with the additional ethylene capacity that has come online there, could you comment on your view of the Chinese demand picture right now? What is the demand growing out there? And how much of the imports you expect from China will be satisfied by exports from the U.S. with the prices equalizing between the two countries?

I think we are probably headed back on this equalization to more what we saw earlier last year. You got to remember what happened was a shortage here. It wasn't really a price swing. The price swing came after the shortage. I think we moved back to that but we do anticipate with the Shell plant coming up in that capacity assuming it comes up well and efficiently -- which we don't know yet -- that will be a setback or so for a quarter. But the growth there has absorbed it. Last year it absorbed two plants pretty quickly and easily and we are looking at growth continuing like that.

China is going to continue to be a net importer, I think, for some time. Actually what happens in the Middle East will probably have an impact on North American movement of product to China because we think a lot of the capacity that's being added in the Middle East is going to target is going to target Asia. Now as that capacity is delayed and has been delayed, American producers continue to enjoy that marketplace.

As do Europeans.

As do Europeans. And it is not something that is obviously continuous, because when we have disruptions like we did last year here in North America, you are going too see a lot of product moving that way. But China is still a net import.

I think the real answer to your question goes back to what is really going on economically in China and I've read a lot of the reports about is GDP really growing at 99.5% or is it really 6 or 6.5%? Where are the real numbers? But the nice thing about that is if you take the lowest of the numbers out there, if it's growing at that rate particularly when you look at where the local economy is growing, it's growing in the very rapid expansion of these kinds of basic commodities that even at the very low end of Chinese growth projections there's so much more than the capacity coming on locally, that the need for imports is not still there. It's actually growing as you go forward. And I think Morris said it right. That big build that everybody has been seeing for years in the Middle East, when it finally gets there, the real question is is it going to be sufficient to meet the Indian and Chinese needs or is it going to fall short of that or is it going to be excess like everybody has projected for many many years?

I think it's becoming more of a question that it used to be. There's more of a chance I think that it's more balanced to short than long like everybody expected, because the delays have been there and the ongoing growth has continued at high levels. So we continue to think that is a very important part of the world and one that is important to us as well as other companies.

(OPERATOR INSTRUCTIONS).

Okay, if we have no more questions, we appreciate everybody's attention today and look forward to talking to you you again next quarter. Thank you.