利安德巴塞爾 (LYB) 2009 Q1 法說會逐字稿

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

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

Thank you. Hello and welcome to LyondellBasell's teleconference. And I'm joined by Ed Dineen, our COO; Alan Bigman, our CFO; and Kevin McShea, our CRO. Now I'd like to point out that a slide presentation accompanies today's call. It is available on our website, LyondellBasell.com.

And before we begin the business discussion, I'd like for you to turn your attention to slide two of the presentation. This disclaimer and notice indicates, among other important items, that EBITDAR is a non-GAAP measure, and the information included in this update is not presented in accordance with US GAAP.

Additionally, statements made in this call relating to matters that are not historical facts are forward-looking statements that are subject to risks and uncertainties, and 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 LyondellBasell's consolidated financial statements for the year ended December 31, 2007, and quarter ended September 30, 2008, which are available on the Investor Relations page of our website, www.LyondellBasell.com/investorrelations.

Please also refer to Lyondell's, Equistar's, and Millennium's annual reports on Form 10-K for the year ended December 31, 2007, and the quarterly reports on Form 10-Q for the quarter ended September 30, 2008, which are filed with the SEC in November 2008, each of which is available through the Investor Relations page of our website, www.LyondellBasell.com.

Now I'd also like to point out that a recording of this call will be available by telephone, beginning at 230 PM Eastern Time today until 11 PM on June 6 by calling 800-774-9284 in the US, and 1-402-220-0372 outside the US. And the pass code at both these numbers is 4347.

Okay. Now I'd like to turn the call over to Alan for a discussion of our March results.

Thanks, Doug. Please turn to slide three and we'll begin our discussion as always with our safety record.

You can see that our record during the first month of 2009 has been exemplary, despite the distractions and increased demands that our staff has faced. Although this chart has not been updated for April, I would note that in that last month we had a relatively higher number of safety incidents. While these were isolated incidents, we are concerned by any deterioration in safety performance and are taking actions to ensure the appropriate focus.

Now let's turn to slide four and look at the March results. For comparative purposes, we've included reported results for the first quarter of 2008 and our operating forecast for the period.

Our March EBITDAR was $102 million based on the current cost accounting methodology that we have adopted for management reporting and DIP covenant purposes. Year-to-date EBITDAR is $350 million, which is $55 million ahead of our operating forecast.

Within the individual business segments, the trend we experienced during January and February continued into March. Refining margins have been an area of weakness, while Chemicals segment results and our cost control efforts have enabled us to stay slightly ahead of plan. However, I should mention that our first quarter budget or operating forecast was below the expected annual run rate, as we anticipated a gradual recovery following the steep fourth quarter downturn.

Our full year operating forecast anticipates approximately $2.1 billion of EBITDAR. Our DIP facilities include a minimum EBITDAR covenant, which is tested monthly. We do remain concerned that margin and volume performance in many key businesses remain depressed. Ed will talk more to this point when he addresses business performance.

While discussing this slide, I would like to point out that we incurred significant restructuring costs during March, bringing our first quarter total to $250 million, approximately $70 million of which were bankruptcy-related professional fees.

In addition, this figure includes accrued employee severance costs and site closure costs of $142 million. The severance costs are particularly significant, as they represent the estimated cost related to approximately 1,500 employees. Given our aggressive cost reduction efforts, we expect to realize additional severance costs later in the year.

The final component of the restructuring costs represents the amortization of DIP fees, which are defined in our credit agreement as a restructuring charge.

If you would now turn forward to slide five, I would like to address our liquidity position. On the left, you can see that liquidity has been steady since our last call, finishing April at $2.5 billion. And we have not drawn on the additional amounts of the DIP term loan that were made available to us in March. And combined, our cash and ABL availability has changed little. The use of DIP ABL as a revolver, and note that the $400 million shown borrowed on this liquidity slide, have since been repaid.

The chart on the right was developed to provide visibility to the available liquidity under our ABL facility. In addition to the current utilization, I would like to point out that our letter of credit increased by $74.5 million, as we posted an LC with OIL, an industry-owned mutual insurance company, as required of us being a member of that consortium. The final point I'd like to make is that the available borrowing base was essentially unchanged versus March under that ABL facility.

Before I turn the call over to Ed, I wanted to mention our first quarter capital spending and a few other finance items. First quarter capital plus deferred expense for activities such as turnarounds was $190 million with approximately 60% related spending occurring in Europe. The majority of the European spending was related to upgrades at the Muenchsmuenster ethylene and polyethylene site. A significant portion of the spending relates to work that occurred during the fourth quarter of 2008. Exclusive of these items, the 2009 year-to-date spending was less than $150 million, well below our covenant and budget targets.

I would now like to turn the call over to Ed to discuss our business results.

Thanks, Alan. Let's turn to slide number six and address the Fuels business. During March, operations remained strong and controllable costs were below plan. However, refining margins continued to be depressed, particularly on distillate spreads.

Houston refinery results continued to be significantly below expectations, generating approximately $15 million of EBITDAR in March. Compared to February, the Maya 211 benchmark spread declined approximately $0.75 to $12 per barrel. As mentioned, the decline was primarily attributed to lower distillate spreads. Additionally, volatility within the month, coupled with the timing of our purchasing and selling activity, had a negative impact on our monthly results by approximately $20 million.

Volumetrically, our results were good. The refinery operated at 279,000 barrels per day, which is 11,000 barrels per day greater than its rated capacity. Approximately 200,000 barrels per day of Venezuelan crude were processed, as deliveries were somewhat reduced by OPEC actions.

Our French refinery in Berre operated at a loss with EBITDAR of approximately negative $10 million. For the quarter, the facility's EBITDAR was approximately break-even.

The Urals 4121 benchmark that we follow averaged $5 per barrel during March, declining by $1.75 per barrel versus February. Much like the Houston refinery, the emphasis on diesel production positioned the facility poorly during March. Consequently, we were operating the refinery at approximately 85% rates, which our models indicate to be the economic minimum under current conditions.

The third leg of the fuels business consists of our global oxyfuels products. March continued to follow typical, positive, seasonal margin trends, as industry ETBE raw material margins increased to $0.63 a gallon, a $0.28 a gallon increase from February.

Looking to April and May, the trends seen during the first quarter have continued. The bar charts on the right side of the slide indicate industry spreads for April. You can see that refining margins are little changed, while ETBE margins increased slightly, averaging approximately $0.70 per gallon. Our current expectations are that industry conditions during May will be similar to April conditions.

Now I would like to proceed to slide number seven and discuss our chemical results.

As you can see from the chart, on the top right of the page, segment results have been mixed, with olefins weak both in the US and Europe, while our propylene oxide and intermediate products' results have been quite good. Overall March results were very similar to February, as the intermediate chemicals had strong results while olefins operations were slightly positive.

Let's consider the individual portions of the segment separately, beginning with US olefins. As you can see in the industry margin chart, on the lower right corner of the slide, ethane has continued to be the favored raw material in the US. We have taken steps to increase our use of ethane, while minimizing naphtha consumption.

The most visible of these steps was the permanent shutdown of our Chocolate Bayou facility. But we have taken many other measures at our Channelview and Corpus Christi facilities to enable them to consume more ethane, in addition to excellent operations at our NGL crackers in La Porte, Texas and the Midwest.

During March, approximately two-thirds of our ethylene production was from natural gas liquids, predominantly ethane. We expect this percentage to be higher in April and May. Additionally, our key naphtha supplier has worked with us to improve the competitiveness of their supply. Operating rates in our US facilities averaged better than 90%, excluding the Chocolate Bayou plant.

In Europe, our olefins profitability was slightly below break-even, but demonstrated improvement versus January and February. The moderate improvement is due to increased margins. Operating reliability in Europe was good, but rates at our plants averaged approximately 85%, limited by demand and consistent with reported industry rates.

The propylene oxide and intermediate chemical products within our chemicals segment continued to post good results during March. First quarter results were ahead of our plan, as margins were maintained near 2008 levels. However, propylene oxide and derivative volumes have remained depressed.

We have reacted to the lower demand by idling two of our facilities throughout the first quarter and matching production to sales. Essentially, our propylene oxide system operated at only slightly above 50% operating rates. While this is representative of the total system operating rates, production per hour count was at a higher operating rate. Given our mix of our derivative productus and their dependence on durable goods markets, this pattern is consistent with economic activity. Acetyl products and styrene results are also included in this group of products, and both benefited from strong improvement during March.

April conditions were generally consistent with March conditions. Thus far in May, the olefins area is benefiting slightly from improved co-product pricing, as propylene, benzene and butadiene prices have all increased, except for BD in Europe, which continues on quarterly pricing. Demand has remained relatively unchanged versus March and April. I would also like to mention that this week we successfully restarted our JV propylene oxide, styrene monomer plant in the Maasvlakte in Europe.

If you now proceed to slide number eight, I'll discuss with polymers segment. Compared to February, results improved significantly in polymers, driven primarily by improved polyethylene results. For the quarter, polymer results have exceeded our plan, primarily due to our cost reduction efforts, coupled with the improved March polyethylene results.

Although financial results finished the quarter on plan, volumes have continued to lag both our plan and last year. Overall first quarter volumes are lagging last year by approximately 17% and our first quarter plan by 9%. Volumes in the heavily durables-dependent advanced polyolefin products are experiencing the most severe declines, with first quarter sales approximately 30% below the prior year.

From a variable margin standpoint, margins are approximately $0.015 to $0.02 per pound less than the strong results realized in the first quarter of 2008. Compared to our plan, margins are essentially on track, as polypropylene margins are slightly below plan and polyethylene slightly better.

Putting this all together, our efforts to manage costs have enabled us to slightly exceed plan, despite the overall volume shortfall. The bright spot for the first quarter included our ability to meet our plan results in advanced polyolefins despite very poor volumes, and the increasing export opportunities in the base polymers returning during March and April.

April and May results have been trending slightly ahead of the first quarter. Recently within Europe, some durable goods markets have shown signs of volume improvement. However, thus far the improvements are small and it would be premature to say whether they are sustainable. Additionally, during April and thus far during May we have benefited from export opportunities.

On the other hand, the US advanced polyolefins business continues to face significant uncertainty with respect to sales to the automotive segment.

The next slide addresses the technology and R&D segment. During March, results were below trend due to the timing of income recognition within the licensing area, while catalyst results held steady during March. Expectations for the second quarter are consistent with the first quarter and on our plan.

Let's move to slide number 10 and I'll briefly summarize the first quarter of the year and our outlook for the second quarter. Cost reduction efforts enabled us to slightly surpass our first quarter plan, as business conditions were generally below our expectations. Fixed costs for Q1 were about $220 million favorable to plan, more than offsetting $165 million shortfall in volumes and margins. Our operations were strong but product demand was generally weak.

The most evident negative factors were refining margins, sales to the durable goods sector of the economy, and the significant NAFTA disadvantage in the US olefins market. The positive factors during the quarter were our own cost reduction results, the Oxyfuel margins, the performance of our propylene oxide and advanced polyethylene businesses despite very poor conditions in the durables market and late in the quarter the return of polyethylene export opportunities.

Turning to the outlook for the second quarter, you should first note that our budget anticipated a significant improvement compared to the first quarter. This was based on a view that inventory correction would be completed during the first quarter, refining margins and polymers demand would experience seasonal improvement, and government actions would begin to have a moderate positive impact on the economy.

Our current outlook is that the second quarter will improve versus the first quarter but not to the level anticipated when the plan was developed late last year. In general, the economic impact has been more severe than anticipated which is impacting us to lower refining spreads and product demand in durables end-use markets such as automotive. The acceleration and expansion of our cost reduction program is partially offsetting this, but at this time we do not expect second quarter results to reach budget.

Just a few weeks ago we provided a slide that identified some of the key elements of our cost reduction program. Since very little time has passed since then, I won't provide a detailed update today, but I do want to mention a few items. First, regarding manpower reductions, during the past two to three quarter we have reduced our employee payroll by about 1000 with April representing nearly one third of the total -- approximately 300 people. We also saw a reduction in contractors by about 1500. Additionally, over the past two quarters we have reduced inventory by approximately 2 billion pounds or about 20%. Coupled with the declining cost, this represents a 67% reduction in the dollars committed to inventory. Overall, our cash fixed costs during the first quarter were approximately $875 million or about 20% below our budget.

In summary, although the economic and market conditions are quite adverse, internal actions have offset a significant amount of this impact and are providing a bridge until the global economy recovers.

Now, I would like to turn back the call for the operator and Alan and Doug, and Kevin and I will take your questions.

Thank you. (Operator instructions) Our first question comes from Andrew Chan with Barclays. Your line is open.

Thank you. Quick question, I might have missed this early, did you guys say that the forecasted EBITDA for the year was $2.1 billion earlier?

Yes, that's what we said.

Secondly, can we get an update on the situation in France?

With respect to what?

I'm just reading from the monthly operating results, the procedure [inaudible] regarding the court-supervised reorganization potentially?

It's it -- I mean it's really a technical legal issue. There is no update to that that we have beyond what we reported.

Fair enough. Thank you.

Thanks Andrew.

Thank you. Thank you. Our next question comes from Gregg Goodnight with Kim Analysis Consultant.

Good morning, gentlemen.

Hi, Gregg.

Your 2008 annual filing that you just presented, in the past you've shown some production figures for like olefins and the like, I am wondering this filing didn't have those figures in it, are you going to be making public for instance olefin production, refinery rates, et cetera going forward?

Yeah Gregg, just so you understand typically we would have been filing a 10-K and we're not an SEC filer at this point in time. So, what we filed is the financials and the requirements there. We will be making additional information available in the future on volumes, thanks.

Okay, very good. Could you comment on your outlook for both the light, heavy spread with crude pricing and also the 211 refining margins, would you have expected a pickup about this time normally in the second quarter?

Yeah on the second part of that I think the answer is yes. We would have expected more of a pickup than we've seen. Again, we think the primary issue right now is distillate pricing and demand and also some contraction of the delta between the heavies and WTI.

We're still of a view we may see that margin move up. It's certainly below where we thought it would be and well below where it's been historically recently. So we have not seen a big kick-in of the driving season. Gasoline demand has been relatively decent and the spreads there has been okay, but again it's more on the distillate side so that would take more of a pickup I think in general economic activity.

On the light heavy -- on the olefin side, our expectation right now is generally that lights will continue to be favored. It's a volatile business, we certainly will hit periods where heavies will become back in favor, co-products will strengthen at times. But in general, we are moving our system and obviously we bet on the restart of our LaPorte plant which is an NGL-based plant. We shut down the Chocolate Bayou facilities so we shifted our overall system more towards lights and we continue to increase the flexibility within the heavy liquid crackers. So, based on our expectations right now, in general we expect more favored lights versus heavies for the near-term and may be even medium-term.

Okay, well thanks for that help. One followup question if I could on refining, you have been operating your refinery at very high rates compared to industry average, would you comment on your outlook in terms of maintaining your high operating rates through the remainder of the year?

Well, I think there are two regional answers there, we've generally been running our European refining system at reduced operating rates probably consistent with the industry average over there. We expect to maintain strong operations at the Houston refinery. We've had very good operating results from a production point of view and we plan to continue to run at those levels.

Okay, thanks for your help.

Thank you. Our next question comes from Aaron Weitman with Appaloosa Management.

Hi, guys. Starting off in your segment breakout, what is the negative $46 million in March for the other?

The other, that is just inter-segment transfers and things, so that's all that is.

So, we shouldn't view that as one-time?

No, it's something that's going to vary as inventories and transfers between the segments move. In the end of the year, it will basically wash out. So, that's the predominant item there. There is some -- well it essentially it really.

There is a positive impact there also for an insurance of about $12 to $15 million. So you'll see that other move up and down across it and most of it's going to be really from the chemicals to the polymers area.

Okay. Also you've seen I guess going into March and April an increase in the amount of money that you've lent into your non-debtor, what's the reasons for that and I guess the level you expected to be at?

The reasons for that are normal seasonality in Europe with a rebate and certain another payments in the first quarter. I think we don't want to speculate as to what's going to happen going forward, although historically the business in Europe has been more cash flow positive in the quarters after the first quarter.

Am I correct in saying that your non-debtor cash is approximately $300 million?

The non-debtor -- well it depends on what we have on any given day in terms of the securitization, but that sounds about right.

Okay. And what is the current I guess draw on your European securitization?

The current draw, I'd have to get back you on exactly what that is. That has actually been going up as more receivables become eligible. There were some issues regarding Dutch and German and Belgium receivables. There was a new procedure, but that's going along and the securitization is actually increasing in terms of its availability.

Just what is or can you give me at least an approximate size, is that...?

Yeah, Aaron it might be million euros...

We'll get back to you. I mean I think the order of magnitude is about 200 million euros, but we'll get back to you with an exact number.

Yeah, Aaron I just -- this is Doug I was want to remind you that what we're trying to focus on isn't really results. We haven't issued the final March financials and things at this point in time.

Okay. Thank you.

Thank you. Our next question comes from Kristen McDuffy of Goldman Sachs.

Good morning. I just wanted to talk about durable goods versus non-durable goods inventories. It looks like a lot of your peers are starting to see decline in the rate of inventory de-stockings, I think we may have reached the bottom. Do you have a sense within durable goods, how close you might be to the bottom of the de-stocking?

Well that's a tough one Kristen. I would say this and I'll let Ed maybe want to add. We have seen indications in various markets of strengthening orders. We're seeing some in the pipe area et cetera around our polyethylene businesses and things. As Ed said, we did start-up one of the PO plants that have been down and of course there was some durables dependence there. So there are some indications, but to say whether we're at the bottom or not, it's very difficult particularly with automotive actions that we're -- we're seeing right now and some of the downturn it's going to be taking. But Ed you may want....?

Yeah I think if you look at the product areas that are more durable goods dependence polypropylene, propylene oxide, demand certainly lagged behind areas that are more diverse like polyethylene in the first quarter. But I would say as we moved into April and May, we have seen some signs of that gap closing with demand in polypropylene catching up with polyethylene both in terms of domestic markets as well as export opportunities.

Automotive I think would probably be the exception. Our demand in certain areas like China and Brazil is actually level with last year but certainly way off in terms of demand in the domestic European and North America markets, and we're not really expecting that one segment to show any significant signs of life in the near term but with the exception of that, I think we have seen recently some positive signs that would tell us to the extent there was de-stocking in the durables area that maybe that's starting to level out.

Good. Thank you.

Thank you. Our next question comes from Michael Schenk with UBS.

Yes. Could you give me just on the $400 million withdrawal on the ABL, you said, since you repaid give a little more color on what drove that when it was drawn?

Yeah I mean we were going into a holiday weekend in Europe and we just -- there were a few items we just want to make sure that we had the cash on hand that's what a revolver for.

$400 million was -- that kind of size required?

Yeah, I mean we have -- I mean this is a pretty big business with daily, very large payables and receivables, so, yes that was what was required. And we since repaid it all.

Okay. Thank you.

Thank you. Our next question comes from Maryana Kushnir with Nomura Asset Management

Hi, I was wondering if you could quantify what was the minimum EBITDAR in March that you had to meet in terms of covenant?

Minimum EBITDAR in March was I believe negative number, I have it potentially --

It's a cumulative target.

That's correct. We always have a monthly -- it's measured monthly but it's a cumulative EBITDAR and at the end of the first quarter...

We finished with a 400 million cushion in the quarter Maryana.

Okay. So, even though you are below target for Q2, even if the results come in lower so you can offset some of that correct?

Yeah. We are certainly -- we may be looking at this point to be below budget, but we are certainly well above the covenant levels.

Okay.

That's again according to forecast. The actual was above forecast and the covenant for the first quarter required us to be above about negative $15 million of EBITDAR.

Okay. Thank you.

Your next question comes from [Eddie Shagus] of Kenneth Park.

Hey guys. Just a quick question to follow-up on one of the prior callers. The $400 million that you drew down on the revolver has been repaid since it was out pending?

Yes, that's correct.

So the current balance -- drawn balance is zero?

Drawn balance is zero, yes.

Okay. Thank you, that's all I had.

Thank you. Our next question comes from Michael Chang with Goldman Sachs.

Hi guys. Can you guys just provide an update in terms of what your remaining cash needs are for the rest of the year in terms of restructuring and any potential expense that will hit your income statement as well?

Okay. The restructuring cost obviously hit our income statement fully. However, for covenant purposes and for management reporting purposes, we measure EBITDAR excluded. The estimates for professional fees run into -- and again I think we are not going to give too many forward-looking statements. But, obviously in a case of this size, you are talking obviously well over $200 million.

Yeah, I mean that's to say that when we develop a plan and you can see it on the slide, $75 million a quarter was put into the plan for restructuring fees, professional fees, et cetera. In the first quarter, what we saw was a large accrual and as Alan pointed out, roughly 1500 people is part of the cost reduction plan. So a large portion of that's accrued and accounted for in this first quarter.

And that's about half of our total in terms of the target for head count reduction.

You might also note that in the DIP agreement there is -- the carve out for the restructuring costs that related to cost reduction effort, the amount that we can deduct from EBITDA as part of the restructuring is $310 million, so that may give you the indication of what could be out there.

Okay. So in terms of what the remaining cash needs are for restructuring purposes it's -- would you say that $310 million is probably or less than $21 million that you've done so far in the first quarter, is that a fair assessment in terms of the cash needs for the remainder of the year?

I wouldn't speculate beyond the information we've just given you. But we've given you some guidance on what those might be.

Okay. In terms of working capital, what would you expect that to be, a source or a use in terms of the remainder of the year?

And that very strongly depends on what hydrocarbon prices do. We are obviously working to reduce structural working capital as Ed was discussing with regard to inventories, but also the other components of working capital. A big component of that is obviously the hydrocarbon price. One of the reasons why there is some capacity in the DIP and in the term DIP is to account for the possibility that hydrocarbon prices could go up and that even with the structural reduction in working capital you would have a higher need for working capital.

So I think that what happens to working capital and whether it's a source or a use is going to depend largely on what happens with hydrocarbon prices. If hydrocarbon prices stay flat, we would hope that management actions would cause working capital to be a source of cash.

Okay, great. That's very helpful. Thanks guys.

Thank you. Our next question comes from Ahsan Rahim with [inaudible].

Hi. I was just wondering if you could explain something to me. I noticed in April LyondellBasell added an extra holding company to the Chapter 11 protection one in Europe and what are the standards? It's not part of the proceedings. I was just wondering how that would impact results and what the function of that holding company was?

That's -- look it doesn't impact results. It's a technical issue that brings LBIAF, which is the holding company and what we are reporting on in these results into the jurisdiction of the bankruptcy court and that's all that it does. It won't impact the financial results.

Okay. So it won't impact these restructuring costs side of about $190 million that we saw in March?

No.

It shouldn't have any quantitative impact on the costs -- on what we've just discussed.

Okay. So it's just a judiciary thing?

Yes, that's correct.

Okay. Thanks.

Thank you. Our next question comes from Roger Spitz with Banc of America.

Thanks, good morning or afternoon. How was it that propylene oxide and derivatives had EBITDAR of -- it looks like around $140 million for Q1 '09? Given the 50% operating rates, two plants shutdown and particularly as you've stripped out oxyfuels and which are put into fuels, I mean it kind of looks like the old run rate from better years?

Yeah, let me -- Roger, first of course oxyfuels has been separated for the past year out of PO, so there is not a change there. So I just want to clarify that before Ed response really about the business. I'll turn it over to Ed now.

Yeah, I think it's steady margin performance. We had strong margins in '08 and we've generally sustained those. So I think that's been a factor that certainly makes it differential to let's say the olefins area, the refining area, where we've had significant margin weakness that we've suffered. There has been good cost reduction performance and I think those factors have largely impacted or offset the volume weakness.

Also recognize what I've said is we operate our system in kind of JV type arrangement and our allocation, our share of the capacity operated above the 50% level. So it was not quite as superior with that, probably more or like 70% on our share.

The other thing Roger of course is that area, that intermediates area is more than just propylene oxide.

Sure. I mean maybe acetyls used to run at maybe $70, $75 million. So I recognize the...

Yeah, the acetyl, styrene, TBHP, C4 chemicals and things. So there is an array of chemicals in that area. So it's not, the performance is not all attributed to propylene oxide, just to clarify.

Fair enough. Thanks very much guys.

Thanks, Roger.

Okay.

Thank you. (Operator instructions) Our next question comes from Tarek Hamid with JP Morgan.

Hi guys.

Hello.

A quick question. You talked a little bit about export markets being a little bit stronger. Any specifics, any markets that you are seeing that are significantly better than others?

Well, if you look at the polyolefin area, which -- and particularly polyethylene, we've probably had 25%, 30% of our volumes, production volumes have moved off shore. I would say roughly two-thirds of that have gone south into Mexico, South America, but a third of it has moved over to the Asian region. So at least in the short-term the pickup in demand that we have seen out in Asia, which is clearly driven by China and has been noticeable for the last four to six weeks we have benefited from that -- from US export point of view and polypropylene has also picked up recently as well. Not quite as strong as polyethylene, but we've seen similar opportunities. Those two I think particularly stand out.

Got it. Then, do you have any update on the status of the -- your big Middle Eastern joint venture operating rates, any color on generally how it's running?

Well, we did announce it is fully up and running I think and generally we have not run it through the full acceptance test at this point, but I think all the units have demonstrated capacity and we will be ramping up to probably run at full rates this quarter.

Okay. So I expect that sort of fully running third quarter, fourth quarter 2008?

Yeah, I think that's probably fair and we are placing a lot of that product successfully in the market as we speak.

Great. Thank you very much.

Thanks, Tarek.

Thank you. Our next question comes from Gregg Goodnight with Kim Analysis Consultant.

Yeah. A follow-up question on European polyolefins. You mentioned that margins have been somewhat lackluster, but possibly picking up. Would you comment on your outlook for European polypropylene margins, specifically in light of this [Petrol Habib] 700,000 ton plant that's going to startup fairly soon and what is that going to do to your margins? Have you seen any evidence of any commercial impact of that potential startup yet?

Yeah, I think rather than margins we've seen more demand pickup in Europe although it is still lagging significantly behind the rest of the world and as we look at Europe, frankly our expectations are not for any significant pickup in demand and margins given the view that I think the European economy is lagging behind Asia and the US and possibly some impacts from this Middle East capacity.

Alright. I think that's fine enough. Thank you.

Thank you.

(Operator Instructions) We have no further questions.

Well I'd like to thank everybody for joining us for the call today and we will be doing these calls on a monthly basis. So, we will be talking to you in about a month again. Thanks very much.

Thank you. This does conclude today's conference. You may disconnect at this time.