利安德巴塞爾 (LYB) 2013 Q2 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 would now like to turn the conference over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Thank you, Sherry. Hello and welcome to LyondellBasell's second quarter 2013 teleconference. I'm joined today by Jim Gallogly, our CEO; Karyn Ovelmen, our CFO; and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions.

Before we begin business discussion, I would like to point out that a slide presentation accompanies today's call and is available on your website, www.lyondellbasell.com. I would also like you to note that statements made in this call relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are based upon assumptions of management which are believed to be reasonable at the time made and are subject to significant 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 the cautionary statements in the presentation slides and our financial reports, which are available at www.lyondellbasell.com/investorrelations.

Reconciliations of non-GAAP financial measures to GAAP financial measures, together with any other applicable disclosures, including the earnings release, are currently available on our website at lyondellbasell.com.

Finally, I would like to point out that a recording of this call will be available by telephone beginning at 2 PM Eastern time today until 11 PM Eastern time on August 26 by calling 866-460-9739 in the United States and 203-369-1347 outside the United States; and the pass code for both numbers is 2323.

During today's call, we will focus on second-quarter 2013 performance, the current environment and the near-term outlook.

With that being said, I would now like to turn the call over to Jim.

Thank you for joining our earnings call. As Doug mentioned, a set of presentation slides accompanies this call and is available on our website.

Let's take a look at slide number 4 and review a few financial highlights. The second quarter continued the trends of the first quarter but with results that were slightly stronger. We generated $1.65 billion of EBITDA. This led to record income from continuing operations of $923 million and record diluted earnings per share of $1.60. North American ethylene margins and operations continued their strength. Overall results essentially replicated outstanding first-quarter results. We again saw our US crackers operate at or above nameplate capacity.

In Europe, results also exceeded our expectations. Our olefin plants operated at increased rates, raw material costs declined and we benefited from a favorable raw material mix.

In addition to record earnings, the quarter was highlighted by further advancing our cash deployment strategy. During the quarter, we raised our dividend by 25% and initiated our share repurchase program.

If you would turn to slide number 5, you will see our year-to-date safety results. Overall, our safety statistics continue to be among the best in the industry, but that's not good enough. We seek safety perfection, goal zero, no one hurt. Our record is flat with last year and we expect continuous improvement. Needless to say, we are not happy with the trend and are redoubling our safety focus.

I would now like to turn the call over to Karyn to discuss our financial performance. Karyn?

Thanks, Jim. Please turn to slide number six, which shows our second-quarter EBITDA by segment.

The quarter generally reflected the trends and conditions that prevailed throughout 2012 and last quarter. Olefin Americas generated record EBITDA of $951 million. The combination of continued strong ethylene margins and production drove these results.

O&P EAI EBITDA was $295 million, reflecting a second consecutive strong quarter. Several factors contributed to this performance, including favorable raw material cost variability, competitors' down time and increased LPG cracking at our ethylene plants.

The Intermediates & Derivatives segment generated EBITDA of $338 million. Scheduled maintenance turnarounds at several PO plants caused a decline in results which were partially offset by stronger oxy fuel results.

Refining segment EBITDA was a disappointing $20 million. Declining lights and heavy crudes differentials, coupled with increased RIN costs were largely responsible for the results.

On the right side of the slide, we have plotted segment EBITDA for the last 12 months. Across the period, we have benefitted from strong and growing O&P Americas ethane margins and generally strong Intermediates & Derivatives results. Our O&P EAI results have experienced some volatility, benefitting during 2013 from favorable timing factors and other items that I just highlighted.

Refining has been quite challenging, but we have taken action to broaden our operating window and better position us to as the crude oil delivery infrastructure further develops.

Now, let's turn to slide number 7 and see how we deployed the cash. Second quarter operations generated $1.2 billion cash exclusive of working capital changes. A portion of our anticipated inventory reductions materialized in the quarter, but were offset by timing impacts and accounts receivables and payables.

Capital spending has been consistent with plan at approximately $390 million. During the quarter, we increased our dividend to $0.50 per share and paid the interim dividend at this level. We also repurchased approximately 5.4 million shares, reducing our outstanding shares to approximately 570 million at the end of the quarter.

In total, during the quarter, we committed approximately $650 million towards dividends and share repurchases. We also made cash tax payments of approximately $640 million. Our cash balances increased by approximately $355 million.

On the right side of the slide, you see similar metrics for the last 12 months. I want to highlight a few items. First, combined operations and working capital generated $5.4 billion. From this cash flow, we invested $1.4 billion in our capital program and returned $2.8 billion to shareholders through dividends and share repurchases while increasing the cash balance by $1.3 billion.

On slide number 8, we provide further detail of working capital and metrics that we track.

Before I turn the call back to Jim, I want to mention that, during July, we issued 10- and 30-year bonds totaling $1.5 billion in principal. The bonds carry an average coupon of 4.6%. These bonds are the first that we have issued in the investment-grade space.

We are very pleased with the issuance, both in terms of the support from investors and the rates that we received.

Now I will turn the call back to Jim.

Thanks, Karyn. Let's discuss segment performance, beginning on slide number 9 with Olefins & Polyolefins America.

Second quarter EBITDA was $951 million, a slight increase over the first quarter and record performance for this segment. Versus the first quarter, Olefin results declined by approximately $30 million. The decline was attributed to $0.02 per pound lower ethylene price and an increase of a similar magnitude in the cost of ethylene production metric, the latter being influenced by lower co-product prices. The margin decline was partially offset by increased ethylene sales volumes.

Our ethylene plant reliability continued to be a highlight. For the fourth consecutive quarter, ethylene production exceeded nameplate capacity. Our Americas manufacturing team, led by Karen Swindler, continues to outperform the industry. Hats off to our Olefins plant managers Courtenay, Randy, Tim, Brian, Chris and their teams. I've never seen this type of performance in my long tenure in this business. Congratulations to them.

Our raw material mix also established a new record as 90% of our ethylene was produced from NGLs. Approximately 70% of the production was from ethane, while propane accounted for 14%. The balance was butane, which became a very competitive feedstock.

Increased Polyolefin profits more than offset the ethylene decline. Combined Polyolefin EBITDA increased by approximately $70 million, slightly more than half from polyethylene. Spreads for polyethylene and polypropylene increased by approximately $0.03 to $0.04 per pound. Polyethylene sales volumes were unchanged, while polypropylene sales increased by 13%.

Joint venture equity income was $8 million. No dividends were received.

Business conditions in July have been fairly consistent with June. Planned industry downtime will be less than during the second quarter, which is having some impact on spot ethylene prices.

During the quarter, we have a planned turnaround at our Clinton site, a 1.1 billion pound per year ethylene/polyethylene facility.

Let's turn to slide number 10 and review our performance in the Olefins & Polyolefins Europe, Asia and International segment. Second quarter EBITDA was $295 million, an improvement of $70 million versus the first quarter. Joint venture equity income was $31 million, and we received dividends of $29 million.

Olefin results improved by approximately $50 million. Several factors contributed to the improvement. First, our olefin plant operating rates averaged greater than 90%, and our ethylene volumes increased by approximately 9%. These rates were differential to the industry as we were able to take advantage of scheduled and unscheduled downtime at competitors' facilities.

Second, we continue to benefit from naphtha raw material cost volatility and the timing of polyolefin price changes.

Finally, our feedstock mix benefitted from processing the substantial percentage of liquefied petroleum gas, or LPG. Approximately 37% of our European ethylene production was sourced from propane and butane at production costs less than naphtha costs. Versus naphtha cracking, we estimate this benefit of the results by approximately $45 million.

It is common for us to process LPGs during the summer months, but the volume and benefit received exceeded historic levels.

During the quarter, we completed a 155 million pound butadiene expansion project. The project was generally on-schedule and on-budget.

Our polyolefin results were relatively unchanged. Volume increased by approximately 10%, but margins remained modest. Combined polypropylene compounds and Polybutene-1 EBITDA improved by approximately $30 million. Declining propylene prices led to improved margins.

While second quarter results were strong, this was partially related to industry pricing conventions and significant industry maintenance. Underlying economic fundamentals within Europe remain weak. We should not assume that the relatively strong first half performance will continue into the third quarter. Within this environment, we continue to focus on costs and efficient management of our feed mix. The strength of our second quarter reflects improvement in these areas.

Now, let's turn to slide number 11 for a discussion of our Intermediates & Derivatives segment. Second quarter EBITDA was $338 million, a $35 million decline versus the prior quarter. We estimate that scheduled maintenance at several propylene oxide facilities impacted results by approximately $30 million.

Including turnaround impacts, propylene oxide and derivative results declined by approximately $50 million. The balance was primarily attributed to lower butanediol margins and seasonally lower propylene glycol sales in the aircraft DIC.

Results for other chemicals in the segment were relatively unchanged. We benefited from increased acetyl and ethylene glycol volumes. C4 chemical volumes declined as a result of scheduled maintenance at both our facilities and customer facilities. Exclusive of turnaround impacts, styrene results were relatively unchanged. Oxyfuel results improved by approximately $15 million. Increased sales volumes accounted for the majority of the improvement. Margins were relatively unchanged as weak gasoline prices offset the benefit derived from lower butane costs.

Thus far in the third quarter, we have benefited from the absence of our prior-quarter maintenance work. Low butane costs continue to support oxyfuels margins. We do not have any significant planned maintenance in the third quarter in our I&D segment.

Let's move to slide number 12 for a discussion of the Refining segment. Second-quarter EBITDA was $20 million, essentially unchanged from the first quarter. The refinery ran well during the quarter with crude throughput just shy of the 268,000 barrel-per-day capacity. The modifications that we made during the first quarter to broaden the operating window of the refinery met our goals.

However, market conditions were very difficult. Pipeline infrastructure still needed to efficiently move crude in the US and Canada and RIN costs increased.

During the second quarter, the Maya 2-1-1 benchmark spread averaged approximately $18.49 per barrel, almost $3 per barrel below the first quarter. This decline reflected both the weakness in the gasoline market and an unfavorable heavy/light spread. Low byproduct values continue to pressure results.

During the quarter, combined Canadian and light crude oil represented slightly more than 15% of our crude slate. While Canadian crudes were economically advantaged, supply remains limited. Weak gasoline markets limited the benefit of processing light crudes.

Increased cost of RINs contributed to the unfavorable results. Versus the first quarter, our cost of RINs essentially doubled to approximately $50 million. Approximately 70% of the increase is attributed to increased volume, while the balance was caused by a 17% price increase. In the past, the export market provided some relief from this cost pressure. However, during the second quarter, the gasoline export market was very competitive and resulting weak export prices essentially eliminated this opportunity. Distillate exports continued to present value for us.

Thus far during the third quarter, we have seen similar pressures within the market. There has been recent improvement in gasoline spreads, but in general the market is expected to weaken after the peak driving season ends. RIN costs have increased until the last day or two. The heavy/light spread has expanded as heavy crude suppliers attempt to be more competitive. We will remain flexible as the Gulf Coast markets transition, and we will pursue both purchase and sale opportunities as they develop.

I want to mention that we will change the reporting basis for our refining spreads beginning next quarter. In the future, we will report the distillate component of the Maya 2-1-1 spread based on ultralow sulfur diesel, rather than number 2 heating oil. Changes in NYMEX trading in the physical market necessitate this change. This does not impact our operations. If you have any questions regarding this future reporting change, Marianne and Doug will be happy to help you.

Let's move to slide number 13 for a quick summary. The second quarter continued with strong results. Diluted earnings per share achieved a second consecutive quarterly record. Olefins continued to be the main driver of these results and O&P Americas achieved record EBITDA. Performance in the EAI segment was strong. While some of this was due to timing differences between cost and price mechanisms, our actions were critical to this success as we boast significantly NGL cracking at our olefin plants and increased operating rates. We can't count on European industry margins to continue at the second quarter level, but we expect to continue to take advantage of opportunities as they present themselves.

Intermediates and derivatives benefited from strong oxyfuel results. Our turnarounds and competitor capacity expansions put some pressure on the segment, but the underlying strength of propylene oxide and other assets continued during the quarter.

Refining has been a difficult area. I'm confident that we have taken the right actions and we anticipate improvement over time as pipeline infrastructure brings additional advantaged crudes to the Gulf Coast. We are also hopeful that structural imbalances within the Renewable Fuel Standards will be corrected by our government as they increase their understanding of how current regulations are distorting markets.

Through the early weeks of the third quarter, the fundamentals across our businesses have been relatively unchanged and our assets have operated well. This supports near-term earnings. Looking longer-term, our projects continue to proceed on schedule, and we are -- and we recently received a permit for our Channelview expansion. We currently have the methanol plan restart as well as the La Porte and Channelview ethylene expansions under construction. Our Project Max butadiene expansion and low-density polyethylene restart at Wesseling, Germany are now complete. We are making excellent progress growing our Company.

Thank you for your interest in LyondellBasell, and I am pleased to take questions, Sherry.

(Operator instructions) Jeff Zekauskas, JPMorgan.

In your Intermediates & Derivatives analysis, you called out competitive pressures on butanediol margins. Order of magnitude, how much EBITDA did you lose from that competitive pressure, and what is the outlook for butanediol margins going forward?

I think the number, Jeff, was around $20 million, and the market was extremely strong. In the past, there has been competitive pressures, and so I think we are seeing a more normal course for now until that extra capacity is used up.

Okay, and then, secondly, butadiene prices have really moved lower, both in the United States and in the offshore market. Can you quantify how that might affect you in the third quarter?

Yes. The BD market has contracted some. That was particularly true in Europe, and now we are seeing -- the export arbitrage was opened to the United States. We've seen some cargoes moving this direction and, as a result of that, we will see the margins contract some.

I'm happy to tell you that in that expansion project that we had at Wesseling, we put in forward pricing. We wanted to ensure that that project had a very nice return, and so we are going to see nice margins from that expansion despite the overall production and industry pricing in BD.

Thanks very much, that was well-thought.

Robert Koort, Goldman Sachs.

I was wondering if you could give us your latest assessment on the state of the propane market and what you see going forward. It seems like maybe we got through the first six months of this year without any real upward momentum, even as the export facilities opened. But I suspect that could change going forward as more open, but maybe there's enough NGL fractionation coming that it's a wash. How do you see it playing out?

Yes. At this point in time, the inventories of propane are coming in a little bit, within some of the historic levels. Pricing is still good for us in the crack, and so we are continuing to bring it in to our olefin numbers.

Butane has been a nice surprise; has been very long this summer, and that has come into the crack as well. I think that is helping hold propane where is that.

There is going to be a need for more propane export before you see propane come in a lot. So I think we are okay for right now. As you know, my longer-term view is that propane will trade more in line with crude oil-type metrics on heating value basis, given that you can put it on a boat and transport it. And so I have not been as enthusiastic about PDH units as some of our competitors.

If I might follow up, could you give us a sense what you would see if we went to a wonderful world where it might grow at 3% or 4% a year and Europe pulls out of its recession? What is an upside scenario you could paint for EBITDA from Olefins & Polyolefins and EAI?

Well, you heard that we had increased our LPG cracking to 37% in Europe. During this time of year, we do that, but it was much better than is typical. We had some nice earnings there and we were able to take advantage of that.

Let me give you kind of an interesting fact. At Berre now -- remember, we set the refinery down which used to be a feed prep unit for that cracker. And over the last days, we are only cracking about 20%, 25% naphtha in that unit -- a lot more condensates, quite a bit of propane, some butane.

So we'll see how it develops over time, but we have a lot of communication between our US assets and our European assets and how to get the best out of our furnaces.

So I don't want to quantify that number today, but we are working it very, very hard. We saw about $45 million in this last quarter from it, but we are working hard to make that number bigger.

Thanks very much.

David Begleiter, Deutsche Bank.

Jim, maybe just review also on the ethane market, how supply will come in rest of the year and what it means for ethane prices, and even a differential versus your Conway, Kansas pricing metrics?

Yes. Right now, ethane pricing remains very, very favorable to us. We have been at that reject kind of pricing. Today, it's $0.255, something in that range. We feel very good about it going forward and -- of course. And when we take our Iowa facility down, that's going to put some more pressure on Conway. That will help us a bit at Morris and we'll see that full dynamic play out. That turnaround maybe $50 million, $60 million in the quarter impact to us. But we feel very good about ethane pricing right now. And if you look at inventories, they are still at historic highs. So quite a bit, 200,000, 250,000 barrel-per-day type of injection, so we are in good shape.

And, Jim, just on your RIN costs for the back half of the year, do you have an estimate?

Well, I did a couple days ago, but I'm starting to rethink that estimate. It might be worthwhile for me to give you a little bit of a flavor for where that has been. But, first, let me tell you that in the past couple of days, those prices have come way down. Yesterday, RIN prices hit $0.91 for a little bit, and they are trading around $1 right now. So that's a lot lower than that $1.40 or so, or $1.50 occasionally that we have been seeing.

But let me give you a sense for how that has been working. I thought that topic would come up. In the first quarter of 2012, it was about $0.15; second quarter, $0.17; third quarter, $0.18; fourth quarter, $0.18; and the impact last year, $30 million, plus or minus. When you look at the first quarter of this year, $0.78 on average, $25 million impact, second quarter is $0.91 and the $47 million impact. So if you took that and annualized it, you could get numbers in the $200 million range. But as I said, things have started to come in.

I'm hoping that our Congress is seeing that the market is so distorted that the ability to blend that extra ethanol into the system doesn't exist and it is hurting consumers at the pump. There's a good reason to fix it now and save everybody a bit of money and stop this market distortion. It's also forcing refiners to move product overseas, which is -- in the peak driving season with gasoline prices going up isn't the right thing for our country.

So I am hoping people pay attention, make some adjustments and we see less of it.

Thank you.

Vincent Andrews, Morgan Stanley.

Jim, even ex-ing out some of those favorabilities that you noted in Europe, it still seems like there has been some cost structure improvement there, maybe some execution improvement from the new team over there. Can you talk a little bit about -- and I know that's obviously something you have been working on. Can you talk a little bit about how we should be thinking about that level of improvement, and maybe quantify it a bit if you can?

Yes. Well, we have been trying to improve that operation. While we had strong results in Europe, I will tell you, we also left some money on the table. We could have done better. You heard my comments about safety. Some people say I am never satisfied, and I think that's probably true. We are always seeking perfection in our operations. We are getting it from our olefins team in the US. We left some money on the table in Europe; could have done a bit better there.

But it has been good and there's various reasons. One, we are improving our crack. I mentioned more LPG cracking. We have been taking cost out. We previously said a couple hundred million dollars; we are seeing that show up now.

Remember that, as we reduce headcount and all, it takes a year or two for that to show up because of severance programs in Europe and how that operates versus the United States. So the payouts are a little longer, but it's action that still needs to be taken to reduce the cost structure.

We announced that polyethylene facility closing in Wesseling; reached agreement with the Works Council; several hundred people coming off the payroll there. We have a major program in R&D that's underway in Europe, a little bit in the United States but primarily in Europe. And we are taking a lot of costs out there.

To give a sense for that, within our Frankfurt R&D facility, it will be about half the people. And in Italy, it's 25% or so. So we are really tuning up our operation to make sure that we get full value for everything we do. And you are seeing that show up in the bottom line.

Now, the other thing I want to mention about Europe is we have a lot of stable businesses within the portfolio. Obviously, the I stands for international. We have Middle East assets; we have some joint ventures that contribute. Our Polybutene-1, our compounding business, have nice, stable type earnings. And so half of the EAI numbers are very stable and we've performed well there.

So we are going to keep working costs and reliability in Europe, and more to come on that, Vincent.

Thanks. Just as a follow-up, is the pace of share repurchases in the quarter -- obviously, you didn't have a full quarter to buy stock back. How should we be thinking about that over the next couple of quarters?

The majority of that, really all of that, was really done in the latter part of the quarter, in June. But going forward, really no change in terms of our commitment to returning the cash strictly to shareholders more frequently, varied amounts. We have no other meaningful accretive alternatives.

We were authorized for 10% of the shares, and then the Management Board, Supervisory Board provided approval for execution of that over 12 months. But as far as the specifics on the mechanics or the tactics, so to speak, on the execution, we intend to disclose any of that buyback activity in hindsight, in connection with our future earnings calls or our quarterly reporting.

So as we disclose today in terms of what we executed on in the second quarter, we will continue to do that as we go forward.

Thank you very much.

I might add that, in the last 12 months, we returned $2.8 billion to shareholders through dividends and share repurchases, and also increased our cash balance $1.3 billion. So we are very committed to both generating and returning cash.

Great, thanks again.

P.J. Juvekar, Citi.

Could you talk about your lower MTB results and why was the profitability down year over year? And then maybe compare MTB profitability in US versus European plants.

Yes. Well, remember, we had some turnaround activity, stuff going on, and we had just an incredibly strong 2012 due to some market conditions. There's strong pull into South America on MTBE for a period of time and a few other things going on. So we think that business is performing very well. We've got a butane advantage. Gasoline prices weren't as strong as we had hoped in the second quarter, but right now they are a little better.

We saw ETBE in Europe, and some of those margins are very nice. It's just a good business overall, and we are the industry leader in oxyfuels in the world. So what you are seeing is good, solid performance out of that business, and I'm pretty proud of it.

Secondly, just on the balance sheet, Karyn, you raised some debt recently as an investment-grade company. Is that something you are likely to continue in the future in terms of taking on debt, given that your balance sheet is still under-levered? And would the main use be stock buyback? Thank you.

Yes. We just recently reached that investment-grade milestone, so it was important for us in terms of getting those benchmarks out there. So we are very, very happy with the 10-year and the rates reserved on both a 10-year and a 30-year benchmark.

As we have discussed in the past, we understand that there still continued to be some opportunity and flexibility in that balance sheet. As we continue to season in this investment-grade space, continue to work with the rating agencies, we will continue to look to see how we can be very opportunistic and optimize that balance sheet.

But no specific targets in that regard, but we do understand we have some flexibility there.

Thank you.

Chris Nocella, RBC Capital.

Hi, thanks. Just one more on Europe -- did cracking more LPGs this quarter require much capital investment, or are you just basically taking advantage of some of the market opportunities there? And how do you see the opportunities to maybe use imported LPGs from the US for these assets, a little bit longer-term?

Chris, that took no new capital at all. It's just how we ran our furnaces and optimized the back end of our cracker. So there's no investment, period. And we see more opportunity to do that, so we will continue to press on that.

One of the things that has happened -- as we've taken more South Texas condensates into our system here in the Gulf Coast, that has freed up some of the condensates that we used to import, for instance, from the Middle East, and made those available in Europe. And so we are rerouting some of those feedstocks into our crackers there at margins that are better than naphtha-type pricing.

So we will continue to do that, try to improve that crack, increase the competitiveness of those assets and work it really hard.

Okay, and then just on your cash usage beyond returning to shareholders, if ethylene assets became available, where would that fit on your list of priorities for capitalization?

Well, everything depends on price. Really, I would be surprised if that -- if it came available. If -- one, if it's the things that I'm aware of, it's probably not the quality of assets we typically chase. And, two, if it's small enough, somebody else may bid up that price. So we are still totally about value. We see a real benefit in buying more of buying more of ourselves through share repurchases because we like our earnings profile, our cash profile and the quality of the assets that we have.

Alright, thank you.

Frank Mitsch, Wells Fargo Securities.

Just to follow up on that, not necessarily going after existing assets, but what would be the prospects of Lyondell building a new facility in conjunction with, say, a major customer that's out there? What would be your thoughts about doing something like that?

Well, right now we have announced 1.8 billion pounds of added capacity here on the Gulf Coast, which is almost equivalent to a world-scale cracker. We've got concrete being poured, steel in the ground and those assets coming up. And we feel we will beat everybody to the punchline and de-risk these investments.

We are watching all these announcements and all. So right now, we've said we might do a condo cracker; but, right now, we are working really hard to get those projects we have announced to the fruition stage. So feel pretty good about our portfolio right now. And as we said, we are investing more in ourselves. That's another way to acquire more assets, is to buy our shares.

Terrific, terrific. And on the I&D side, you mentioned strong acetyl volumes, which is a little bit surprising. What's the outlook for that business?

One of the things that's probably gone unnoticed is where we talk about our reliability all the time in our olefins chain. We are a lot stronger operator in our acetyls business as well. We have teamed up those assets, learned how to run them better, put a little money into maintenance, and we are seeing the positive results. And of course, that's an extra bite at the cheap natural gas price apple. So that's a good, strong business. We like it.

I like the analogy, thank you so much.

Hassan Ahmed, Alembic Global.

Again, I wanted you to revisit Europe. Obviously, good volumes over there in the quarter. I just wanted to hear your views about the sustainability of this volume growth that you have seen. You obviously talked a bit about taking advantage of some turnarounds in the industry. But was there some restocking activity as well as naphtha prices started inching up?

Yes. Hassan, there will always be a little bit of restocking that goes on when naphtha prices start to rise like we saw. At the moment, those naphtha prices are sitting in the $870 range, so they have tapered off a little bit from their highs. But it's also a better time seasonally for people to buy. Certain of the types of polyethylenes have been very strong. Some of it is competitor-related; some of it is just market-related seasonality, but it has been okay.

The good news is our team is really capturing the opportunities as they present themselves. They have been pretty quick on their feet, and when the opportunities exist, they strike and it's adding up. These kinds of earnings that we are seeing, while I call them strong compared to what they have been in history, certainly not anywhere near the peak. These are trough-type returns, still, in Europe, and a lot of running room as markets get tighter over the coming years.

Fair enough. Now, a follow-up, if I may, on just some of these new builds that have been announced. We obviously get updates from some of the companies that have announced them in terms of the state of affairs of these projects, but obviously not much clarity on the MTO and CTO side of things. So what are your views about all this new capacity, so to say, that has been announced in China?

You know, there are some of those plants going to be built. The capital is really, really high, but then, once you get those assets running, their operating costs are competitive. A lot of that is central China, different market space. And remember that we did kind of a half-and-half mix between ethylene and propylene, and so you can't just translate all that capacity as extra ethylene into ethylene derivative-type capacity.

I think that's something that everybody needs to watch. I think there's a lot of announcements, and not everything announced is going to be built. If you look at the timing, the permits and all, I've seen some of our competitors start to run into some challenges on the permits, maybe going to slow them down a little. We will see how that all develops. But we just got our Channelview permit, and so a couple of our big projects are marching along and we are very pleased to see that.

Very good, thanks so much, Jim.

Don Carson, Susquehanna Financial.

Jim, just a couple of questions on the near-term outlook for olefins Americas. You've seen a nice -- you got a nice benefit from widening polyolefin margins in the second quarter. But I've been noticing that, with weakness in the real, the export demand to Latin America seems a little softer. I'm just wondering -- and then as we get these restarts -- do you see these positive spreads coming down over the balance of the year? How sustainable are they? And just wondering, during the quarter, given you are strong on-stream performance, were you able to take advantage of the nice spot ethylene sales opportunities in the US?

Don, spot prices have come in a little bit, but we will see on a daily basis, they'll bounce $0.01, $0.02, $0.03. They certainly come in from where they were when there's so much turnaround work going on. But they are still pretty strong, especially when you compare them to the contracts, so a good, solid market.

South America is a little wider than it was. But having said that, we are only exporting 13% of our volumes. And that's going to Mexico/South America, almost nothing to Asia from our US polyolefins operations. And we are seeing very strong demand in certain of the flavors, like high-density is super-short. Brazil has got some expansion going on, but it's not particularly relevant to us. I think things are holding up fine. Ethane prices are still cheap and we are running full-bore.

And to follow up on the refinery -- what is it you are looking for in terms of RIN relief? You are looking for a rollback of the ethanol mandate back to, say, 2012 levels? Obviously, the blend wall only gets worse as we go forward into 2014-2015. Realistically, going into a midterm election and the power to farm lobby, is it realistic to expect any relief on RINs?

None of the industry is asking for complete relief, and let the markets solve themselves and let's get government out of the middle of things. We only run one refinery. We are a chemical company that has a high-quality refining asset. We would like to see all this short-term market distortion be eliminated. We are not going to get into retail with our one refinery to solve that problem, but we would like to see normalcy.

If we could get a realistic target for ethanol in the blend, refiners would still blend it. There would still be business conducted. But it's all artificial at this point in time, and it's driving up the price for the consumer, and there's really no point in that. It needs to be fixed. How it's ultimately fixed -- we will have a voice, but we are one refinery in a much larger system. But, again, I mentioned there's too much exporting going on. That is being driven by misguided regulation.

Thank you.

Nils Wallin, CLSA.

There has been a lot of discussion, obviously, about the Eagle Ford and Permian condensate production and how much that is ramping up. I just was hoping that you would refresh us on how much you think that could help some of your operations, as well as if all this lighter hydrocarbon may affect your Houston refinery. And then if there's any interest you might have and actually building a condensate splitter.

Well, it's already been positive to us, particularly at Channelview, and also at Corpus. There have been advantaged condensates coming our way. I think that number is going to increase, but we are already maxing out our system, so I don't expect there to be real volume. It will just be a question of, will the prices continue to come in for us as we expect.

In terms of condensate splitter, we are always trying to think of ways to improvise and make a little extra money. You saw that in the fractionation project that we are sponsoring down at Corpus. There is a possibility that we could do a few things in the condensate splitter down in that operation with some of the existing hardware that we have. We are studying it; we will see if it makes sense. But we are going to be very opportunistic on all of this.

Nils, could you repeat your question on the refining?

I was just wondering if the mix in Eagle Ford, because it's such a light hydrocarbon, if it would affect any of the Houston refining or your asset, in particular.

I think that would be pretty modest to us. We don't see it right now, a lot. But as I said, gasoline prices were low. Some of that ends up in the pool over time, but I don't think it's going to have a significant material impact.

Thanks very much.

We are very interested in the light/heavy dip, and that has started to open up a little bit.

Great.

Kevin McCarthy, Bank of America Merrill Lynch.

Good morning, Jim; two questions on refining. I guess, over the near-term, do you have a view on how much of the inflation in RIN cost, if any, is being passed along through the chain to the consumer? And then, longer-term, would you care to share your latest thoughts on the role of the refinery in the portfolio as you weigh the benefits of integration versus the various pros and cons of potentially electing to separate it at some point?

Yes, on the amount of RIN costs being passed onto the consumer, I've seen a variety of commentaries on that, and I'll give you my most simple explanation of it.

When gasoline prices are rising and gasoline is a little tight, we are going to be able to pass on a lot more of it. When pricing is weak, when gasoline is long, we are going to have to digest it. And I think first, second quarter, until more recently when gas prices -- gasoline cracks have started to open, I think we were absorbing a lot of the RIN costs. You saw it in our reduced earnings. At this point in time, I think some of it is getting passed through to the consumer. And so it's a supply/demand typical kind of thing that you see.

In one way that may be -- one thing I should mention, and I have alluded to it already; it's also being passed onto the consumer in that gasoline is being exported so that we don't have the RIN issue. And if that weren't an issue, you would see greater supply in the United States. So that's why you see such a disparity of comments on that particular question.

Now, in terms of the role of the refinery going forward, we have invested in that asset. We are not going to put a lot of new capital into it. I think we've got a good kit on the ground right now. We are running it much better than it has ever been run. We are working costs very, very hard on the asset, as you would expect. But it's not a good time to sell a refinery. That asset will have more value over time. It's a good asset. We do have some synergies between the refinery and Channelview, move some products back and forth. But we'll see, over time, what we do with the asset. But right now, it fits in our portfolio. We are doing a good job with it, all things considered.

Fair enough. And then as a follow-up, Jim, you had mentioned, back at your investor day in March, you were contemplating a new 1 billion pound polyethylene resin line. I think it was for circa 2016 or so. Any update on that? Is that looking any more or less likely at this juncture?

Well, we are still studying it. What we are doing is we are looking at our ethylene balances. We have third parties coming to us and asking us for volumes out into the future. We are looking at the pricing that they would buy that for as against what we would be able to upgrade it in terms of polyethylene. And so we are both working those deals at the same time we are moving along with some preliminary engineering.

The thing about that line that I would like to mention -- if we build it, it's likely to be our latest new technology that we've never offered before. We think that could open up some very, very nice licensing opportunities for us. We've found ways to reduce the capital cost and still have the great product mix that LyondellBasell is famous for.

Okay, thank you very much.

Duffy Fischer, Barclays.

Congrats on a strong operating quarter. The line of question I would like to draw is around Asia and PO currently. So one of your competitors was talking about a softening in the market for PO. They had opened up an HP/PO plant in Thailand not too long ago. Some of it could just be they are a new guy on the block. But how do you see the next six months to year playing out for PO in Asia?

Well, there has been some competitive pressures in Asia, in part because of that new capacity. I think you may see certain competitors backing down a little bit because of their cost position. Sometimes, they can have cheap capital and high operating costs, and they won't beat a competitor like us in the window. Our PO/TBA plant is industry-leading in terms of costs.

Now, I point out that our POSM plant that we have in partnership in China has been running very well since startup in 2010. It came up nicely; we are moving the volumes. So there is some pressure. But even with that pressure, PO is still a very solid business with very nice returns. And it's a question of great or really good, and I think it's more really good than great right now, but it will be -- it's just one of those products that your competitors and certain technologies are advanced, and we find a way to make good money in it.

Fair enough. And you had mentioned in your commentary around the potential coal-to-olefins crackers in China the difference in the skew between ethylene and propylene. When we look longer-term, does PO get put in the crosshairs as they end up with a lot more propylene molecules, potentially, over the next 4 to 5 to 6 years there, as an outlet for those molecules?

Well, I think you've got to look at the geographies. And first, a lot of that will not find its way to the coast. And if it's anything, more propylene probably would be helpful for us as a propylene oxide producer. So a lot of that propylene will go into product propylene, too, Duffy. So I don't think it's going to hurt us much in propylene oxide. There are just not that many people with the right technologies that can be competitive in PO.

Great, thank you, guys.

Mike Ritzenthaler, Piper Jaffray.

You had mentioned the RIN costs, and I just wanted to follow up on one other aspect of that, escalating from 1Q yet profitability in the refining business was flat. So it would seem that perhaps the fundamentals improved, even if it was modest. Is that fair, or is it the pass-through phenomenon that you had discussed?

And then as a follow-up to that on the refinery business, coming out of the turnaround in 1Q, there had been some re-plumbing to do, some lighter feeds. Could you just discuss going forward how those lighter feeds could improve the profitability here in the second half?

In terms of the passing of the RINs, first let me describe -- the first quarter was a turnaround quarter for us. We had a lot of capacity down during that point in time, had one of our crude units down. And so it's an abnormal quarter and abnormal earnings.

The volumes have come up nicely in the second quarter, but Maya 2-1-1 is down $3. So that's a pretty significant impact. So with that 2-1-1 down and RINs higher, you see kind of quarter to quarter pretty flat. So one is turnaround, one is falling margins and RINs.

Going forward we will see if the last couple of days are an indication of what is going to go on in RINs. I really don't know. A couple of days doesn't make a trend, but it's certainly somewhat positive news to see this. The light/heavy diffs have opened up a little bit. There's a gasoline crack that we didn't see. So there's a few positives in all of that, but we will just have to see how it plays out.

I didn't answer all of your questions. I think there was a second one that I didn't get to.

Yes, it was just about the lightening up on the feedstock slate in the refinery.

Yes, you know, we are able to bring some WTI down; took some pipeline capacity. But the differential between WTI and Brent has totally collapsed, and so that margin wasn't there. And then with the poorer gasoline crack through much of the second quarter, we decided to crack heavier and went away from some of those lighter crudes for a period of time. You saw us do a little more Canadian, and right now we're trying to move those Canadian barrels down on our capacity, to the extent we can get them. They are still price-advantaged.

Okay, thank you.

John Roberts, UBS.

You talked about in Europe in the crackers running the lights during the summer here. Could you comment on last winter, the fourth quarter and first quarter, what you ran? What you able to run any lights a year ago? And I'm asking for a comparison. What do you expect this winter in the fourth quarter/first quarter in Europe, in terms of LPGs and however you want to characterize your light feedstock?

Last year, we weren't running very much in it. We would move a little condensates in, and then some propane, butane occasionally. But it has come up a fair amount this year. And part of that is, especially at Berre, we used to be cracking DGO there out of the refinery. And now a lot of condensates, a lot of light ends -- I said we are only doing like 20%, 25% naphtha today.

Now, I expect us to continue to try to lighten our crack and bring in some of those advantaged feeds. We have things like hydrowax in Wesseling, Germany, that has always been competitive. We get a nice stream at our Munchsmunster cracker as well that's very competitive. But we are going to keep trying to lighten that up and use some of those long condensates around the world to try to improve our profitability and competitiveness in Europe. We are seeing early signs that we are making progress there.

You are in the mid-30%, sort of now in the summer, you were talking about in terms of lights in your cracker feedstock. As you get into the fourth quarter and first quarter, the winter months, will that drop down into the single digits or teens?

Well, maybe 20%-ish. We will just have to see. But that also depends on the availability. If people are right and a lot of propane starts to get exported, that number's going to be higher. I kind of think there would be more propane exported out in the United States, and there are some projects in the Middle East that are bringing on some of the NGLs. So if that's available at the right price, we will run it.

Thank you.

We are running out of time here, so I think we will just take one more question.

Laurence Alexander, Jefferies.

Hi, this is Rob Walker, on for Laurence, thanks for fitting me in. I guess, just one question -- what drove the strength you guys saw in the polypropylene compounds business; and, is it sustainable?

The polypropylene compounding business is a very, very stable, profitable business for us because it's totally technology-driven. Most people don't think of compounding polypropylene as high-end business but, remember, we are selling primarily into high-end autos. If you want a bumper with no waves and perfect color and all of that, you come to us. This goes way, way back in time -- a beautiful technology position.

Some of the auto industry is doing very well, particularly in the United States. Some of the high-end European car manufacturers, while they are off year to year, they are still in a nice place. And we try to provide them a lot of value. So the last little bit, in this last quarter, we had some propylene price declines which helped contribute. But if you look from quarter to quarter, quarter to quarter, nice stable earnings; just a little uptick this quarter because of some propylene price movements.

Thank you.

Okay, well, let me make a couple of closing comments. First, we are proud of the record earnings from continuing operations, record O&P Americas EBITDA. That business continues to contribute very strong, in part driven by four quarters in a row of better-than-nameplate capacity. That just doesn't happen in our business, and our people in manufacturing are really delivering.

We had solid results in Europe. We are taking costs down, doing more LPG cracking, working that very hard.

I&D had a very respectable quarter. We had some turnaround activity. Take that away, it's -- I think you would see it is as expected.

Refining -- tough industry at the moment, more to come on RINs. We will try to crack more Canadian crude over time, and we expect that business to improve as time goes forward.

Very strong cash generation supporting both our dividend and share repurchase programs, and that's a hallmark of the Company that we have become.

I want to emphasize the growth projects for just a moment. Our Project Max shows that we can get projects done on time and on budget. That was not this Company's history. This was the first one of any order of magnitude that we have had as a new LyondellBasell, and we brought it in as expected. I think that that says something about the new Company.

We have got permits for the Channelview and the port expansions -- concrete being poured, steel coming out of the ground. We are going to get those projects up and put them on the bottom line sooner than you expect.

Methanol restart later this year -- that will be a nice earnings boost. We've got 500-plus people out there working very, very hard to bring that project home.

So this Company has got a very bright future. We appreciate your interest. We will continue to reward our shareholders. Thank you.

That concludes today's conference. Thank you for your participation. All lines will now be disconnected.