利安德巴塞爾 (LYB) 2015 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 will now turn the conference over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may now begin.

Thank you Melissa. Hello and welcome to LyondellBasell's second quarter of 2015 teleconference. I'm joined today by Bob Patel, our CEO; and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions. But before we begin business discussion, I'd like to point out that a slide presentation accompanies today's call and is available on our website at www.lyondellbasell.com. I'd also like for 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 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 the cautionary statements in the presentation slides and our financial reports, which are available at www.lyb.com/investor relations. And 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 www.lyb.com. Finally, I'd like to point out that a recording of this call will be available by telephone beginning at 2:00 PM Eastern Time today until 11:00 PM Eastern Time on August 28 by calling 888-568-0061 in the United States and 203-369-3454 outside the United States and the pass code for both numbers is 62324. Now during today's call we'll focus on second quarter results, the current business environment, and the near-term outlook.

But before turning the call over to Bob, I would again like to call your attention to the non-cash lower of cost or market inventory adjustment or LCM that we've been discussing on past calls. As previously explained, this charge is somewhat unique to our 2010 Company formation when all assets and liabilities were measured at fair value, our use of LIFO accounting, and the recent volatility in prices for many of our raw materials and finished goods inventories. Our LCM adjustments have been updated for the second quarter, which for some segments resulted in reversals of some or all of the first quarter charges and for the second quarter a $9 million favorable lower cost and market inventory adjustment was recorded. Our comments made on this call will be in regard to our underlying business results excluding the impacts of LCM inventory charges.

And with that being said, I'll now turn the call over to Bob.

Thanks, Doug. Good morning, everyone, and thank you for joining our earnings call. Let's take a look at slide 4 and review a few financial highlights. Second quarter earnings per share was $2.79 with EBITDA of $2.2 billion. This quarterly diluted EPS figure is another new all-time high for LyondellBasell and as represented by the orange lines in the lower left chart, our EBITDA has now averaged approximately $2 billion in each of the last five quarters. During the second quarter, we completed our second 10% share repurchase authorization and received approval from our shareholders for a third 10% authorization. We also increased our dividend by 11% during the quarter. Our commitment to return cash to shareholders remains consistent.

Turning to slide number 5, you will see that we continued to have an excellent and improving safety record. While these results demonstrate incremental improvement, we're always looking to attain our goal of zero incidents. To this end, during June all employees of LyondellBasell participated in our Fifth Annual Global Safety Day. This is a day where we refocus the entire Company, our contractors, and suppliers on our commitment to operate with zero injuries in pursuit of safety perfection. We continue to believe that focus on safety and reliable operations go hand-in-hand. Before leaving the topic of safety, I would like to address the fires that broke out at our Berre, France site on July 14. We were fortunate to have no injuries and to quickly account for all personnel. The fire was limited to two remote storage tanks and our assets at Berre continued to run.

We're in the process of evaluating the financial losses sustained, current estimates are in the range of $20 million to $30 million. We're working closely with local authorities to ensure that residents in the area have access to available information. The French authorities have opened a criminal investigation and we therefore are not in a position to make additional comments. Please turn to slide 6 for our second quarter and last 12 months EBITDA results. EBITDA in our Olefins and Polyolefins Americas segment was again near $1 billion. EBITDA in our Olefins and Polyolefins EAI segment was $492 million, a new all-time record. Our Intermediates and Derivatives segment also achieved record results excluding LCM impacts with EBITDA of $483 million. We saw typical seasonal increases in our oxyfuels business with large butane cost declines, the return of methanol production at Channelview following first quarter maintenance, and strengthened styrene business.

Refining was stable quarter-on-quarter and the Technology segment results declined by approximately $20 million. During the last 12 months LyondellBasell has generated EBITDA of $8.4 billion with strong results across all segments. This profitability has been achieved despite a volatile crude oil price environment and is a testament to our portfolio's resilience and stability. Please turn to slide 7 and 8 and I will discuss our cash generation and use. During the second quarter, our cash and liquid investments balance increased by approximately $200 million. Cash from operations continued to be very strong as we generated $1.5 billion from our operations during the period. Cash used for share repurchase and dividends totaled $1.1 billion during the quarter and capital spending totaled $278 million. We anticipate capital spending of $1.5 billion for the full year.

Share repurchases during the second quarter of approximately 8 million shares were somewhat below prior quarters. The number of shares purchased was impacted by 18% increase in share price during the quarter and by the transition between the completion of the second and the start of the third repurchase authorization. During the past 12 months we generated $6.5 billion in cash from operations while raising $1 billion from bond issuances and $500 million from commercial paper. Almost $6.3 billion was used for share repurchases and dividends. We invested another $1.3 billion in capital expenditures. Please turn to slide 9, which highlights the magnitude of our free cash flow and the dollars that we have committed to dividends and share repurchases as a percentage of enterprise value as of March 31.

As you can see, in a little more than four years we have generated approximately 30% of our enterprise value in free cash flow and distributed this plus an additional 5% to shareholders. On a dollar basis, the corresponding free cash flow was $14.5 billion and accumulative dividends and share repurchases totaled $17.3 billion. By any measure, absolute or relative, these metrics exceed our peers. Please turn to slide 10 and I'll move to a deeper discussion of the underlying segment results. Olefins and Polyolefins Americas second quarter EBITDA was $993 million or $81 million lower than the first quarter. This result marks the fifth consecutive quarter with EBITDA at or near $1 billion. Olefins results declined by $105 million as margins were adversely impacted by lower co-product prices and higher heavy liquid raw material costs.

For example, propylene prices declined $0.07 per pound during the quarter, the contribution from our metastasis unit declined by approximately $11 million. During the quarter, we had some minor planned and unplanned rate reductions at two olefins plants. Overall we estimate that this downtime impacted quarterly EBITDA by $30 million. Despite these rate reductions, our US olefins plants ran at approximately 95% of capacity during the quarter. Approximately 90% of our ethylene was produced from NGLs with ethane representing approximately 70% of ethylene production during the quarter. Our propane and butane cracking was fairly consistent quarter-on-quarter and our ability to process additional volumes was limited by logistics and the in-plant processing optimization.

During July we implemented logistics changes, which will enable us to increase propane cracking to the levels discussed at Investor Day in April. While Olefins results declined sequentially, Polyolefin results improved by approximately $25 million during the quarter primarily from increased sales volumes. Polyethylene volume increased approximately 6% and polypropylene volumes improved 11%. During the quarter, we increased polyethylene prices and ended the quarter approximately $0.04 above the March price. Despite this increase, the quarterly average price spread over ethylene was relatively constant. Thus far during the first weeks of July, sales and production volumes have been relatively consistent with the end of the second quarter and NGL and natural gas costs remained low with abundant inventories.

During mid-July we began initial production at our 250 million pound per year Channelview ethylene expansion. We don't have any significant maintenance plan during the third quarter. Please turn to slide 11 and a review of Olefins & Polyolefins; Europe, Asia, and International. Second quarter EBITDA was $492 million, a new quarterly record and $135 million higher than the first quarter. Olefin results improved by approximately $80 million. During the quarter industry outages were prevalent peaking in June when nearly 16% of European capacity was unavailable. We capitalized on this operating our assets at 97% of capacity. This tight industry supply and demand balance contributed to margin improvement from the first quarter of nearly $0.07 per pound, more than offsetting the rising cost of naphtha.

During the quarter we produced nearly 60% of our ethylene from advantaged raw materials, which added approximately $50 million to EBITDA. Combined Polyolefins EBITDA improved by approximately $65 million. Restricted monomer supply and low customer inventories helped to support margins in both our polyethylene and polypropylene businesses. Polyethylene spread over monomer increased by $0.06 per pound versus the first quarter and polypropylene spreads were higher by $0.02 per pound. Volumes in polyethylene and polypropylene both declined versus very strong first quarter sales. Polypropylene compound results were lower by approximately $15 million as margins were compressed by increased polypropylene comps. JV equity income improved $22 million with several of our polyolefin JVs reflecting similar margin improvement trends as our European businesses.

July business conditions remain favorable, however the majority of the unplanned industry outages are resolved, this should alleviate some of the regional product shortages. During September and October we'll be taking a planned maintenance outage at our Muenchsmuenster olefins plant in Germany. Based on current margins, we expect this to impact EBITDA by approximately $25 million split evenly over the third and fourth quarters. Please turn to slides 12 and 13 for a presentation on regional ethylene industry operating rates. During our recent Investor Day we presented slide 12 with our views on the global ethylene supply/demand balance and operating rates [plus] the view that industry operating rates were in a transition zone between a balanced and tight market. Second quarter proved this and supports the view that the market may be tighter than depicted as industry operations have experienced more downtime and the basis for the chart.

On slide 13, we want to take a minute to take the analysis one step deeper by looking at regional operating rates. This slide represents IHS' review on capacity and operating rates in key regions. Based on their respective constant managers, it's reasonable to assume that North American and Middle East regions have been operating at or near their full capacity. During late 2013 and into the first half of 2015, Asia also began to experience increased local margins and effective operating rates. Second quarter turnaround schedule could clearly push Asia into a tight supply situation as margins expanded. As we said on our Investor Day, we believe that when nameplate capacities approach 90% and effective capacities average in the mid 90% range, the industry typically begins to have pricing power. The European chart on the right implies that Europe operated below these thresholds during 2013 and 2014.

However, the chart suggests that European operating rates have been increasing and reached levels that were approximately 5% below these thresholds during 2014 and pushing the thresholds during the first half of 2015. Some of this can be attributed to unplanned downtime. If we step back and consider the pie chart of capacity together with the regional rates, it paints a picture that most of the spare global capacity is in Europe. European capacity represents approximately 15% of total global capacity. So with utilization rates in Europe approximately 5% lower than the 90% threshold, European spare capacity represents just 1% to 2% of spare global capacity. We seem to be approaching or have already reached a tipping point for product availability and margins. Industry operations and economic activity will determine how this develops over the coming quarters.

Now please turn to slide 14 for a discussion of our Intermediates and Derivatives segment. Exclusive of the LCM impacts, second quarter EBITDA was a record $483 million, $102 million higher than the first quarter. Propylene oxide and derivative results were lower by approximately $20 million as volume declined by 14%. Sales during the first quarter benefited from seasonal aircraft deicer demand and competitor outages. Q2 volumes were consistent with historic averages. Intermediate chemicals performance improved by approximately $55 million. Styrene improved approximately $20 million as variable margins increased by approximately $0.05 per pound. Volume was lower as we took planned maintenance at our POSM 2 facility in Channelview. We estimate that this maintenance impacted second quarter results by approximately $15 million.

Acetyl results improved by approximately $30 million due to higher sales volumes following the first quarter Channelview methanol plant maintenance. The team at our Channelview side have had a very busy and productive first half. They completed maintenance at our methanol plant, which now runs at benchmark rates and they also completed a very large and complex POSM turnaround with no safety incidents. We're proud to report that both were done on time and on budget. I wanted to make special mention of this outstanding performance. Oxyfuels results increased by approximately $65 million in Q2 primarily from a typical seasonal margin uplift. Higher demand for octane, rising gasoline prices, and a lower cost of butane drove the majority of the upside. In the lower right chart, you can see the improvement in the industry MTBE raw material margins.

July business conditions have generally been similar to conditions experienced late in the second quarter. We will conduct maintenance turnarounds at our LaPorte acetyls plant and our French PO/TBA plant beginning late in the quarter. This maintenance will impact the production of propylene oxide, oxyfuels, methanol, vinyl acetate monomer, and acidic acid. We estimate that the total impact of these maintenance activities will negatively impact third quarter EBITDA by approximately $30 million. The fourth quarter impact is currently estimated to be approximately $20 million. Let's move to slide 15 for a discussion of the Refining segment. Second quarter EBITDA was $154 million. Excluding LCM impacts, results are unchanged from the prior quarter. During the second quarter the Maya 2-1-1 spread averaged nearly $24 per barrel.

The realized spread at our refinery was moderately higher than the Maya 2-1-1 spread. Crude throughput averaged 255,000 barrels per day, an increase of 14,000 barrels per day. The higher throughput improved results by approximately $20 million. The volume upside was somewhat dampened by lower secondary product spreads driven by higher crude oil pricing. RIN costs were lower by approximately $4 million versus the first quarter. Canadian crude oil and light US crude oil were approximately 30% of our crude slate. Our Technology segment generated EBITDA of $57 million during the quarter, a decrease of nearly $20 million. This was the result of lower catalyst volumes from a very strong first quarter level and reduced licensing earnings. Due to the nature and timing of delivery of services under our licensing agreements, it's not uncommon for our earnings in this segment to be variable from quarter to quarter.

Q2 results are consistent with the results seen in prior years. Please turn to slide 16 and I'll briefly summarize and then I'll be happy to take your questions. As I emphasized during April, our portfolio has proven to be resilient and providing consistent earnings despite market volatility. The strength of our results now spans five quarters with EBITDA at or near $2 billion. Second quarter was a record both in terms of diluted earnings per share and EBITDA. While ethylene industry conditions were favorable during the second quarter with tight global supply demand, supply is returning to market and oil prices have been volatile. Thus far demand and margins have been minimally impacted.

Our focus remains unchanged and differential operating performance has been our hallmark allowing us to capture value every day and especially when markets enter periods of constrained supply. O&P EAI's second quarter performance demonstrates this capability. Additionally, natural gas and NGLs remain abundant and prices remain favorable in the US. Overall industry conditions remain favorable. Lastly, our project teams continue to work on the future of LyondellBasell. We're moving forward with our expansions and we will have added more than 1 billion pounds to our ethylene capacity over the last 12 months. Additionally, we will continue to progress the balance of our projects that will grow the footprint of LyondellBasell and further strengthen our position for the long term.

I would now be pleased to take your questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Arun Viswanathan, RBC.

Congratulations on another good quarter. I guess I wanted to just understand your comments a little bit more. Can you describe the environment you're seeing on the demand side both in North America and in Europe and in Asia in polyethylene as well as ethylene?

At this point, we still see demand as being relatively strong. Now Arun, as you know, when we have periods of macro volatility, oil price going up or down; it does impact sentiment and so there are many inventory cycles that we see throughout the year. But if you step back from that, demand has grown through the first half year-over-year in polyolefins globally in the 3% to 4% range and the US demand growth has been quite strong as has Asia. Europe I would argue has been constrained in Q2 because of less supply. So, we're generally constructive on demand for the remainder of the year.

Okay. And then I guess similarly on the supply side, I mean you have some comments that conditions are getting a little bit more balanced. What do you expect for the back half of the year on the supply side? I know you guys have some turnarounds, but from what I see It looks like there's a number of planned turnarounds in other parts in some of your competitors. Do you expect supply/demand to again tighten up in the back half of the year? What are you guys looking at there? Thanks.

Well, we expect that markets will be balanced in the second half and it's difficult to forecast unplanned outages by definition so my sense is that unplanned outages would create more tightness. So, our focus continues to be on running our plants reliably and being commercially agile so we're constructive for the second half.

And just as a follow-up, there is a price increase in polyethylene right now, do you have any thoughts on whether that could be implemented and why do you feel that way?

Well, we continue to monitor and discuss with our customers this $0.05 increase and we'll just see how it plays out in the coming weeks.

Okay. Thanks.

Bob Koort, Goldman Sachs.

Bob, I was just curious obviously you've got an impressive track record of cash flow generation and capital return, you've got a couple more projects on the horizon, but you gave a pretty confident appraisal of the upcycle here for several more years to come. At some point, do you take advantage of some of these wounded peer commodity companies and broaden the portfolio? Are you on a perpetual 10% a year share reduction? What do you see as the path forward here if you keep earning at such high cash flow levels?

As I mentioned during our last call, Bob, we continue to develop our strategy and sharpen our thinking around the long-term plan for LyondellBasell. In the short term we continue to stay focused on delivering value to shareholders via our regular dividend as well as our share repurchase program, our balance sheet is very strong, and so we'll continue to evaluate opportunities. In the meantime we're making an acquisition every day, we're buying our shares and it's an acquisition that we're making at market price and it's a company we know quite well.

And then on your cracking opportunity, you talked a little bit about propane cracking. Do you sense an ongoing shift towards greater flexibility or do you expect maybe NGL prices will be fairly correlated amongst each other so there's only short-term opportunities there? And then lastly, is the metathesis unit running currently? Thank you.

So in the case of the NGL prices, I happen to believe over the long run that they do tend to kind of equilibrate. In the case of propane, certainly near term there's a lot of supply, prices are depressed. We're going to increase propane cracking in the third quarter. We've implemented some pipeline improvements to be able to do that. Longer term, as we've discussed in prior calls, propane can be exported. There will be new PDH capacity coming. So, my sense is that propane and ethane values will equilibrate and will compete to be part of the cracker feed slate.

And is your metastasis unit running now?

It's running, but not at full rates.

Got it. Thank you very much.

Vincent Andrews, Morgan Stanley.

Bob, just kind of following some your comments about where the industry operating rates are and outages. You guys have had a fantastic record vis-a-vis others who've had all the outages and I'm just wondering what's your thoughts are. Do you think we're having the outages because the industry is running really hard or do you think we're having the outages because much of the asset base is old and may have been underinvested in for a long time? And I guess that the brunt of my question is do you think the sort of case of unplanned outages and I get it by definition they are hard to predict; but do you think it's more likely that we continue at this pace going forward or do you think now that we've had all these outages and presumably a catch-up in maintenance work and so forth that the asset base might be more reliable over the next 12 to 18 months speaking industry wide?

When you think about Europe, the last two or three years have been very difficult years and there was not really a call on all the capacity for most of the industry. Now we've been running more differentially in terms of operating rates over there. My sense is that since reliability was not at a premium, perhaps some of the maintenance was delayed and so demand became stronger this year with a weaker euro and some infrastructure spending coming back in Europe, the units didn't respond to the higher call on demand. So will that continue, difficult to say; but my sense is that the units in Europe especially probably weren't prepared to run at very high rates. In our case, as you know I was over there for a few years and we maintained our assets to run at full rates and in fact we did run at full rates for the past two years. So, difficult to predict whether the industry will catch up or how this will evolve in the next 6 months to 12 months. But I can tell you at the Company here, our focus continues on reliable safe operations and we start everyday; [not talking yesterday], but how we perform today and tomorrow.

Okay. And just as a follow-up, maybe it's more of a clarification question. I thought I heard in your prepared remarks when you discussed the share repurchases in the quarter, obviously you've built cash but I think you're indicating that the only reason why the share repurchases sort of slowed down sequentially was because there was a gap in time between the completion of the prior authorization and the grant of the new one. Is that the right read of what you said?

When you think about our share repurchase program, first of all from an execution standpoint, we execute on a dollar basis. And so if you go back to Q1 because the share price was lower, we bought back a lot more shares on a dollar-based program which is what we do with our 10b pipelines. In Q2 we had the transition from the old plant to the new plant as well as the share price was higher so we bought back fewer shares. If you step back from the tactics, our focus and our pace has not really changed on share repurchase, It's more just transitory and share price related.

Okay. Thanks very much.

Duffy Fischer, Barclays.

Question on leadership. One, I was hoping you could kind of update us on the timeline for your CFO search. And then two, with change over in IND and kind of missing a CFO, how confident do you feel as a management team in the near term to kind of get done what you need to do?

In the case of the CFO, we're advancing very well on this front. I can tell you it's a very high priority for the Company and high priority for me personally so we hope to report some news on that over the coming weeks or months. And in the case of IND, we have a lot of talent in the Company. We have a lot of people that know that. We've appointed someone to run the IND business under the new EVP. This gentleman who's running IND has been with the Company for 23 years and have a lot of institutional knowledge. And that generally goes for all management positions. We have a lot of good institutional knowledge in the Company that provides great continuity.

And then just another one on all the turnaround stuff activity you had going on whether it was Channelview or the methanol of the POSM, a lot of weather issues in Texas and that area. Other companies where having significant delays, some were seeing cost overruns, you talked about not seeing that. Was that just because you got lucky and weather didn't impact your direct sites or were you just able to overcome that?

No, I think we were impacted by the same weather in Houston, unfortunately we haven't found a way to build a bubble over Channelview so I would say that it's really about execution. I think our team at Channelview planned really well for both outages and they executed the plan. In fact I've asked them to reconstruct how they did that and that should become the new model in the Company. So, I think it's great planning and great execution.

Terrific. Thanks, guys.

Hassan Ahmed, Alembic Global.

Bob, a question around volumes and inventories. As I take a look at both O&P Americas as well as O&P EAI, there seem to be fairly divergent volume moves sequentially, right? I mean 6% polyethylene sequential move up in O&P Americas, 11% for polypropylene and the converse for O&P EAI; down 11% in polyethylene, down 16% in polypropylene. So just a, if you could sort of comment on these divergent moves and b, just if you could tell us how much of this is restocking/destocking related?

I think most of it is inventory cycle. So if you think about Europe, in Q4 of 2014 there was a very significant inventory depletion going on and you recall at that time the oil price was dropping so there was an expectation that the price next week would be lower. And so, that's appeared when converters tend to deplete inventory and European converters likely ended with very, very low inventories. As oil price bottomed and the expectation for price moved from decrease to increase, there was a fairly significant restocking that occurred in Q1 which probably overstated volumes in Q1.

And in Q2 in Europe because of all the unplanned outages, I think some of the demand was probably just constrained due to the lack of supply. So that's why I said earlier if you just step back from the inventory cycles and look at year-over-year growth, it's fairly consistent across the world and in the case of Europe, polypropylene demand is up about 5% and polyethylene is about 1% year-over-year. In the case of the US, volume is up in Q2 just from seasonal factors, I don't think we have as much of an inventory cycle. Through year-end 2014 into 2015, volumes are up as we've gone through the year in 2015 because of seasonality.

Now changing gears a bit, I mean you commented a bit earlier on the M&A side of things. Obviously your strategy is very clearly laid out i.e. the back to basic strategy whereby if you were to grow, it would be within sort of commodity chemicals and that too I would imagine the low cost side of things. Now in a hypothetical world in which you where to go out and acquire someone, in terms of the product profile of that company, would it have to be a product that you're already in or could it be a commodity chemical product call it chlor alkali that you currently don't have a presence in, but you could go out and buy sort of relatively cheap low cost production assets. Would that be something you would consider?

When we think about our strategy and growth going forward, our focus is on our core businesses and so a large scale commodity integration. But I'll tell you, Hassan, the question that I ask is whatever it is we would consider acquiring, how is it that we would make those assets better than the current owner in addition to the strategic fit and so on. So, those are some of the filters that we use and we have a certain capability in terms of how we operate and manage our costs and to the extent that we can apply our model and create unique value with somebody else's assets, then we would consider those things.

Thanks so much, Bob.

PJ Juvekar, Citigroup.

Propane prices are really collapsed during this quarter and I understand that ships that carry propane the deliveries have been delayed. But as those ships get delivered maybe next year, do you see propane prices moving up as we move into 2016?

So, again our view is longer term that ethane and propane will reach more of parity on a cost of ethylene basis. We're positioned to take advantage of cheaper propane. But if you think about our cracking capability, we have flexibility to crack a wide range of feedstocks and that's what we aim for.

Okay. And then if you look at Asian naphtha crack spreads, they are down significantly from the peak as oil prices have come down. And so do you think Asian margins will be just a function of oil prices going forward and then do you have any view on the recently started MTO plant in the region? Thank you.

I think Asian margins if you're asking about polyolefins, they're going to depend as much on supply/demand globally as they will on naphtha prices and then again our sense is that demand growth based on what we see in the first half of the year is solid and it points to a global balance to tight markets in olefins and polyolefins. And as far as the new MTO capacity, certainly that adds a little bit more self-sufficiency in the region, but we expect Asia and specifically China to still be a very large importer of polyolefins and specifically polyethylene.

Thank you.

David Begleiter, Deutsche Bank.

Bob, In polyethylene for the US, do you think the next price move is more likely up or down and why?

I think that depends on how demand develops here and the rate of unplanned outages and so on, but there's few things that I can tell you. There's not a lot of inventory in the chain and our sense is that economic conditions are pretty good in the US. So, the magnitude and timing just depends on how the market conditions play out.

And just on IND, Bob, very strong quarter, obviously some seasonality with oxy. But how much of this strength is sustainable you think into the back half of the year in IND ex the normal seasonal decline in oxyfuels?

Well, oxyfuels should still be pretty strong through the summer. As you know, that's driven a lot by gasoline blending and gasoline season so we still got another month or two and to the extent that butanes remain as cheap as they are, that adds extra boost to oxyfuel earnings. And if you step back more broadly and look at supply/demand for octane, octane is pretty tight and so that favors our oxyfuel business. So we think cheap butane, tight octane market favors oxyfuels over the long run.

And the rest of IND?

Rest of IND should be relatively stable. Styrene monomer has been doing pretty well, our sense is that strength in the near term should continue. David, I think the styrene business in general is really a proxy for the nature of our business. It's been underinvested for so long that the demand is finally catching up with supply and then you see more balance between supply and demand in styrene. So, I expect consistency in the rest of the business through the year.

Thank you.

Aleksey Yefremov, Nomura.

Could you quantify the benefit of additional propane flexibility that you're planning to gain in the next quarter maybe in terms of percentage of ethylene produced from propane? And also maybe longer term, do you have interest in investing more heavily into propane cracking maybe to meaningfully increase your propane ability to benefit through the cycle?

In the case of our recent increase in propane cracking, we have the ability to crack enough propane to produce 5% more of our ethylene from propane as a result of the latest changes that we've made. Your second question about investing heavily to crack more propane. Again, our sense is that NGL values will tend to equilibrate over time and so we're going to continue to look for inexpensive, high return, quick projects that allow us to crack more propane. But I don't see us structurally shifting our portfolio for feedstocks focusing only on propane. We want to focus on cracking more NGLs and have the agility to be able to move from one NGL to another depending on the economics so that we can capture the arbitrage quickly and that has a lot to do with logistics and having dedicated pipelines to be able to do that.

And next question on ethylene derivatives, could you update us on your thinking on the trade-offs between various derivatives such as metastases, polyethylene? Are there any options for you to explore the current ethylene monomer discount that's present in the US?

We continue to develop our projects on ethylene derivatives. We're very constructive on polyethylene long term and we think given the US cost advantage on NGLs vis-a-vis the rest of the world, the cost of ethylene and polyethylene production should be very advantaged in the US, we see good demand growth. So to that extent we're advancing a couple of polyethylene expansion projects, one of which will employ our new technology which will have capability to produce [differentiated] products. So we're advancing those projects very rapidly, we're continuing to study an expansion of our flex unit which produces propylene from ethane. So all of those are still continuing, but I can tell you it's with an eye towards end markets not just about consuming the ethylene that we're producing.

Thank you, Bob.

Frank Mitsch, Wells Fargo Securities.

Impressive results as usual. Bob, I was struck by your commentary on styrene just now. I guess there had been a thought that with some of the restarts happening in Europe that it might start to cycle down, but you're not really seeing that much weakening in that nor are you really expecting too much weakening for the back half of the year in that area?

I think, Frank, on styrene; it just depends on how the unplanned outages play out so if there are further unplanned outages, that could have an impact. I know the one POSM unit in The Netherlands will start up here in Q3. So, my sense is that I don't think that's enough to tip the global supply/demand balance, on the increment certainly more supplies coming.

And if could come back to refining just to get a little more granularity. Volumes are up nicely sequentially, your RIN costs were down sequentially, margins seem to be up a bit although you did reference secondary product price spreads. How significant was that and what exactly is that?

Well, the secondary product prices, that's what we call our capture rate and that's essentially the value of the co-products compared to the cost of the barrel coming in. So you can imagine if core product values are relatively stable and oil price comes down, then the value of that co-product as a percent of the oil price rises and so our capture rate rises. And so that in a low oil price environment helps us. Your second question was --?

So that was the one offset I think to some of the positives in terms of volumes, margins, and lower rate?

Correct.

Okay. Thank you so much.

John Roberts, UBS.

Given the pretty good naphtha based ethylene margins in Europe; as those plants have been down for unplanned outages, are people investing in better reliability or are they just putting band aids on the plants and restarting them?

It's difficult to say, but you can imagine the pressure to restart those is pretty high given the margin environment. So we'll just have to see how the industry operates going forward and difficult for me to forecast that.

With the relatively good margins now over there, do you think we are far away from people starting to put some real investment back into some of the facilities?

It's possible. But you have to remember that investment in crackers takes a long time to realize even if it is maintenance of existing crackers because if they have to order a long lead equipment, it takes months maybe a year to get some of the equipment in and then they have to take a fairly substantial outage. So I suspect that if that were to happen, structurally we wouldn't see a shift until next year sometime.

Thank you.

Nils Wallin, CLSA.

Regarding Olefins Americas, it appeared that your benchmark realizations on polyethylene and polypropylene spreads and ethylene was a little bit less than what you guys had done last quarter and yet of course raw materials were down even more. So, I was wondering if you would be able to tell us what caused a lower realization of the benchmark.

It's just mix effects. I don't think there's anything specific in terms of the change from quarter to quarter. It could be product mix, it's exports versus domestic sales, those kind of things.

Neil, this is Doug. You also have to remember that benchmarks are put in place when the price increase is announced and accepted and the reality of the industry always has contracts and times where it kind of comes in over a little bit more time. So, what you're probably seeing is the benchmark overstating things a little bit. That's all. Not uncommon at all, sort of the standard thing.

With respect to sort of the high cost producer in Asia, obviously Brent has come off significantly and yet you certainly had a fair number of outages in Asia and Europe that helped the prices stay elevated. Would you care to opine as to once this capacity comes online with this lower level Brent, what type of price pressure you might see out in Asia?

Again, Nils, I think it's difficult to assess exactly how that will go. But first of all, it's not a large amount of capacity, it may or may not start up on time. Again our sense is that global operating rates are north of 90% or around 90%. So, I don't think it'll have a tremendous impact on global markets.

And then just one final one of if I may. We've seen polypropylene margins rise both in the US and Europe, I know there's probably some changes in the contracts; but are we at a fundamentally different level for polypropylene margins or are we in a period of perhaps overearning outages?

Polypropylene demand has grown more than polyethylene demand this year globally so it's been quite strong, part of that is because polypropylene price and polyethylene price have come relatively closer together so there could be a bit of product substitution on the incremental growth that occurs year-over-year. In the US specifically with propylene price dropping and firm polypropylene markets, you do have a bit of margin expansion in polypropylene. Will that persist? Again polypropylene here has been underinvested so as demand rises, we reach operating rate environment where operating rates are north of 90% and propylene is cheap. So as long as that continues, then I would say polypropylene margins are probably in a different regime than they were in the past.

Got it. Thanks very much.

Laurence Alexander, Jefferies.

Can you just remind us on how much of an EBITDA tailwind you had from the advantaged feedstocks in Europe? And secondly, given the five year view of fairly tight operating conditions, can you clarify why not front-loading the CapEx to bring on capacity more quickly to take advantage of that?

So on the value of the advantaged feedstocks, in Q3 that was about $50 million of tailwind. In terms of CapEx, we're executing at a very high rate right now in our growth plan so, Laurence; it's really about prioritization, how much can we get done, and so on. But I can tell you that we're executing at a fairly high level on capital this year and the coming years will be very active for us. So, our priority remains on US expansions, in cracker debottlenecks, and in polyethylene.

Okay. Thank you.

If we have no further questions, then I want to say thank you for your questions and let me close with a few remarks. First, we delivered record results in Q2 and we delivered our fifth consecutive quarter with EBITDA of $2 billion. Our priorities remain consistent. We're focused on safe, reliable, cost-efficient operations. We aim to deliver relative outperformance in any market environment. We're continuing to execute on our growth program. As I've mentioned; we just started up our Channelview debottleneck, we have Corpus Christi next year, we have another Channelview debottleneck and polyethylene expansions coming. From a shareholder perspective, we remain committed to return value to shareholders by way of our next 10% share repurchase program, we expect to execute that over the next 10 months to 14 months. And our strategy and focus continue to prove very resilient in any market environment. So, thank you for your interest in our Company and we'll speak with you again at the next call.

Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect.