利安德巴塞爾 (LYB) 2018 Q1 法說會逐字稿

Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. (Operator Instructions) I'd now like to turn the conference over to Mr. David Kinney, Director of Investor Relations. Sir, you may begin.

Thank you, Shirley. Hello, and welcome to LyondellBasell's first quarter 2018 teleconference. I'm joined today by Bob Patel, our Chief Executive Officer; and Thomas Aebischer, our Chief Financial Officer.

Before we begin the business discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.lyb.com.

I would 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. Actual results could differ materially from these forward-looking statements.

For more detailed information about the factors that could cause our actual results to differ, please refer to the cautionary statements in the presentation slides in our financial reports which are available at www.lyb.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 www.lyb.com.

Finally, I would like to point out that a recording of this call will be available by telephone beginning at 1:30 p.m. Eastern time today until 9:59 p.m. Eastern time on May 27 by calling (866) 403-7099 in the United States and (203) 369-0571 outside the United States. The pass code for both numbers is 65468. During today's call, we will focus on first quarter results, the current environment and our near-term outlook. With that being said, I would now like to turn the call over to Bob.

All right. Thanks, Dave. Good morning to all of you and thank you for joining our first quarter earnings call. Let's begin with Slide 4 and review the highlights from the first quarter.

The LyondellBasell business portfolio continues to exhibit superior cash flow generation as our growth strategy builds momentum to deliver additional value for our shareholders. Reliable operations and improving margins for several products provided an outstanding start for the New Year.

Our first quarter diluted earnings were $3.11 per share. Both EPS and net income results for the first quarter represented a significant increase relative to the first quarter of 2017 and the fourth quarter of 2017 excluding the onetime tax benefits that occurred in the fourth quarter. EBITDA was $1.9 billion, representing an 11% improvement over the fourth quarter and an 18% improvement over the first quarter of 2017.

Strong performance in our Intermediates and Derivatives business generated record quarterly EBITDA for that segment.

In the first quarter, we announced an 11% increase to our quarterly dividend, bringing it to $1 per share per quarter. This increase reflects the confidence in our ability to continue providing strong returns to our shareholders through business cycles.

Our growth program advanced in the first quarter with our announcement to acquire A. Schulman and the start of our quality circular polymers or QCP joint venture with SUEZ. While the A. Schulman acquisition will extend our range of innovative products and establish our position in high-growth markets, partnering with SUEZ in the QCP JV allows us to establish a leading position in the expanding market for recycled materials.

Our organic growth projects also progressed during the first quarter. Construction on our Hyperzone HDPE project is on track for startup in 2019, and groundbreaking for our PO/TBA project is scheduled for this summer.

Slide 5 highlights the continued improvements to the strong safety performance achieved by our employees and contractors during the first quarter. As you know, we believe that our commitment to health, safety and environmental performance helps to drive reliable operations and, ultimately, profitability.

Safety remains a top priority across our company. I'm very pleased to see continued improvement over the first months of 2018.

During the first quarter, chain margins across ethylene and polyethylene remained quite strong due to robust global demand growth. Slide 6 illustrates some of the growing markets where our polyethylene enjoys leading positions [in] markets such as film and sheet for packaging, high density polyethylene for pressure pipe, plastic fuel tanks for transportation and wire and cable jacketing for electrical products.

Global polyethylene market demand grew by 4% during the first quarter and the North American capacity additions will be needed to satisfy China's substantial and growing trade deficit for these plastics. And now Thomas will provide more detail on our financial highlights for the quarter.

Thank you, Bob, and good morning to all of you. Please turn now to Slide 7, which shows our quarterly and trailing 12-month segment results.

During the quarter, strong polyethylene demand benefited both Olefins and Polyolefins segment, while strong margins for styrene and other Intermediates and Derivatives products resulted in a quarterly EBITDA record for the segment.

On Slide 8, we provide a picture of cash generation and use. During the first quarter, we generated over $1 billion of cash from operating activities and approximately half of this amount was returned to investors through dividends and share repurchases. We continue to view dividend as core to our capital deployment strategy, and as Bob previously mentioned, in the first quarter, we announced an 11% increase to our quarterly dividend, raising it to $1 per share. While we typically wait until the May board meeting to consider dividend increases, the combination of our improving view of market conditions and the benefits of U.S. tax reform provided the impetus for a larger and earlier dividend increase for 2018.

Our investments in maintenance and growth capital expenses were $429 million during the first quarter, driven by planned maintenance turnarounds, the new Hyperzone plant and early work on the PO/TBA project.

During the first quarter, our cash and liquid investment balance grew by $63 million. Over the past 12 months, we generated more than $5.5 billion of cash from operating activities and used approximately $2.3 billion for dividends and share repurchases. After investments in our capital program and other financial activities, the cash and liquid investment balance increased by approximately $1.3 billion.

Our share buyback program continued during the quarter, with the company repurchasing another 1.3 million shares. Since the inception of the program, we have repurchased approximately 190 million shares or approximately 33% of the initial shares outstanding. In our proxy statement filed with the SEC in early April, we recommend that our shareholders authorize a new repurchase program of up to 10% of our outstanding shares over the next 18 months.

Slide 9 provides a longer perspective on LyondellBasell's substantial and consistent cash generation from operating activities. In each of the 5 periods, operating activities have generated between $5 billion and $6 billion of cash. After our investments and capital expenditure, our trailing 12-month free cash flow was $4 billion and we finished the quarter with approximately $6.9 billion of liquidity.

The bottom chart illustrates the consistency of our strong cash generation from operating activity as a percent of enterprise value relative to our industry peers. LyondellBasell leads the group with a strong and consistent ratio of approximately 13% and compares favorably to many of our more specialized peers. With that, I will turn the call back to Bob. Thank you very much.

All right. Thank you, Thomas. Let's turn to Slide 10 and review our segment results. In our Olefins and Polyolefins Americas segment, first quarter EBITDA was $780 million, a $4 million decline from the fourth quarter. The fourth quarter 2017 results included a LIFO inventory charge of $22 million. Relative to the previous quarter, olefins' results decreased by approximately $75 million. Ethylene margin declined by approximately $0.02 per pound and volume decreased due to reduced derivative operating rates. Ethylene operating rates remained strong across our system during the first quarter, averaging 90%. Approximately 80% of our ethylene production was from ethane and approximately 90% came from NGLs.

In polyolefins, combined results improved by approximately $35 million. Polyethylene spreads over ethylene increased by approximately $0.02 per pound. During our fourth quarter call, I mentioned that we would incur impacts from unusually cold weather during the third week of January. This event impacted the first quarter results by approximately $45 million. Roughly 2/3 of this impact is in our O&P-Americas segment, with most of the remainder in our Intermediates and Derivatives segment. Planned maintenance on one of our 2 crackers at Channelview negatively impacted the first quarter results by approximately $50 million. This work is near completion and the impact to the second quarter is estimated to be approximately $50 million.

Over the past 2 months, spot ethylene prices have weakened due to strong industry supply, lower derivative operating rates and increased inventories. However, the polyethylene market remains tight and margins are robust. Industry consultants are predicting an increase in ethylene cracker downtime during the second quarter. This increased downtime, combined with improved operating rates on downstream derivative units, should result in a more balanced ethylene environment in the coming months.

Turning to Slide 11. Let's review performance in the Olefins and Polyolefins Europe, Asia and International segment. During the first quarter, EBITDA was $518 million or $162 million higher than the fourth quarter. Fourth quarter 2017 results reflected LIFO inventory charges of $20 million and multiemployer pension charge of $20 million.

Olefins results improved by approximately $70 million, with ethylene margins increasing approximately $0.06 per pound. Our ethylene production volume increased due to the absence of fourth quarter maintenance at the Wesseling site. Utilization of advantaged feedstocks decreased by 2% as co-product credits outweighed the higher cost of naphtha feedstock. Our crackers operated at a 95% rate during the first quarter, exceeding industry performance by about 5%.

Combined polyolefin results improved by approximately $50 million primarily due to higher sales volumes. During April, global markets remained tight to balanced with increased maintenance across the industry during the spring months. Industry consultants are forecasting that 3 European crackers will be shut down for planned maintenance in the second quarter.

On Slide 12, we highlight the strong performance of our Intermediates and Derivatives segment. The first quarter EBITDA was $486 million, setting a quarterly record and representing an improvement of $76 million from the fourth quarter.

Fourth quarter 2017 results reflected a LIFO inventory charge of $17 million. Results for propylene oxide and derivatives were relatively unchanged as margin improvement was offset by lower volumes, and increased margin for styrene was the primary driver for our improved results of approximately $30 million in intermediate chemicals.

Oxyfuels and related products results improved approximately $20 million primarily due to higher margins. During April, we're seeing strength in oxyfuel margins as we enter the period of seasonally high demand and lower butane prices. Prices for styrene and methanol remained strong but are expected to continue to moderate as industry production capacity returns to the market.

Now let's move to Slide 13 for a discussion of the Refining segment. First quarter EBITDA was $63 million. The refinery continued operating at a strong rate of 252,000 barrels per day during the first quarter. The fourth quarter profitability benefited from a $38 million LIFO inventory adjustment and refining margins were relatively unchanged. The cost of RINs decreased relative to the fourth quarter.

During April, our refinery has continued to operate near nameplate capacity and refining spreads have improved with higher seasonal demand. The Maya 2-1-1 crack spread increased to $26 per barrel, a significant increase from the first quarter average. We believe this favorability could extend through the second quarter as we enter the summer driving season.

Turning to Slide 14. Let's take a closer look at the improvements in operations and outlook for our refinery. Operating rates improved significantly in 2017 and the upward trajectory continued during the first quarter. I'm proud of the dedication of our team and their efforts to improve reliability at the refinery, enabling a return to the high operating rates we've seen over the years from this asset.

As many of you are aware, the International Maritime Organization is reducing the limit for sulfur in marine fuel oil from 3.5% to 0.5% effective January 1, 2020. Forward curves are already indicating that the distillate spread over Brent crude oil will improve by more than $2 per barrel by mid-2019 and more than $5 per barrel by mid-2020. When combined with improvements projected for light to heavy crude oil differentials, this could result in a significant increase to the Maya 2-1-1 refining spread and substantial profitability improvements for our refinery.

We will continue to monitor the implementation of these regulations over the coming months, but we believe the high coking hydrotreating and distillate capacities at our refinery leave us well positioned to benefit from these market developments.

Please turn to Slide 15 for an update on the A. Schulman acquisition. With the combination of LyondellBasell's vertically integrated polypropylene compounding business and A. Schulman's agile customer focus across broad and growing markets, we're well positioned to deliver significant value for customers and our shareholders. Within 1 week of announcing the acquisition, we staffed our integration management office and began work on detailed synergy and implementation planning for day 1 activities. I'm very pleased with the progress these teams have made. On March 16, we received United States anti-trust clearance.

We continue to anticipate that the transaction will close in the second half of 2018 subject to the remaining regulatory clearances and the A. Schulman shareholder vote scheduled for June 14. We look forward to updating you on the continued progress of this acquisition as we reach key milestones.

Turning to Slide 16. Allow me to recap some highlights. LyondellBasell delivered strong Q1 results at a time when new capacity is coming to market in the U.S. Our global portfolio of businesses continues to generate resilient returns in a dynamic range of market conditions. In the first quarter, we achieved record quarterly EBITDA for our Intermediates and Derivatives segment. We increased our quarterly dividend by 11% and continued to deliver strong cash generation.

We continue to see strong demand for our polyolefin products across all regions. That supported solid chain margins for our O&P businesses. The I&D segment benefited from strong margins across multiple business lines and our refinery ran near nameplate capacity.

Looking forward, we are seeing typical seasonal spread improvements for transportation fuels that support both our oxyfuels and refining businesses. As downstream derivative units in the industry ramp up to full capacity, we anticipate ethylene and polyethylene will move to a more balanced position. The recent increase in oil prices and strong global demand should continue to provide support for polyolefin pricing. Our organic growth program is progressing very well with construction of our Hyperzone HDPE plant on track for startup in 2019 and formal groundbreaking for our PO/TBA plant scheduled this summer.

Preliminary engineering work is underway to support the final investment decision for our North American PDH and PP plants by early 2019. With that said, we're now pleased to take your questions.

(Operator Instructions) Our first question comes from Steve Byrne with Bank of America Merrill Lynch.

The polyethylene pricing in Europe just remains at a substantial premium to the rest of the world. What are the factors that enable that? And do you see that as being sustainable?

Yes, Steve, first of all, the operating rates have continued to increase in Europe as there's no new capacity and demand is growing at a modest rate. So the units over there and for the industry are running at much, much higher rates. It's also a relatively more complex market than what you might find in China or in Asia, generally speaking. So in some ways, it's a little bit harder market to serve. So we do continue to believe that there will be some resilience in this premium as time goes on.

And the other factor I wanted your view on, Bob, was just U.S. polyethylene producer inventory level seemed to be high in March and it just doesn't seem to square with this dynamic about low ethylene pricing because of the delay in startup of downstream derivatives, unless the downstream derivatives are other ethylene derivatives and not polyethylene. Is there logic in all of that to you?

Well, I think the inventories in polyethylene, they may be higher than average. But you have to remember there's going to be more production as well. So I do think that some of the derivative -- the polyethylene units have not been steady in terms of their operation. They've been more up and down or not producing the targeted grades. I think we'll know a lot more here into Q2 as we reach kind of a newer normal with these new units.

Our next question comes from Arun Viswanathan with RBC Capital Markets. And we'll go on to the next question that comes from P.J. Juvekar of Citi.

Bob, on polyethylene, several cities have been cracking down on single-use plastic bags. What's your view on that and how does it impact polyethylene demand? And then related to that, you bought a stake in a recycling company recently. Was that in anticipation of this trend?

On the single-use PE bags, that's been around for a while in different parts of the U.S. as well as globally, and some of that impact has already been felt. It's a combination of LL and HD that you see the impact. I think it remains to be seen if the impact is greater than what we know today. With respect to our acquisition and the joint venture with SUEZ in this QCP venture, that's really anticipating a broader move towards brand owners like Procter & Gamble and IKEA and Unilever looking for more recycled content in their products. And I do think circularity is going to be a very, very important feature going forward.

So with SUEZ, I think what's unique is we partnered with a waste handling company who brings to the venture clean and segregated waste, which is very good feedstock for recycling. In the past, the challenge with recycling has been that what comes into a recycling plant is mixed waste. And so the end uses are more limited. I think we have a very unique opportunity with QCP to really impact in terms of circular economy.

Yes. And secondly, in the past, you've always given your views on ethane and NGLs. Ethane prices have gone up slightly, not running up, but maybe inching up. So can you give us your outlook on ethane with these new crackers, but also more drilling in the Permian and takeaway capacity there?

Yes, there have been, P.J., a lot of announcements from the midstream about more pipelines coming from the Permian to Mont Belvieu or to the Gulf Coast. And so we continue to believe that there's ample ethane to supply the new capacity closer to the Gulf Coast. So from the Permian, from the Rockies, Eagle Ford and so on. And while yes, there's a bit more of a premium, you'll recall that we've been saying for a couple years that we're expecting the frac spread to be $0.07 to $0.10, and we're kind of in that range. So there's lots of ethane available, in my opinion.

Our next question comes from Vincent Andrew with Morgan Stanley.

Bob, could you just talk about, over the next 6 months or so, as we get 2, maybe 2.5 cracker startups, with a lot of that product destined for the Asian market, how do you think about the spread between the U.S. PE price and the Asian PE price? And do you think that needs to compress? And do you think different grades will see different price trends as that capacity comes online?

Vincent, well, there's a lot there. So let me see if I can address it in pieces. First of all, if you step back and look at operating rates globally, they're still pretty high operating rates. So I think the unique feature about this cycle, if you will, or this phase of buildout capacity, we're coming off of full operating rates essentially. And this year, it seems to me that supply growth may exceed demand growth by 1% or 2%, still leaving us with operating rates that are greater than 90%.

With higher oil price, prices have come up in Asia. And when you look at the differential between the U.S. and Asia on like-for-like grades, it's about $0.05. It's not as great as what we may have had last year or the year before. For the remainder, for other product grades that are more U.S.-centric, I would expect there to be -- still be some delta as we've historically had. So you really kind of have to look at the price and separate it into the grades that are exported in like-for-like, and that spread of $0.05 is not a lot, in my opinion.

And Thomas, if I could just ask you, you generated $1.9 billion of EBITDA, and I believe there was only about $1 billion of cash flow from operations. So could you just walk us from one to the other? Anything unusual?

Right. Yes. So obviously, you have seen the net working capital development during -- you will see, obviously, all the detail in the 10-Q. We have net working capital, a slight net working capital buildup [toward] the variance and that explains the most significant piece of it. So it's -- compared to first quarter of 2017, when you look at it on a free cash flow basis, actually a significant increase on free cash flow.

But was it inventory? What part of the working capital was driving it?

It's mainly inventory, yes.

Our next question comes from Jeff Zekauskas with JPMorgan.

Bob, can you talk about how different policy changes regarding ethanol in China may affect the MTBE market over time?

Yes. Jeff, I think you're referring to E10. And so yes, we'll have to see how that develops but we still see a good MTBE market globally. And even if there's more ethanol, MTBE is still going to be an important oxygenate going forward. And given our PO/TBA investment being here in the U.S., we're capitalizing on cheaper butane, and we see good prospects for that project.

And then for Thomas, how much did you spend to buy back 1.3 million shares in the first quarter?

Right. So we spent -- when you look at the cash flow statement, you will see we spent for the 1.3 million of shares $119 million. However, as we disclosed in the 10-Q, we have a time lag between the share count and the actual cash outflow of about 2 days. So when you take the 1.3 million shares, you will see all these details in the Q, the actual spend including that 2-day time lag is $139 million.

Our next question comes from Duffy Fischer with Barclays.

We had the announcement from CBI (sic) [CB&I] a couple days ago that China's going to go ahead with its first ethane cracker and ship the ethane from the U.S. So 2 questions there. One, roughly how many announcements like that do you think we'll get over the next couple years? And two, what's the differential in cost between using ethane-producing pellets here, shipping the pellets to China versus shipping the ethane and producing the pellets there, which obviously, condensing ethane is going to be more expensive? But what's your best guess what that relative difference is in cost structure?

Yes. So Duffy, first of all, difficult to predict or forecast what other announcements may come. But if you step back and think about the development of the Middle East petrochemical industry, this is essentially premised on cheaper ethane. But the producers there chose to solidify the ethane and move it in the form of polyethylene or produce liquid chemicals which are much more inexpensive to ship. And I would think that, that will still be sort of the prevailing sentiment as we think through how this ethane will come to market.

In terms of cost differentials, just kind of as a rule of thumb, I think about the cost of shipping ethane in terms of cost of ethylene as being $450 a ton or something in that range as opposed to -- north of $0.20 a pound as opposed to polyethylene which including sort of putting it in bags is $0.08 or something like that. So there's a significant delta in terms of shipping gas versus polyethylene.

Fair enough. And then just one follow-up. On your I&D segment, a couple of smaller businesses have done pretty well lately with the methanol, acetic acid moving better, and the styrene obviously, has been doing well for a couple years. Is there any thought internally to maybe moving towards organic growth in those and trying to make those a bigger part of the portfolio?

Duffy, we've been, over the last year or so or 2 years, been thinking through our strategy in I&D, and we have a range of options in front of us that we will consider. Nothing I'm prepared to discuss today.

Our next question comes from Aleksey Yefremov with Nomura Instinet.

The PO derivatives results were up $55 million year-over-year. What is the driver behind this? And could you talk broadly about PO supply/demand and what are your expectations for earnings in PO this year compared to 2017?

Yes. So the driver was really in styrene monomer as a coproduct in the production of PO. PO margins have been fairly stable and up some. We expect that to be -- to continue. Volumes should increase as we go into the second quarter, so -- and we're quite -- continue to be quite constructive about our PO business. I think, Alex, when you think about our I&D business and step back from the various products, the key feature as we trended from Q1 to Q2 is really going to be about moving into driving season and how oxyfuels will contribute to an improving earnings in I&D. You see the ethylene crack spreads have come up which benefits our oxyfuel business. Butane typically gets cheaper in the summer months, and we saw that actually early this year, indicating that there's plenty of butane supply and volumes typically go up because of driving season.

So I think all of that, ultimately, as we move into Q2, as we do in prior years, oxyfuel results should be an important feature.

Understood. And if I can follow up on merchant ethylene, in your view of strength -- strengthening ethylene prices going forward, I guess if PE units will ramp, that makes sense, but wouldn't ethylene crackers -- new ethylene crackers also ramp production. So in many senses, it's going to be an integrated increase. How will that strengthen supply demand for merchant ethylene?

So in Q1, we had operating rates for crackers very high, while the derivatives didn't run as well in the industry, and some of the new units were more up and down in polymers as opposed to in the cracker business. Recent ethylene prices, spot ethylene prices have been pretty close to the ethane cash costs. So I know this is on investors' minds. So let me just address sort of the impact to our company.

First of all, we sell about 25% of our ethylene into the merchant market. And to size sort of the impact for you, about a $0.05 change in the spot margin translates to about $80 million per year impact in profitability. So it's very modest when you think in those terms. And I do think as we move through the year and as the new polyethylene units start to run more fully, we should expect that ethylene will come more into balance. If it doesn't, then I would size the impact for you, about a $0.05 change in spot margin translate for a full year to $80 million in impact on earnings.

Our next question comes from Kevin McCarthy with Vertical Research Partners.

Bob, if China were to proceed with tariffs on certain resins including low-density and linear low-density polyethylene, does it matter or not matter for you as Gulf Coast producers? And if it does matter, maybe you could share your thoughts on what might happen with trade flows, pricing, potential for resin substitution and those sorts of issues?

Yes. I think, first of all, Kevin, just to sort of ground us, our company is more focused on high density followed by low density and then we have very little linear low. And I think there'll be a combination of those things that you mentioned. You could see some trade flow shift, but the near-term impact will be higher prices in Asia. And substitution from LL to HD and end use applications, some of that can be done but I don't think it's substantial. So it really is -- when I think about tariffs and the trade talk, we're assessing longer-term impacts. I think the near-term impacts are higher prices, frankly.

Kevin, this is Dave. If you go back to the chart that Bob showed on Slide 6, the 38 billion pound trade deficit for polyethylene in China, I think that's really the driving force behind this. China does need this polyethylene one way or another, and whether the trade lanes shift or not is more of a finer question on that.

And then as a follow-up, if I may, your O&P--Americas earnings held pretty close to flat in 1Q sequentially, perhaps better than some of the benchmark levels might suggest. And I was wondering if you could speak to that. For example, are you making more money in metathesis these days with the disparity between ethylene monomer and the value of polyethylene or perhaps there are other factors helping to support the earnings here?

Well, we have a very good polypropylene market and that helps the segment. And I think it also speaks to the mix in terms of our participation in polyethylene. So Kevin, again, we've talked about the resilience of our portfolio and about our O&P business, and I think really Q1 demonstrates that.

And Kevin, I think if you look at the polyethylene price realization that we had relative to some of the nonmarket adjustments that you saw out there by some of the consultants, I think the real market really wasn't as bad as was portrayed on some of those nonmarket adjustments. I don't think that occurred in every market and every product line that's out there for polyethylene.

Our next question comes from Hassan Ahmed from Alembic Global Partners.

Bob, I wanted to revisit the China trade question but not from a product pricing perspective, more from a feedstock perspective. Interestingly, obviously, propane seems to be a part of the tariffs while polypropylene does not. And if I have my numbers right, it seems that around 15% of all U.S. propane exports are China bound. So I mean, is it fair to assume that if this tariff regime were to kick in, I mean you'd start seeing bit of -- a lot of propane in the domestic market, which I guess would depress propane pricing, may even provide a ceiling for ethane pricing and would probably be extremely favorable for the polypropylene side of things? Is that the right way of thinking about them?

Yes. Look, I think that is a potential outcome. And when you think about propane, first of all, there's not a lot of new export terminals that are being built. On the other hand, there's more propane supply coming from new NGLs. So if China were to pull back, then yes, I agree with you. I think the propane length would increase, and therefore, propane would be much more competitive with ethane that it is today. So I think this area you've outlined is a very good possibility that, that's how it plays out.

Understood, understood. Now changing gears a bit. Obviously, strong results on the I&D side. And as I looked at certain volumes within individual products, it seemed both on a year-over-year as well as sequential basis, the acetyl volumes are down significantly, I mean down 28% quarter-on-quarter 35% year-on-year. What was going on over there? Was this sort of maybe a strategy on your part to sort of reduce volumes to get better pricing? Or was there maybe an outage there or any of those things?

Yes. Hassan, this is Dave. We did have some operational issues with our acetyl segment during the first quarter of this year. But you're absolutely right. The margin improvements have been substantial.

I mean would you be able to break out what sort of impact, EBITDA impact that outage resulted in?

It wasn't really material for the whole segment. That's why we didn't (inaudible).

The next question comes from David Begleiter with Deutsche Bank.

Bob, just on PE in the very near term. Would you expect some polyethylene price erosion in this April-May -- in this May-June time frame perhaps?

We're in a seasonally strong period for polyethylene. So as I'd mentioned in a couple of the prior calls, typically for polyethylene and polyolefins generally, the annual growth we see in the first 3 quarters of the year, so, and this year is shaping up very similarly. And with higher oil prices and higher prices in Asia, demand is going very well. I see a very constructive market for the next quarter or 2, and we'll have to see how Q4 develops. But until then, seems to me that this supply is coming just in time to meet the demand growth globally.

Very good. And just on styrene, Bob, there has been a recent announcement by a U.S. player to add new capacity. Were you surprised by that announcement?

Well, nowadays, very little surprises me, David. But our focus has been more on PO/SM and as we think about styrene production. And I think that in Asia, we're going to see PO/SM as a more prevalent way of producing propylene oxide and, therefore, styrene monomer. I happen to think that's still the most economical, at least, for our company. So can't speak for others.

Our next question comes from Bob Koort with Goldman Sachs.

Question maybe around the capital deployment, a couple items. One, obviously, you guys started buying back stock. It looked like maybe the average stock price wasn't dissimilar from the fourth quarter. So did you guys raise your threshold bar of what price you're willing to pay? Or what sort of changed the dynamic there? And then secondly, Bob, can you talk a little bit about further inorganic opportunities, how you see that market developing? Are you guys active in looking? Or is it quite a down? Give us some sense there.

So first of all, on share repurchases, every quarter, as I've mentioned in prior calls, we really review intrinsic value and we think through what's ahead in the quarter, where are we trading and we update our grid. And I've talked about it in the past, and so this quarter was no different.

I think what's important for investors to recognize is that companies like ours from time to time have material nonpublic information. We're not able to get into the market immediately after we release earnings. And with the new 10b-5 plan, in the case of Q1, we hadn't announced -- well, we announced the A. Schulman acquisition in mid-February. We also moved up our dividend announcement to the end of February. We believe both of those to be material nonpublic information, and so we really couldn't get into the market to buy back shares until the very end of February.

So these things, these are normal practices, and we keep our value of our firm updated very regularly as we think through buybacks. And we've said before that we want to be opportunistic so we can maximize the bang for our buck, if you will, and you'll continue to see us doing that.

On the inorganic side, we've said in the past that what we look for are businesses that fit, from a strategic standpoint, and businesses where we know we can apply our strengths to create value. We're a very value-minded company in everything we do and I think that you should expect that to continue as we consider a range of growth options, whether they're inorganic or organic.

Our next question comes from Jim Sheehan with SunTrust.

Bob, with the changes in the International Maritime Organization helping your business, how do you think about refining and strategic options for that business going forward?

So Jim, that's been consistent in my message on this is that our focus right now is to have strong and reliable operations at the refinery, and I think we're on a good track there and I want to make sure that our team continues to focus on that. I think we have a tremendous opportunity in front of us. If indeed the forward curves turn out to be true as we get closer, it seems to me that this was a real opportunity especially for a refinery like ours that has so much coking capacity and its ability to process large volumes of sour crude oil.

And we're again value-minded. Building on my last comment, we're very value minded when we think about these things. And today, our focus is to run well, and I think there's great potential in our refinery that we own.

Great. And in your polyethylene business, you've highlighted the company's strong presence in a variety of end markets. And I'm curious about what's been happening in the wire and cable market recently. I think there's been some softening of demand there. Do you think that's temporary? Or do you think there are more extensive issues in that end market to contend with?

I think it's probably temporary because if you just step back and think about infrastructure spending in developing markets, and potentially here, at home, if there's more infrastructure spending that's stimulated by the government, I think that should be a good market and one that we quite like.

(Operator Instructions) Our next question comes from Frank Mitsch with Wells Fargo Securities.

Congratulations on a nice quarter and even further contratulations on the improvement in the sound quality of the conference call. Just a couple of quick follow-ups. Based on your, obviously, record in I&D, it sounds like oxyfuel is doing better. Styrene has sustainability. You're going to have more pounds of acetyls. Is there any reason that we would not expect to see another record in I&D in Q2?

Well, Frank, let's see how markets develop. I think the more volatile parts of our I&D portfolio are styrene and methanol. Difficult to predict where those will go. Directionally, oxyfuels should be better in Q2 compared to Q1. So let's see where we end up about a quarter from now.

I'll take that as a yes. And then, Thomas, you mentioned that you paid $119 million. However, there's a 2-day lag and you will see that it was actually $139 million. So it says that you guys bought back $20 million of stock in 2 days. Can you clarify that for me? And is that kind of the run rate now that you're out of the quiet periods of the Schulman deal and the dividend hike?

No, this is -- you have these cut-off [facts] on share buybacks every quarter. So when you look at the Q and you look at the amount of shares disclosed and the cash outflow, you see that 2-day lag. And I cannot clarify, obviously, that we are buying at a certain pace. That, obviously, depends very much on any given day and the underlying share price. But I think what's important to note and I think there was an earlier question asked about the fourth quarter, and then we continued -- we bought back shares again.

So as we stated before, we find our share very attractive, and that's why we continued buying back shares also at the level of wherever it was $110, $111, $107 a share. So that's what we continue to do so.

So but just to clarify. So that $20 million change in 2 days meant that you were very aggressive at the end of March. Is that how I should be thinking about that?

No. I think when you look at the share count, you will virtually see in March, how much share we bought back, obviously, what the corresponding share price is. And you can easily figure out what the average share price is we have paid for the 1.3 million shares.

Our next question comes from John Roberts with UBS.

On IMO 2020, the fleet owners appear to be delaying their decision between onboard scrubbers or lower sulfur fuel. So there could be a wide range of scenarios, I suspect, in terms of what happens. Is there any capital required for you at any of the extremes of kind of the scenarios that can happen? Or it's really just an operating change and the lead time that they'll have to make decisions on the scrubbers will give you plenty of lead time for you to make any changes in the refinery?

We don't have any capital that's earmarked for capitalizing on this IMO 2020. Again, more broadly, I've been asking the team at the refinery to really just focus on consistent, reliable operations at nameplate capacity, and we've been really, really focused on that. I think that is the biggest driver in positioning ourselves for what IMO 2020 could turn out to be.

Yes, John. We actually completed our Tier 3 investment last year. So there's no further investment needed. We just need to run it well, as Bob said.

And then, in reading the Schulman proxy, it looked like one of the bidders wanted to split off the distribution and composites business. Do you view those parts of Schulman strategic to the deal? Or are they something that maybe after the deal later on you might separate out as well?

So we have not made any decisions on these businesses. Those are, obviously, smaller compared to the whole of Schulman, but we're going to look at all of that very carefully. And I'll just remind you that as we thought about this acquisition, it was about creating a new platform in our company in compounding. And I'm convinced that I think we have all of the ingredients to build a world-class compounding business that will reach a multitude of markets. So we go into all of that with an open mind and solving for value creation.

Our next question comes from Jonas Oxgaard with Bernstein.

I want to ask whether there's a trade war with China or not, we're going to have to place a bunch of that polyethylene somewhere. We talked about it a little bit. But I was curious about how are you thinking about Europe in all of this. Are you making preparations to send some volume to Europe? And if so, what do you think the impact of that is in the European market?

Yes. No. First of all, Jonas, I think given that the European market is growing, albeit modestly at maybe 1%, 2% a year, eventually, the need for imports into that market are going to grow. And the needs for our European market are very different than the Asian market in terms of the types of products. So as we think about our new investment in the Hyperzone technology, I think that plays very well to targeted exports from the U.S. to Europe to supplement what we already do over there.

In my view, I think it's a better way to meet a modestly growing European business in polyethylene rather than build locally. So trade war or not, I mean I think we really have to look at the kind of grades that are needed and I do think there's a meaningful difference between the higher volume, more commodity grade that an Asian market might need compared to types that are needed in Europe.

And how does your exports compete with the Middle East and what is going to Europe right now?

Yes. So ethane costs here are pretty competitive with the new ethane cost in the Middle East. So again, I think it's really -- we look at asset by asset. We look at netbacks to various regions and we're optimizing for value. So I think we could, if we needed to export more product to Europe, we could do it very competitively from the U.S. and what benefits us is that we already have a very large presence in Europe locally. And so when I think about exports from the U.S., it's about supplementing production that's already there.

Okay. I was more thinking about the quality of product coming out of Middle East versus yours rather than the cost position. Is that...

Oh, I see. I think it depends on the types of technology that are deployed, but I really do believe this new Hyperzone polyethylene technology is going to be really unique in the high density space and it will be the type of product that many, many European customers will want. And so as we think about this one and a potential one in the next decade, we will certainly think about Europe as being part of the marketing plan on these new assets.

The next question comes from Matthew Blair with Tudor, Pickering, Holt.

Coming back to the trade theme here, earlier this year, we had China duties on styrene, Lyondell is a merchant styrene seller. Could you talk about what kind of impact did you see on your styrene flows and perhaps pricing? And does that give you more or less comfort on potential tariffs from China on PE?

Yes. So on styrene, so far, we didn't see a lot of impact in terms of volumes. And as you can see from posted prices from different publications, the pricing held up quite well. I do think this is, to be realistic here, Matthew, I think this is something that we have to watch with styrene. You hear my moderate view about the future in terms of styrene prices. So I think we just have to watch how all that develops. Part of the reason styrene prices also moved up was because there were some unplanned outages and some of that production has returned to market. So really difficult to predict or forecast how all of these tariffs and antidumping duties, how resilient and how sticky are they going to be and how they impact. I think we'll know more as the year progresses.

Our final question comes from Laurence Alexander with Jefferies.

This is Nick Cecero on for Laurence. Quick question on the styrene. I was wondering if you could walk me through integrated versus nonintegrated economics in terms of what you're seeing and how you see supply/demand play out for styrene through the end of the decade.

Yes, Nick, this is Dave. We haven't revealed, really, our coproducer economics. It's really tied up in the production of the propylene oxide as well. And so we haven't broken that out historically.

All right. With that being the last question, let me close with some remarks. So first of all, there remains the potential for a choppier U.S. polyethylene market later this year. And we continue to believe that this cycle is short and shallow. Whatever takes place later in the year, think about operating rates. We're coming into this year with very, very high operating rates. If supply growth exceeds demand growth by 1% or 2%, we're still left with very high operating rates. In terms of our own business, we expect I&D and Refining segment performance to offset declines in U.S. PE profitability should they materialize later in the year. I think this is again the strength and balance of the overall LyondellBasell portfolio.

So in the meantime, our focus continues to be on operational and commercial excellence and how we run the company day to day, and we're really starting to get traction now in our growth program as we advance polyethylene PO/TBA and move towards closing the Schulman deal so that we can integrate and create what we believe will be a world leader in terms of compounding. So lots going on here and we look forward to giving you an update at the next quarterly meeting. So thank you for your interest and wish you all a great weekend.

And this does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.