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Text: I'm joined today by Bob Patel, our Chief Executive Officer; and Michael McMurray, our Chief Financial Officer.
Pass code for both numbers is 36941.
During today's call, we will focus on first quarter results, the current environment, our near-term outlook and provide an update on our growth initiatives.
Before turning the call over to Bob, I would like to call your attention to the noncash lower of cost or market inventory adjustments or LCM that we have discussed on past calls.
These adjustments are related to our use of last in, first out or LIFO accounting and recent volatility in prices for our raw materials and finished goods inventories.
We appreciate you joining us today as we discuss our first quarter results.
Before we get into the discussion of our results, I would like to take a moment to recognize the tremendous progress that has been made in fighting the COVID-19 pandemic and how much hard work still needs to be done around the world to reduce the effects of this disease.
While financial markets are focused on the economic upside enabled by increased vaccination and the eventual reopening, today, our employees, customers, suppliers and the communities where we operate in India, in particular, as well as Brazil and even parts of Europe, are still suffering from terribly high case rates and fatalities.
We are working closely with governments around the world to do our part to advance immunity for our employees and their communities and to hasten an end to the devastation brought on by this virus.
Our thoughts remain with those most affected by this pandemic.
Now moving into the discussion of our Q1 results.
LyondellBasell is continuing to build upon the momentum seen in the second half of 2020.
During last year's recession, we advanced on our strategic initiatives to grow our asset base and emerge stronger from the downturn to position our company to capture the benefits of a recovering economy in 2021.
Let's begin with slide three and review the highlights.
In the first quarter, earnings more than doubled from the same quarter of last year to $3.18 per share.
LyondellBasell's first quarter net income improved by 25% relative to the fourth quarter as we earned approximately $1.6 billion of EBITDA.
Our businesses benefited from strong demand and tight markets at improved margins across the majority of our segments.
Our Olefins and Polyolefins-Europe, Asia and International segment achieved their highest quarterly EBITDA since 2018, while the O&P-Americas segment reached a quarterly EBITDA level that has not been seen since 2015.
Strong cash generation enabled us to pay down $500 million of debt in January and end the first quarter with nearly $5 billion of cash and available liquidity.
After the quarter closed, we paid down an additional $500 million of debt in April.
We expect that our robust cash generation should continue throughout the year, and our top priority for capital deployment in 2021 is debt reduction, which will enable meaningful progress toward improving our credit metrics to two turns of total debt-to-EBITDA.
As we approach the end of the first month of the second quarter, low inventories and persistently high demand are driving higher margins for most of our products.
The unusually cold weather and associated power outages that occurred during February in Texas resulted in approximately one month of downtime or a significant share of total US capacity located within the state.
Deferred turnarounds from 2020 are resulting in high levels of planned maintenance downtime for many of our competitors during the second quarter.
LyondellBasell has no major planned maintenance for the second quarter at any of the global assets that we operate.
We are focused on running our assets safely, reliably and at maximum rates to supply our customers' needs and capture the opportunities available in these strong markets.
We expect markets will remain tight through at least the end of this year due to very high demand, low inventories and the capacity that will be lost during planned downtime.
With customer demand exceeding production, the full extent of our customers' backlogs, deferred consumption and unmet demand are unknown.
In the days after the Texas freeze, North American PG exports fell by 13% for the month of February, and we expect the March data to reflect further decline in exports.
It will likely require quite some time before North American polyethylene industry can fulfill backlogs, satisfy domestic demand and returned to last year's pace of selling 40% of production into the export market to serve global demand.
And this scenario of replenishing inventory over the course of 2021 does not factor in an additional wave of demand that is likely to arise in the second half of this year from restocking and increased activity in the travel, leisure and hospitality sectors as vaccines provide for increased mobility.
The reopening and considerable pent-up demand will add another leg of growth across our businesses.
Increased mobility and rising demand for transportation fuels should enable our Oxyfuels and Refining businesses to deliver meaningful profit improvements in the second half of '21 and into 2022.
At LyondellBasell, the first topic on the agenda for a meeting of our leadership or any group of employees throughout the company is typically oriented toward improving the health and safety of our teams.
Our consistent emphasis on a culture of safety provides clear and direct benefits toward improving the health and welfare of our employees, contractors and communities.
We also believe the attention to detail embedded in our safety culture cascades indirect benefits toward our work to ensure reliable operations, commercial leadership, and ultimately, differential financial performance.
As such, I'm pleased to report that in the first quarter of 2021, our employees and contractors achieved the best safety performance we have attained in any prior year.
We look forward to continued progress on our journey toward our goal of 0 injuries.
Earlier this month, we launched our Circulen portfolio of polymers, described on slide five, to enable our customers and brand owners to improve the sustainability of their products.
CirculenRecover polymers are already in use, producing consumer products such as the Samsonite Magnum Eco suitcase line depicted on the slide.
We are stepping up volumes of CirculenRenew polymers in Europe and advancing our proprietary catalyzed pyrolysis technology at our MoReTec molecular recycling pilot facility in Italy, with the goal of bringing this potentially game-changing technology for CirculenRevive polymers to a commercial scale.
Over the past 70 years, our polymers have played a central role in advancing modern living by reducing food waste with protective packaging, delivering safe drinking water through plastic pipes and advancing healthcare with sterile and affordable devices and equipment.
With the introduction of our Circulen product line, we are making further progress toward LyondellBasell's goal of producing and marketing two million metric tons of recycle- and renewal-based polymers annually by 2030.
On slide six, we highlight how LyondellBasell's technological advancements can enable our customers to independently improve the sustainability profile of their product formulations.
Our new Hyperzone HDPE process is capable of producing polyethylene with more than five times the crack resistance of standard polyethylene produced with a chromium catalyst in a slurry loop process.
This premium performance of polyethylene from our Hyperzone multi-zone process can be directly leveraged by customers to produce packaging, such as detergent bottles with thinner walls, and less polyethylene that reduces weight without sacrificing durability or performance.
As our customers seek to improve the circularity of their business models, many plastics converters have set aggressive goals to increase their utilization of post-consumer recycled, or PCR, plastics in packaging and other applications.
Hyperzone's outstanding performance can also be leveraged to allow for increased blending of PCR without sacrificing performance.
As you can see in the chart, Hyperzone HDPE blended with 25% PCR can still exceed the crack resistance of standard polyethylene by 70%.
Our customers are leveraging LyondellBasell's advanced technology to improve the crack resistance, top load strength, impact resistance and other critical properties for their products while simultaneously improving the sustainability profile of their business models.
Now let's step back a bit and on slide seven review some of the macroeconomic forces that have been driving LyondellBasell's business performance during the pandemic and the ongoing recovery.
One way to think about the trajectory of the economy is to untangle a few of the societal trends that are fueling demand in markets for nondurable goods, durable goods and transportation.
In the early days of the pandemic in March, April and May of 2020, we saw elevated demand for nondurable goods as households engaged in pantry stocking to protect against supply disruptions and adapt to the transition toward increased working from home, schooling from home and other lifestyle changes associated with quarantines and societal lockdowns.
LyondellBasell's Olefins and Polyolefins businesses benefited from the double-digit improvements in packaging demand as increased utilization of nonbulk packaging and e-commerce deliveries boosted demand for our materials.
In 2021, consumer packaged goods demand remains elevated by single-digit percentages relative to prepandemic levels.
We expect somewhat elevated demand for packaging will persist following the pandemic with some permanent changes in society as a portion of the population continues to work remotely, school remotely and use home delivery for convenience.
The second economic driver for our businesses has been the recovery in consumer-, industrial- and construction-related demand for durable goods that began in the third quarter of 2020.
This trend can be reflected by the dark blue line that tracks the ongoing recovery in vehicle production in North America.
With government stimulus supporting the US economy and limited options for travel, leisure and public dining, consumers remodeled homes and purchased appliances, home entertainment and vehicles that drove recovery for the industrial economy.
This trend has been boosting demand for LyondellBasell's propylene oxide from our Intermediates & Derivatives segment that is used in polyurethane foams for furniture and construction insulation as well as polymers from our O&P segments that are used both directly and in plastic compounds produced by our Advanced Polymer Solutions segment.
The third significant trend is the increased mobility that is developing around the world as vaccination rates improve and activity in the travel, leisure and hospitality sectors returns to some semblance of normalcy.
Increases in vehicle miles traveled are supporting a rebound in crude oil and gasoline prices to bring back margins for our Oxyfuels business in the I&D segment.
While a slower rebound in international air travel is holding back demand for jet fuel, strong demand for diesel and improving demand for gasoline is expected to improve profitability for LyondellBasell's Refining segment during the second half of this year.
Increased mobility will also benefit our polymer businesses as the restaurant, hotel and tourism industries restock and begin to address substantial pent-up demand.
The sum of these trends points to a strong outlook for both the global economy and LyondellBasell during the remainder of 2021 and well into 2022.
On slide eight, these trends can be seen in first quarter global demand growth for our two largest products, polyethylene and polypropylene, relative to prepandemic levels seen two years ago in the first quarter of 2019.
Over this period, we've seen modest improvements in European demand.
In the first quarter of 2021, North American demand was quite strong, but constrained by lack of supply due to the downtime triggered by the cold weather and associated power outages in Texas.
Northeast Asian demand increased by an astounding 23% driven by the postpandemic strength of the Chinese economy.
Since imports account for approximately 40% of China's demand needs for polyethylene, China's growth benefited LyondellBasell's production sites in the United States and the Middle East that export polyethylene to China.
Global demand for polyolefins has grown by 14% over the past two years, far above the long-term trends of 4% and 5% annual demand growth for polyethylene and polypropylene, respectively.
Strong global demand and constrained production have supported polyethylene contract price increases of $950 per metric ton in the US from May 2020 through March of this year, with $420 per ton occurring since November and more than $300 per ton of additional price increases on the table for April and May of 2021.
As demand should get even stronger as we progress through the recovery, we expect tight markets and strong margins for polyolefins to persist into next year.
In January, we talked about concerns that global polyethylene capacity additions, particularly in China, could outpace global demand and depress operating rates and profitability over the coming years.
This quarter, we have updated the chart we discussed during the fourth quarter call to address operating rates for both polyethylene and polypropylene.
Predictions of reduced operating rates due to new capacity are highly reminiscent of forecasts from consulting reports published in 2016.
These are depicted by the dotted blue line, which predicted global operating rates would dip due to capacity additions on the US Gulf Coast from 2017 through 2018.
More importantly than delays in capacity, we believe recent forecasts are underestimating demand growth.
Early in the pandemic, many predicted declines in PE demand for 2020.
By the middle of the year, forecasts improved to flat demand.
Most consultants now believe that global polyolefin demand grew by approximately 4% in 2020, similar to growth rates seen consistently over the past 30 years.
Adjusting these forecasts to 4% demand growth for both '20 and '21 results in a predicted operating rate shown by the dotted gray line.
Last quarter, we suggested that 2021 would likely follow the patterns seen after prior recessions, and this year's demand growth could be higher than the historical trend of 4%.
A 7% growth in demand during 2021 for only one year with reversion to the historical mean in 2022 and beyond would generate the robust operating rate forecast depicted by the dotted orange line.
Today, with global polyolefin demand growing in the first quarter by 14% over the past two years, we are even more confident that the recovering economy is likely to facilitate a more orderly absorption of this new capacity by the global market, which should support robust margins.
Over the last 12 months, LyondellBasell converted almost 80% of our EBITDA into $3.4 billion of cash from operating activities.
In the first quarter of 2021, our businesses delivered over 40% more free operating cash flow relative to the same period last year.
We expect continued improvement of our LTM performance as we progress through each quarter of 2021.
As Bob mentioned, our goal for this year is to accomplish meaningful deleveraging to further strengthen our investment-grade balance sheet.
In the first quarter, while paying dividends of $352 million and investing a similar amount in capital expenditures, we reduced the balance on our term loan by $500 million to close the first quarter with cash and liquid investments of $1.8 billion.
After the quarter closed, we repaid an additional $500 million on the term loan in April.
We expect that robust cash generation should enable continued progress on deleveraging throughout the year.
Before I continue with a more detailed discussion of our segment results, let me provide a brief update on our 2021 modeling guidance.
We continue to be on track to invest approximately $2 billion in capital expenditures during 2021, targeted equally toward profit-generating growth projects and sustaining maintenance.
Due to extremely strong demand for propylene oxide, we have shifted a turnaround at one of our PO/TBA units in Bayport, Texas from the second quarter to the third quarter of this year and reduced the scope and associated downtime for the maintenance.
With this change, we expect no major planned maintenance downtime in the second quarter of 2021.
And based on expected volumes and margins, we estimate that the third quarter EBITDA impact due to lost production associated with planned maintenance across the company will increase by $30 million to $75 million.
In total, the EBITDA impact associated with all of LyondellBasell's 2021 planned maintenance downtime should decrease by $30 million relative to our original guidance to approximately $140 million for the year.
In the first quarter of 2021, LyondellBasell's business portfolio delivered EBITDA of $1.6 billion.
This was an improvement of more than $300 million relative to the fourth quarter, exceeding typical first quarter seasonal trends.
The upward trajectory of LyondellBasell's profitability reflects improving demand and margins for our products driven by the recovering global economy and tight markets.
As Bob mentioned, cold weather and associated power outages resulted in unplanned shutdowns that constrained first quarter production for LyondellBasell and nearly all of our competitors in the state of Texas.
This downtime was exacerbated by strong global demand that tightened markets and elevated margins across most of our businesses.
While it's clear that we lost production during the first quarter due to unplanned downtime, the offsetting effects of higher margins and sales from inventory complicates the effort to quantify the impact on first quarter business results.
In the second quarter, we plan to operate our assets at nearly full rates as profitability improves for oxyfuels and refining businesses.
We expect further EBITDA improvement during the second quarter.
On the left side of the chart, our all-time high quarterly EBITDA, excluding LCM of approximately $2.2 billion reported in the third quarter of 2015, provides useful perspective.
While profitability for transportation fuels was quite strong in 2015, today, our company has more earnings power from a larger asset base.
Over the last six years, we have added ethylene capacity at Corpus Christi, expanded our compounding business through the acquisition of A. Schulman, started a new Hyperzone HDPE plant in Houston and added significant joint venture capacity in Louisiana and China.
In 2021, LyondellBasell is poised to capture opportunities that are emerging in the rebounding global economy with a larger asset base.
Now let's review the first quarter results for each of our segments.
As mentioned, my discussion will describe our underlying business results excluding the noncash impacts of LCM inventory changes.
I will begin with our Olefins and Polyolefins-Americas segment on slide 13.
Third quarter EBITDA was $867 million, $145 million higher than the fourth quarter.
Tight markets and strong demand resulted in improved margins, driving quarterly results higher than we have seen since 2015.
Olefin results increased approximately $155 million compared to the fourth quarter.
Olefins margins increased, with higher ethylene and propylene prices outpacing higher feedstock and utility costs.
Volumes decreased due to downtime driven by Texas weather events, partially offset by a full quarter of volume from our Louisiana joint venture that we formed in December.
The ethylene cracker at the joint venture ran continuously throughout the weather events and exceeded ethylene nameplate operating rates by 9% during March.
Polyolefin results for the segment decreased by about $15 million during the first quarter.
Polyethylene margin decreased, while polypropylene margin improved.
Polyethylene volume increased due to a full quarter of contribution from the Louisiana joint venture, partially offset by lost production during the weather events.
We anticipate both volume and margin improvement for our O&P-Americas segment during the second quarter.
Volumes are expected to rebound in the absence of weather-related downtime.
Tight markets due to high demand, low inventories and customer backlogs are expected to continue to support strong integrated chain margins.
During the first quarter, EBITDA was $412 million, $161 million higher than the fourth quarter.
Strong demand expanded margins, driving quarter results higher than we have seen for the segment since 2018.
Olefins results increased $30 million driven by increased margins and volumes.
Ethylene margin improved due to increased ethylene prices and lower fixed costs despite higher feedstock cost.
Demand was robust during the quarter, and we increased volumes by operating our crackers at a rate of 98%, almost 10% above industry benchmarks for the first quarter.
Combined polyolefin results increased approximately $150 million compared to the prior quarter.
Strong polymer demand drove spread improvements for both polyethylene and polypropylene prices relative to monomer.
Margin improvements at our Middle East and Asia joint ventures were offset by higher LPG feedstock costs, pressuring profitability at our new Bora joint venture in China, resulting in little change in equity income for the segment.
During the second quarter, we expect strong demand in tight markets to drive further margin improvement for our O&P-EAI businesses.
First quarter EBITDA was $182 million, $14 million lower than the prior quarter.
Margins improved with higher product prices, while volumes declined due to the Texas weather events and planned maintenance in our Propylene Oxide & Derivatives business.
First quarter Propylene Oxide & Derivatives results decreased by approximately $35 million due to lower volumes, offsetting stronger margins driven by tight market supply.
Intermediate chemical results decreased about $55 million due to lower volumes as a result of the weather events.
Oxyfuels and related products results increased by approximately $25 million as a result of higher margins benefiting from improved gasoline prices that were partially offset by constrained volumes.
We expect both volumes and margins to improve for our I&D segment in the second quarter.
Strong demand for durable goods, coupled with continued tight market supply, are expected to increase profitability across most of the businesses in this segment.
Now let's move forward and review the results of our Advanced Polymer Solutions segment on slide 16.
First quarter EBITDA was $135 million, $9 million higher than the fourth quarter.
Volumes improved driven by higher demand for our products, partially offset by lower margins.
Compounding & Solutions results were relatively unchanged, with higher volumes driven by improved demand being offset by compressed margins due to rising feedstock cost.
Advanced Polymer results increased by approximately $15 million due to both higher margins and volumes.
In April, North American feedstock costs for our polypropylene compounds rapidly declined to reverse much of the price escalation that occurred during the first quarter.
We expect that falling feedstock prices, combined with continued price improvements for our compounded products, will expand margins during the second quarter.
First quarter EBITDA was negative $110 million, a $36 million decrease versus the fourth quarter of 2020.
Higher cost for renewable fuel credits, or RINs, and lower crude throughput overwhelmed improvements in the Maya 2-1-1 industry crack spread.
In the first quarter, the Maya 2-1-1 crack spread increased by $5.21 per barrel to $15.32 per barrel.
As a result of the Texas weather event, the average crude throughput at the refinery fell to 152,000 barrels per day.
In April, we continue to see improvements in refined product demand, and we are running the refinery at nearly full rates.
Strong demand for diesel and improving demand for gasoline is expected to improve both volumes and margins at our refinery during the second half of this year.
However, we don't expect a full recovery until there is further progress in vaccination rates and a rebound in global demand for jet fuel driven by increased business and international air travel.
First quarter Technology segment EBITDA was $94 million, $49 million higher than the prior quarter.
Catalyst profitability increased with customers rebuilding inventories and increased demand from Asia and the Middle East.
Based on anticipated timing of upcoming licensing milestones and catalyst demand, we expect that second quarter Technology business profitability will be similar to the first quarter.
Let me summarize our view of current conditions and the outlook for our businesses with slide 19.
We began this year with low inventories and increasing demand from a recovering global economy.
During our fourth quarter earnings call in January, we thought that strong February order books, increasing seasonal demand and tight industry supply would support strong margins for at least the first half of 2021.
Since January, our industry lost several weeks of supply due to Texas weather events during February, and deferred maintenance from 2020 is resulting in higher levels of planned downtime across the industry, particularly in the second quarter.
North American inventories were depleted during the downtime, and European inventories have been pressured by unusually strong first quarter demand.
While our company normally maintains over one month of polyolefin sales inventory, our European PE and PP businesses ended March levels well below those targets, most notably, with less than two weeks of low-density polyethylene inventory.
Logistics constraints are exacerbating the situation due to shortages of shipping containers on critical routes and escalating freight rates that are limiting opportunities for regional arbitrage.
China remains structurally short of polyethylene, and US exports to China have vanished as North American suppliers seek to replenish inventories and address order backlogs from domestic customers.
Backlogs for finished goods are rising as the recovering global economy continues to be supported by government stimulus and pent-up demand emerges with increased vaccination rates.
In summary, we believe that tight global markets are likely to persist well into the second half of this year, and continued improvements in mobility and associated economic activity could sustain strong volumes and margins into 2022.
In the years following the 2008 Great Recession, our company nimbly captured the benefits of low-cost feedstocks that arose from the development of North American oil and gas resources.
LyondellBasell typically delivered between $6 billion to $7 billion of EBITDA over the past 10 years.
Our EBITDA after LCM inventory adjustments reached $8.1 billion in 2015 during my first year as CEO of our company.
At the end of 2019, we thought we might simply be coming to the end of a very long business cycle until we learned more about COVID and the extreme tolls it would take on our society, the economy, and ultimately, in human lives.
As we rebound from the pandemic and contemplate how our company could perform through the recovery and the next business cycle, it is worthwhile to consider the factors that should provide additional earnings power relative to our performance last year and in the previous cycle.
Recovery in automotive and other durable goods demand is rebuilding volumes within our new APS segment back toward 2018 levels.
Increased utilization of our capacity should provide greater visibility on the more than $200 million in synergies that we've built into the business since acquiring A. Schulman.
In 2020, we added 500,000 tons of polyethylene capacity utilizing our next-generation Hyperzone technology.
During the depths of the pandemic and recession, our strong balance sheet enabled us to move forward and form accretive joint ventures for integrated crackers in China and Louisiana that provided immediate returns on our investments.
This quarter, we finalized an agreement to form our second propylene oxide joint venture with Sinopec.
Beyond the broad-based margin improvements that are currently under way for many of our products, full recovery in demand for transportation fuels still lies ahead and should drive margin improvement for our sizable Refining & Oxyfuels businesses over the coming quarters.
Our larger asset base is well poised to capture the opportunities of a recovering economy, establish new earnings benchmarks and position LyondellBasell for further growth over the upcoming business cycle.
Let me close with slide 21.
The title of our 2020 annual report is Emerging Stronger, and it is an appropriate description of LyondellBasell's trajectory as the global economy recovers from the pandemic and recession.
Our leading and advantaged business positions are primed to capture the benefits of a recovering economy.
In the second quarter, we have no major planned downtime, and we are operating our highly reliable and low-cost global network of assets at maximum rates to capture rising margins.
We have remained steadfast to our disciplined financial strategy.
Over the coming year, our priority will continue to be deleveraging while supporting shareholder returns with a strong and progressive dividend.
We remain committed to an investment-grade credit rating, and our plan is to bolster our credit metrics through increased earnings and additional debt reduction over the coming quarters.
Our aim is to maximize free cash flow by leveraging our larger asset base, efficiently converting earnings into cash and deploying capital in a prudent manner toward high-return investments.
All of this will help drive our ultimate focus on delivering strong shareholder returns.
The outlook for our business is quite promising, and we look forward to delivering on our commitments over the coming quarters.

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q1 earnings per share $3.18.

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