LyondellBasell Remains on Track with Ethylene Expansion - Analyst Blog
On Mar 12, we issued an updated research report on LyondellBasell Industries LYB. While the Netherlands-based chemical giant is poised to gain from its expansion projects, it is exposed to volatility in raw material costs and headwind from lower oil prices.
LyondellBasell’s profit tumbled in the fourth quarter of 2014, reported on Feb 3, hurt by a sizable inventory-related charge. Revenues fell year over year on declines in most segments. Adjusted earnings topped the Zacks Consensus Estimate while sales missed. The company said that it remains confident in the fundamentals supporting its business.
LyondellBasell, a Zacks Rank #3 (Hold) stock, is executing its expansion projects to leverage the U.S. natural gas liquids (NGLs) advantage. It remains on track with its ethylene expansion projects.
LyondellBasell’s multi-plant ethylene expansion program represents a total investment of roughly $1.3 billion across its Channelview, La Porte and Corpus Christi facilities in Texas which benefit from shale gas production. The company, in its fourth-quarter call, said that it intends to advance roughly 1 billion pounds of ethylene expansion projects during 2015 and improve operations at its methanol facility.
LyondellBasell has already completed an 800 million pound per year expansion at its La Porte site and expects the addition of 800 million pounds of capacity at the Corpus Christi plant to complete by second-quarter 2016. Moreover, the 250-million pound expansion at the Channelview facility is currently underway and is expected to come on stream in second-quarter 2015.
The expansion program, when in full swing, is expected to expand annual ethylene capacity by an estimated 1.85 billion pounds in North America. The company will also commence additional expansion at Channelview in 2017 which would add ethylene capacity of up to 550 million pounds a year and further boost annual ethylene capacity to 2.3-2.4 billion pounds.
LyondellBasell also remains committed to deliver greater value to its shareholders leveraging healthy cash flows. The company returned $7.2 billion to its shareholders in the form of dividends and share buybacks in 2014.
However, LyondellBasell faces volatility in raw material and energy costs that account for a major portion of its operating costs. Moreover, the decline in crude oil prices could erode the feedstock cost advantage that is so far enjoyed by the company. Lower oil prices are expected to hurt its U.S. ethylene margins in 2015, thereby affecting its profitability.
LyondellBasell is also exposed to macroeconomic uncertainties and volatility across end-use markets it serves. Its businesses are also affected by cyclicality of chemical and refinery industries. In addition, the company faces pricing pressure as it operates in highly competitive markets.
Other Stocks to Consider
Other companies in the chemical space worth considering include Asahi Kasei Corp. AHKSY, Innospec Inc. IOSP and Air Products & Chemicals Inc. APD. While Asahi Kasei and Innospec sport a Zacks Rank #1 (Strong Buy), Air Products carries a Zacks Rank #2 (Buy).
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