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Edited Transcript of LYB earnings conference call or presentation 28-Apr-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 LyondellBasell Industries NV Earnings Call

HOUSTON May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of LyondellBasell Industries NV earnings conference call or presentation Friday, April 28, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bhavesh V. Patel

LyondellBasell Industries N.V. - Chairman of the Management Board and CEO

* David Kinney

* Thomas Aebischer

LyondellBasell Industries N.V. - CFO, EVP and Member of Management Board

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Conference Call Participants

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* Arun S. Viswanathan

RBC Capital Markets, LLC, Research Division - Analyst

* David L. Begleiter

Deutsche Bank AG, Research Division - MD and Senior Research Analyst

* Donald Carson

Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

* Frank J. Mitsch

Wells Fargo Securities, LLC, Research Division - MD and Senior Chemicals Analyst

* Hassan I. Ahmed

Alembic Global Advisors - Partner and Head of Research

* James Michael Sheehan

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Jeffrey J. Zekauskas

JP Morgan Chase & Co, Research Division - Senior Analyst

* Jeffrey Michael Schnell

Jefferies LLC, Research Division - Equity Associate

* John Ezekiel E. Roberts

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals

* Jonas I. Oxgaard

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Kevin William McCarthy

Vertical Research Partners, LLC - Partner

* Matthew Robert Lovseth Blair

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director, Chemicals and Refining Research

* P.J. Juvekar

Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD

* Ryan Louis Berney

Goldman Sachs Group Inc., Research Division - Research Analyst

* Steve Byrne

BofA Merrill Lynch, Research Division - Director of Equity Research

* Vincent Stephen Andrews

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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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.

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David Kinney, [2]

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Thank you, Jen. Hello, and welcome to LyondellBasell's First Quarter 2017 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'd 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 related to matters that are not historical facts are forward-looking statements. These forward-looking statements are based on assumptions of management which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. Actual results could differ materially from those forward-looking statements. For more detailed information about the factors that could cause our actual results to differ materially, please refer to the cautionary statements in the presentation slides and our financial reports which are available at www.lyb.com/investorrelations.

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

Finally, I would like to point out that a recording of this call will be available by telephone beginning at 2 p.m. Eastern Time today until midnight Eastern Time on May 28 by calling (800) 839-9140 in the United States and (203) 369-3624 outside the United States. The passcode for both numbers is 2526.

During today's call, we will focus on first quarter results, the current environment and near-term outlook. 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. As previously explained, these adjustments are related to our use of LIFO accounting and declines in the prices of our raw materials and finished goods inventories in the previous periods. Comments made on this call will be in regard to our underlying business results excluding impacts from the prior LCM inventory charges.

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

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [3]

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Thank you, 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. Our first quarter diluted earnings were $2 per share with EBITDA of $1.6 billion. We continued to deliver solid results, with 3 of our 5 operating segments improving in profitability relative to the fourth quarter. We continued to optimize our debt portfolio by redeeming and refinancing $1 billion at an after-tax cost of $106 million. This reduced first quarter earnings by $0.26 per share.

Our chemical and polymer operations generally ran well and we completed planned maintenance at our refinery and the Channelview coproduct processing units. Planned maintenance and other nonroutine costs impacted first quarter results by approximately $250 million. We continued to execute on our financial priorities during the first quarter, and Thomas will provide you with an update on this progress in a few moments.

Slide 5 reflects the leading safety performance that our employees and contractors continued to achieve during the first quarter of this year. We strongly believe that an unrelenting focus on health, safety and environmental performance provides benefits to our operations and profitability as well as the more obvious direct benefits for our employees and neighboring communities.

And now Thomas will discuss our financial highlights for the first quarter.

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Thomas Aebischer, LyondellBasell Industries N.V. - CFO, EVP and Member of Management Board [4]

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Thank you, Bob. On Slide 6, we outline our quarterly and trailing 12 months segment results. As Bob mentioned, 3 of our 5 business segments improved relative to their fourth quarter 2016 performance. During the quarter, strong ethylene coproduct pricing benefited both our Olefins & Polyolefins segments, while strong margin for methanol and styrene drove improvements in our Intermediates & Derivatives segment. The refinery experienced low seasonal margins and reduced volumes due to planned maintenance.

Please turn to Slide 7, which provides a picture of cash generation and use. During the first quarter, excluding changes in working capital, we generated over $1 billion of cash from operations and about half of this amount was returned to investors through dividends and share repurchases. Our investments in maintenance and gross capital expenditures were $421 million during the first quarter, driven by maintenance turnaround, Hyperzone PE, PO/TBA and Tier 3 gasoline projects. During the first quarter, our cash and liquid investments balance declined by $233 million, in part, due to a $432 million increase in accounts receivable, driven by higher product prices and volumes.

Over the past 12 months, we generated $4.9 billion of cash from operations and used approximately $3.5 billion for dividends and share repurchases. After investments in our capital program and other financial activities, the cash and liquid investment balance declined by approximately $800 million.

Slide 8 provides a longer perspective as well as some current financial metrics. Our strong results in cash flow generation over multiple years has positioned us to steadily raise our dividend and purchase our shares. Additionally, it has allowed us to reduce our interest expense and access favorable credit markets while maintaining a strong balance sheet and BBB+, Baa1 credit rating. We finished the quarter with approximately $5 billion of liquidity and a total debt-to-EBITDA ratio of 1.4.

Our share repurchase program continued during the quarter, with another 1.5 million shares purchased. Since the inception of the program, we have repurchased approximately 181 million shares or approximately 31% of the initial shares outstanding. At the end of the quarter, we had approximately 20 million shares remaining under the existing authorization. In our proxy statement filed with the SEC in early April, we proposed that our shareholders vote to authorize a new repurchase program of up to 10% of our outstanding shares. During March, we also took advantage of favorable financing conditions and issued $1 billion of 3.5% bonds due in 2027 and used the proceeds and available cash to redeem an equivalent amount of our 5% notes due in 2019. The new bond captures the lowest credit spread for a 10-year bond issuance in the company's history. This exercise allows us to mitigate refinancing risks in 2019 for our largest and nearest maturity bond while also extending the weighted average maturity of our debt portfolio by 1 year to approximately 13 years. Through the use of interest rate and foreign exchange derivatives, we converted the 3.5% coupon to initial rate of approximately 1.2%. We incurred cash charges of approximately $65 million related to the bond redemption. Those cash charges, in addition to other noncash charges, relate to an after-tax accounting charge of approximately $106 million that reduced earnings by $0.26 per share.

Before I wrap up, I want to point out a few other items that may help your modeling of our company. Excluding the first quarter bond redemption charges, our expenses for interest, depreciation, amortization and our effective tax rate are all currently running in line with our previous annual estimates.

With that, thank you very much for your attention. I will turn the call back to Bob. Thank you.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [5]

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Thanks, Thomas. Let's turn to Slide 9 and review our segment results. As mentioned previously, my discussion of business results will be in regard to our underlying business results excluding the impacts of the LCM inventory charges.

In our Olefins & Polyolefins Americas segment, first quarter EBITDA was $723 million, a $131 million improvement over the fourth quarter. This includes the first quarter $31 million gain from the sale of property in Lake Charles, Louisiana; fourth quarter 2016 pension settlement charges of $23 million; and LIFO inventory charges of $20 million. Relative to the previous quarter, olefin results improved by approximately $95 million. Ethylene margins improved by approximately $0.03 per pound and volumes increased following the completion of planned maintenance and implementation of our Corpus Christi ethylene expansion. Planned maintenance on our Channelview coproduct units during the first quarter resulted in an estimated $110 million impact due to elevated butadiene prices during the quarter. Ethylene operating rates remained strong across our system during the quarter, averaging 91%. Our Corpus Christi ethylene plant continued to ramp up and operated at an average of 80% of the full expanded capacity during the first quarter. 74% of our ethylene production was from ethane and approximately 87% came from NGLs. In polyolefins, combined results declined by approximately $45 million. Ethylene and propylene monomer price increases outpaced polyethylene and polypropylene prices, reducing spreads by approximately $0.02 per pound and $0.04 per pound, respectively. During April, spot ethylene prices have improved over first quarter averages but are slightly lagging, increasing cash costs. The quarter is benefiting from a $0.03 per pound March polyethylene price increase. Polypropylene prices have been tracking reduced prices of propylene with improving monomer supply. Our Channelview coproduct units restarted in early April after planned maintenance. April operating rates for our Corpus Christi ethylene plant have been over 90% of the expanded capacity, and are expected it to be at the full expansion capacity by the end of the second quarter. No other maintenance is planned in our olefins system for the remainder of 2017.

Turning to Slide 10. I would like to highlight recent developments in ethane supply that we discussed during our recent Investor Day. U.S. demand for natural gas is growing on the Gulf Coast due to the commissioning of LNG export facilities, stronger industrial demand and increases in pipeline exports to Mexico. This 20% increase in gas demand will bring more ethane and other NGLs to market. In addition, the ethane content of the gas is increasing with more production from NGL-rich basins. As a consumer of ethane, we're always cognizant of the logistics and transportation costs associated with this supply. Fortunately, most of the recent activity has been focused in the Permian, Woodford and Eagle Ford basins, which all have good connectivity to the Gulf Coast ethylene cracker market. A combination of these developments supports our ethane pricing views and is leading analysts and consultants to a more moderate view of future feedstock costs.

Let's turn to Slide 12 and review performance in the Olefins & Polyolefins Europe, Asia and International segment. During the first quarter, EBITDA was $529 million or $131 million higher than the fourth quarter. Fourth quarter 2016 results reflected LIFO inventory charges of $17 million and a pension settlement charge of $8 million. Olefins results improved by approximately $60 million with ethylene prices increasing nearly $0.03 per pound and higher coproduct values offsetting higher naphtha costs. Our ethylene production volume increased due to the absence of fourth quarter maintenance. Utilization of advantaged feedstocks decreased by 4% as coproduct credits outweighed the higher cost of naphtha feedstock. Our crackers operated at a 95% rate during the first quarter, exceeding industry performance by about 4%. Combined polyolefin results improved by approximately $50 million due to higher sales volumes. During April, global markets remained tight to balanced with increased maintenance across the industry during the spring months. As in the U.S., no major maintenance is planned in our European olefins system for the remainder of 2017.

Turning to Slide 12, where we outline our current view of the supply and demand picture for global ethylene. A year ago, many consultants were predicting a more severe reduction in operating rates as new U.S.-based capacity was expected to start up during 2017 and '18. But with continued global demand growth and project delays, the decline from today's very high operating rates is forecast to be relatively shallow and short. We see effective operating rates remaining within and above this blue zone where markets are relatively balanced. Focus is now turning towards 2019 and 2020, where it appears that capacity utilization could exceed the high levels of 2015 and '16.

Please turn to Slide 13 for a discussion of our Intermediates & Derivatives segment. First quarter EBITDA was $339 million, an improvement of $33 million from the fourth quarter. Fourth quarter 2016 results reflected a LIFO inventory charge of $16 million and a pension settlement charge of $16 million. Results for propylene oxide and derivatives improved by approximately $15 million. Increased margins for styrene and methanol were the primary driver for improved results of approximately $65 million in intermediate chemicals. The gains in both the PO and derivatives and intermediate chemicals businesses were offset by approximately $40 million of charges in the first quarter and $30 million of gains in the fourth quarter related to the recovery of precious metals after catalyst changes.

Oxyfuels and related products results declined approximately $10 million on lower sales volume. Prices for styrene and methanol have moderated during April as industry production capacity returns to the market. Two months of planned maintenance began in mid-March at our PO/TBA facility in the Netherlands. That is expected to impact earnings by a total of $40 million primarily during the second quarter. Our Channelview methanol plant began planned maintenance in early April and is expected to impact earnings by $20 million during the second quarter.

Now let's move to Slide 14 for a discussion of the Refining segment. First quarter EBITDA was a $30 million loss, a decline of $111 million from the prior quarter. Please note that the fourth quarter included $46 million of LIFO gains from the consumption of low-cost crude inventory. Planned maintenance on 1 of the 2 crude units and the fluid catalytic cracker reduced throughput, product yields and gasoline production. This reduced results by approximately $100 million during the first quarter. The cost of RINs decreased relative to the fourth quarter.

During early April, we completed planned maintenance on a crude unit and the fluid catalytic cracker. Our investment in sulfur treatment for Tier 3 gasoline was also completed. We are pleased to report that the refinery has recently been operating near nameplate rates and no major maintenance is planned for the second quarter. Our Technology segment continued to perform well with $60 million of EBITDA during the first quarter.

Turning to Slide 15. The first quarter developed largely as we anticipated. We continued to see strong and growing demand for our polyolefin products in all regions, supporting full chain margins for our O&P businesses. Our I&D segment benefited from strong styrene and methanol margins. While Refining results were impacted by planned maintenance, we completed our Tier 3 investments for low-sulfur gasoline. We continued to optimize our debt portfolio by extending the maturity of our debt. Looking forward, we continue to see olefin and polyolefin market demand supporting strong global operating rates over the near term. While the recent high prices for ethylene coproducts are subsiding, polyolefin chain margins remained strong for both our shale-based and naphtha-based production assets across the globe. We continue to see U.S. supply and inventories of natural gas and NGL feedstocks remaining abundant and we are encouraged by increased production, transportation and fractionation investments near the U.S. Gulf Coast.

In fuel markets, we're seeing the beginning of typical seasonal spread improvements that support both our oxyfuels and refining businesses. Planned maintenance at our facilities is expected to impact second quarter Intermediates & Derivatives results by approximately $40 million to $60 million. We currently expect our Corpus Christi ethylene expansion to ramp up to full rates during the second quarter.

As many of you know, our Investor Day is typically held every 2 years and provides an opportunity to comprehensively discuss progress of our company and chart a path forward for the coming years. Please turn to Slide 16 and allow me to review a few of our key messages from Investor Day we held earlier this month.

In this graphic, we depict how LyondellBasell's foundational strategy is rooted in consistent and simple themes. We focused on running our assets well, practicing prudent financial stewardship, capturing high-return organic growth and leveraging our strengths to find opportunities in the cycles of our industry. These messages are clearly understood across our company and supported by a relentless focus on operational excellence, performance benchmarking and aligned incentive systems, simple concepts but difficult to replicate with our robust processes and a dedicated team. Over the past 7 years, we've shown LyondellBasell's leading performance in the upper left and upper right thirds of this circular diagram.

During our Investor Day, we devoted time to a topic that we seldom discuss, finding and capturing opportunities in cycles. Since 2010, we diligently built the framework for cost leadership, operational excellence and organic growth that resulted in substantial value generation for our shareholders. As shown on Slide 17, we view inorganic growth as a logical extension to our capabilities to be pursued as and when opportunities present themselves. We don't intend to depart from the guiding principles that created our success. We do think it is logical to evaluate all options including inorganic growth to generate additional value for our company.

During our Investor Day, we described some product change where we believe our focus and discipline could improve value and illustrated the capacity within our balance sheet to pursue worthwhile opportunities. I won't try to review all these points in the limited time we have now, but let me emphasize that inorganic growth is only one option and, like other investments, requires a clear path to value creation. This was presented in the context of finding opportunities in cycles. We remain patient, thoughtful and disciplined as we pursue the next steps in LyondellBasell's evolution.

Turning to Slide 18, I would like to conclude with a few messages that we would like to -- like you to take away from our Investor Day. LyondellBasell already has a leading scale and market position built on strong foundations. We know the skills and strengths that created our success and are watchful for opportunities where these capabilities can add value. Our portfolio of businesses is global and has breadth, advantaged positions and flexibility. Our work is supported by robust processes and a dedicated team of employees aligned with shareholder interests.

In summary, LyondellBasell's prudent financial stewardship, strong dividend, low valuation and earnings upside provide a compelling case for investment. We're now pleased to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from the line of Jeff Zekauskas of JPMorgan.

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Jeffrey J. Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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It looks like in your North American olefins operation, you were squeezed a little bit in polyethylene, but maybe contract prices in polyethylene went up $0.05 in February and, I don't know, $0.03 in March. So was there a delay in capturing that price increase? And all things being equal, should we see a lot of the benefits of that in the second quarter?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [3]

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Yes, Jeff, generally, we do have a lag in the implementation of those price increases compared to the announcement date. So I think it's very typical of what we've experienced in the past and, indeed, we should see the full benefit in Q2.

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Jeffrey J. Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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In Q2. And in the refinery operation in April, were output rates very low, that is, did you average below 200,000 barrels a day? Or where you above that in April?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [5]

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In April, once we finished our maintenance, we've been running at essentially our design rate of about 270,000 barrels per day.

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Jeffrey J. Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

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Did you finish that in early April, was that it?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [7]

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Yes, early April, about the second week.

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Operator [8]

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And our next question is from the line of Arun Viswanathan of RBC Capital Markets.

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Arun S. Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [9]

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Just had a question on what you're seeing, I guess, in the olefins markets. There has -- those increases in February and March. Inventories appear relatively low. Your commentary suggests that you guys are excited about running full out for the rest of the year. But how do you see the kind of the capacity playing out and pricing as well given what's going on with feedstocks and demand?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [10]

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Yes. Well, in the near term, Arun, we're headed into a period where generally demand picks up seasonally. As you rightly mentioned, inventories, especially here in the U.S., are on the low side. I think that's all very constructive as we go through the second quarter. As has been well noted, there are new capacity expansions coming online in the second half of this year. If you look under the headline of those expansions, quite a bit of it is linear low-density polyethylene, a market in which we have very small participation. There are some low-density and then, of course, some high density. So I think it's important to consider the types of polyethylene that are -- that comprise these new expansions. And on the ethylene side, I think given that the derivatives, in some cases, are ahead by a quarter or 2 of the cracker expansions, we're pretty constructive about ethylene markets for the balance of this year. So as you rightly said, we're focused on running full out for the remainder of the year.

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Arun S. Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [11]

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And just a quick follow-up on the other side, propylene was down a little bit in April. How are you looking at PO markets and that side of your business as well?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [12]

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Yes, so PO demand is still very steady, and as you know, quite a bit of our POs is sold on a cost-plus basis. So we kind of -- we don't see a lot of volatility in terms of earnings in that part of I&D. For the remainder of I&D from a demand standpoint, we're -- we -- things are very steady and as we had expected. On the supply side, there were some disruptions in supply in the industry in methanol and in styrene in Q1, but those seem to have resolved or largely resolved themselves. You've seen pricing moderate. But if you look at pricing by historic standards, we're still at pretty healthy levels.

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Operator [13]

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And our next question is from the line of Steve Byrne of Bank of America.

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Steve Byrne, BofA Merrill Lynch, Research Division - Director of Equity Research [14]

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Your chart that you show on the bottom of Slide 9 that compares ethylene-based versus naphtha-based cracking margins on ethylene would suggest you would've run more naphtha base through your crackers in the first quarter. Is there a reason you didn't need as much of the byproducts? Or any comment on that? And where do you see that feedstock split right now and in the second quarter?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [15]

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Yes. We tilted a little bit more towards liquids. But just as a reminder, we have that coproduct unit at Channelview that was out for planned maintenance for a couple of months so that limited, really, our ability to flex towards more liquid cracking in the U.S. In Europe, we did move more towards naphtha cracking because of the higher coproduct values. But those have now adjusted back a bit. Propylene has come down some. Butadiene has come down quite a lot in the last couple of months, still at pretty reasonable levels, but down from a very high peak earlier in the year. So I think where we are today, Steve, is we're back to NGL cracking being favorable on both sides of the ocean. And so when we come into the summer months, propane and butane should be even more advantaged and more a part of the cracker mix. So we're kind of going back to what I would consider to be more normal feeds rates for U.S. and Europe.

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Steve Byrne, BofA Merrill Lynch, Research Division - Director of Equity Research [16]

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And you mentioned butane. As you look at that MTBE margin chart that you show, is that healthy margin you illustrate for April because of tightness in isobutylene, or just pickup in demand for MTBE? What's driving that?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [17]

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Yes, generally what drives that is a combination of 2 things. One is butane price coming down seasonally in the summer because it comes out of the blend pool in gasoline. And then secondly, as I mentioned in the prepared comments, that we generally see spreads rising through the summer months for gasoline. So improvement in gasoline spreads and butane coming down relative to crude oil.

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Operator [18]

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And our next question is from the line of David Begleiter of Deutsche Bank.

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David L. Begleiter, Deutsche Bank AG, Research Division - MD and Senior Research Analyst [19]

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Bob, looking at the planned maintenance costs in Q2 versus Q1, just give us again the benefit or the pickup given lower cost in Q2.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [20]

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So Q1, including sort of the lost profit associated with us not producing, the impact was about $250 million in Q1. And we're expecting that to drop down to $40 million to $60 million in Q2, so about a $200 million improvement.

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David L. Begleiter, Deutsche Bank AG, Research Division - MD and Senior Research Analyst [21]

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Very good. And just, Bob, on the cadence of buybacks, a little bit low in Q1, it may have been constrained on the authorization. How should we think about buybacks in Q2 post the new authorization and Q3 (inaudible)?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [22]

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Sure, certainly. Let me start, and then I'm sure Thomas will supplement with some comments. First of all, as noted, we have proposed for shareholder approval another 10% program for -- starting in May. Our AGM will be in the second half of May. And this effectively replaces the current program starting at the time of approval. David, I expect to continue to see share buybacks as part of our capital deployment strategy given that we expect to generate strong free cash flow going forward. The thing that we're doing a little bit more is we're trying to be a little more opportunistic, take advantage of general market volatility. This is not a shift in sort of our view on buybacks. It's really more sort of trying to optimize. So Thomas, if you'd like to add a little more to that.

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Thomas Aebischer, LyondellBasell Industries N.V. - CFO, EVP and Member of Management Board [23]

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No. So if I can add, we absolutely believe to -- and continue to believe that repurchasing our shares offers strong value and low rates. As we compare buybacks to organic growth projects and risk-adjustment M&A, share buybacks will continue to have a role in our portfolio of capital deployment option. While we don't comment on the details of our trading plans, the 10b5-1, preestablished plan will obviously be subject to the uncertainties of the market volatility, with trading volumes at rates that could exceed or fall short of the predicted outcome. So -- but I think the message here is what Bob has said, we go for another approval for an additional 10% and we still believe that the share buybacks offer a good option at a good value.

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Operator [24]

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And our next question is from the line of Don Carson of Susquehanna Financial.

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Donald Carson, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [25]

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Bob, on the fourth quarter call, you'd indicated that you still have about 2 billion pounds of additional ethylene in '17 versus '16 due to the Corpus Christi expansion and the lack of planned maintenance turnarounds. What is that number now given some of the outages that you had?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [26]

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Yes, Don, I think it's still developing in that range. I mean, we'll have to see how the year plays out. But Corpus Christi, as I mentioned, we've been ramping up through Q1 and on our way to 100% here or full capacity. So I think for now you should assume that it's largely that same number and we'll update that as the year progresses.

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Donald Carson, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [27]

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Okay. And I notice your propylene production was down sharply year-over-year. Was that related to the Channelview coproducts unit being down? Or did that latter -- or was Channelview just really a C4 item?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [28]

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No, that was just mainly a C4 item. Propylene production also can be impacted by how hard we're running our metathesis unit. So that can have an impact. So it's really about kind of optimization in our system.

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Donald Carson, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [29]

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Okay. And then finally, just a question on the polyethylene price outlook. You did get $0.08 in February and March. You said there's a lag in realizing that. It looks like the industry gave up on the $0.03 April initiative, and has pushed that to May. How do you see polyethylene developing? As you said, it is seasonally stronger in Q2 but we do see some softness in offshore pricing.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [30]

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Yes, it feels tight to us, and so we'll just kind of have to see how the quarter plays out.

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Operator [31]

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And our next question is from the line of Vincent Andrews of Morgan Stanley.

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Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [32]

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Bob, that $40 million charge in I&D, I'm not sure I fully understood what it was for, and we also noticed that this quarter's press release indicated that there was a slightly smaller charge in the fourth quarter that I don't recall seeing in the fourth quarter press release. So what is the charge about? And are we done with it? Or is it something that you do anticipate in the balance of the year as well?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [33]

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Yes, I think I'm going to start by saying that, Vincent, it's kind of a onetime item and it's just related to when we make catalyst changes, we look at how much precious metals we have on the books versus what we'll recover. So it's not something that we do every quarter. Dave, I don't know if you wanted to add any more to that.

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David Kinney, [34]

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Yes, Vincent, actually in the fourth quarter, it was a $30 million gain and then a $40 million loss in the first quarter. So it was quite a bit of variance quarter-to-quarter. Normally, we wouldn't talk about this, but just the variance quarter-to-quarter, we brought it to light.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [35]

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Yes, it's a fairly big swing from a gain to a loss, but you shouldn't expect this to be recurring.

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Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [36]

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Okay. And then just, Bob, you mentioned the different grades of polyethylene and sort of the cadence of suppliers coming in those different grades. Could you just talk a little bit about how those grades may compete with each other? And what sort of suitability there might be from one grade to another in certain applications? And how inflated should different grades be from each other as the supply comes online?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [37]

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Yes, there's very little competition in between the grades. So if you think -- I'll give you one example. If you think about metallocene linear low-density polyethylene, it really doesn't compete with high-density polyethylene in for pipe or blow molding. So they are -- the mainstream markets for these products are quite different and the overlap is very minimal.

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Operator [38]

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And our next question is from the line of Jonas Oxgaard of Bernstein.

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Jonas I. Oxgaard, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [39]

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So the share buyback announcement you had there, in trying to connect that with the M&A comment, should I interpret that as there is nothing out there right now that you're all that interested in? Or am I overinterpreting that?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [40]

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No, I think, if you -- again, what we presented at our Investor Day for M&A was really in the context of thinking through opportunities in cycles. And frankly, given valuations where they are today, we don't see a whole lot of opportunity. And so our buyback program, we said -- where we've gone back to shareholders for another 10%, and we expect buybacks to be part of our capital deployment strategy. So on acquisitions, frankly, there's really nothing compelling that we see at the moment.

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Jonas I. Oxgaard, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [41]

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If you don't mind, a completely different area. You mentioned methanol has been strong. It's moderating. But if an upset gets you -- this kind of a price increase usually means you're fairly tight, what does that mean for octane values? And is there a chance we can actually see MTBE finally go up some in the near future?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [42]

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Yes, I think certainly when you see this kind of price response, it does indicate markets are more balanced and we could -- I think what we're looking for is more specifically gasoline spreads, how we do through the summer, we're relatively constructive about that. And we think our I&D business, that, combined with relatively lower butane price should drive margin improvement. And we've illustrated where we are here in April. So Dave, did you want to add something else?

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David Kinney, [43]

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Yes, Jonas, I think we see this shaping up pretty much as a normal year for MTBE, not like 2015 per se; but more typical for the summer season, unlike what we had in 2016.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [44]

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So '15 was extremely strong and '16 was weak and we think something in between is kind of what we expect here in '17.

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Operator [45]

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And our next question is from the line of John Roberts of UBS Technology.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [46]

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The isocyanate market is pretty tight right now, which you don't produce but it's consumed along with propylene oxide. Does that constrain you at all in your propylene oxide sales?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [47]

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Not too much, really. I mean, I think we have very long-term offtake agreements on PO, and so we're not held back in terms of our production rates because of tight isocyanate markets. We're, frankly, running our PO assets pretty full today.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [48]

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And do you think methanol prices are going to be set by MTO affordability going forward? Or do you have a different view at all on methanol prices?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [49]

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Well, I think MTO certainly plays a very big role in methanol prices as well as, we think, kind of the marginal cost of production for ethylene. So our belief on that hasn't changed.

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Operator [50]

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And our next question is from the line of Frank Mitsch of Wells Fargo Securities.

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Frank J. Mitsch, Wells Fargo Securities, LLC, Research Division - MD and Senior Chemicals Analyst [51]

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Just a couple of quick follow-ups. How often do you need to do that precious metal catalyst recovery in the I&D segment, how often does that take place?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [52]

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Yes, Frank, it's not every quarter. It's once every 18 months or thereabouts. But we have many different units, so it's -- I don't think we can give you a guidance on an exact cadence. Thomas, do you want to add anything more to that?

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Thomas Aebischer, LyondellBasell Industries N.V. - CFO, EVP and Member of Management Board [53]

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Right. So as Bob has said, we have many different units. We are talking mainly about gold and silver with a significant charge. And I would like to reiterate this, this is a noncash charge. The significant noncash charge we had in the first quarter is related to silver. So it's connected to our EO business. And having said this, expect -- so let me maybe make that very clear how it works. We bought that silver 3 years ago. So we bought it at market value 3 years ago, and now we replaced the silver. We virtually borrowed silver during the maintenance part of the catalyst and so had to readjust the book value. It's purely noncash. The next one in the silver area is expected in the next 2 to 3 years, so nothing immediate.

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Frank J. Mitsch, Wells Fargo Securities, LLC, Research Division - MD and Senior Chemicals Analyst [54]

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Very helpful. And Bob, just coming back to capturing opportunities in cycles, subsequent to the Analyst Day, obviously, we saw the sale of a major ethylene facility. Would that have fallen outside of your "disciplined approach"? Or is just not an area that you want to expand upon inorganically?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [55]

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Yes, I think for now our focus, Frank, has been on derivatives, so building out our polyethylene. As you know, we've announced a new polyethylene plant which we will break ground here in May so -- and the location of the cracker is not near really our assets. It's in Louisiana, where we don't have any ethylene or polyethylene assets. So beyond value, there were other sort of strategic factors that made it less suitable for us.

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Operator [56]

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And our next question is from the line of Kevin McCarthy of Vertical Research Partners.

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Kevin William McCarthy, Vertical Research Partners, LLC - Partner [57]

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Bob, on Slide 10, you call out a number of factors that seem to support the supply side of the ethane markets, such as rig count additions and a richer mix. And yet, if we look at the forward curve for ethane about 2 years out, it's around $0.325 a gallon versus $0.245, so up about $0.08 or 30% to 35% contango. And I'm wondering if you can help us reconcile that. Is it a case, for example, that the forward market is just not very deep in ethane so we shouldn't read much into it? Or are there other factors that could result in that type of tightening there?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [58]

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Yes, Kevin. Absolutely, I think that's -- part of what you're seeing is that it is a very thin market especially as you go further out in time. Secondly, there's a bit of a lag between market pricing and the announcements being sort of confirmed. So we've heard, we've read about more fractionation capacity coming. We understand others are considering more fractionation capacity. So I think there's a bit of a lag in -- from the time that announcements come out to the time where prices reflect more supply. But clearly, we're seeing more supply from the Permian and from the Eagle Ford, and we expect that, that should be ample to supply new crackers going forward.

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Kevin William McCarthy, Vertical Research Partners, LLC - Partner [59]

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Okay, that's helpful. And then as a follow-up, if I may. Do you happen to have handy a breakdown of the aggregate $250 million maintenance set for each of your segments?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [60]

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Well, we talked about $110 million associated with our coproduct processing unit and about $100 million related to the FCC and then the balance was a sundry of things. But I think those were probably the 2 big items that we discussed.

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David Kinney, [61]

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The precious metal catalyst were in there, the $40 million for the first quarter in I&D as well.

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Operator [62]

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And our next question is from the line of Hassan Ahmed of Alembic Global.

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Hassan I. Ahmed, Alembic Global Advisors - Partner and Head of Research [63]

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Bob, I was taking a look at the MTBE volumes. You obviously called out in the press release that there was seasonality obviously. But even on a year-over-year basis, if I take a look at the MTBE, ETBE volumes, they were down almost 11%. So I just wanted to sort of figure out what's going on there.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [64]

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I think that's maybe inventory related. There's not really a clear driver for that. I mean, we're not producing less per se. We do have, as I mentioned, the turnaround on our PO/TBA unit in the Netherlands and we started that right at the end of the first quarter. So other than inventory fluctuation, nothing that I could point to, Hassan.

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Hassan I. Ahmed, Alembic Global Advisors - Partner and Head of Research [65]

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Got it, got it. And on different, sort of, product side of things, you talked about benefiting a bit in Q1 from higher styrene margins. In April, they came down a bit. I just wanted your views about, be it Q2 or 2017, what your outlook is for styrene in the near term?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [66]

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I think with demand growing at a reasonable pace, not a lot of new capacity globally, we're still, in styrene, in a very balanced sort of market environment and I think we'll see these periodic run-ups if there are unplanned outages or sort of large swings in inventory. But I think it's a market much like methanol that's reflecting balanced or higher operating rates which are sensitive to unplanned events.

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Operator [67]

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And our next question is from the line of P.J. Juvekar of Citi.

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P.J. Juvekar, Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD [68]

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So I guess 2 questions, one sort of short term and one long term. In the short term, what are inventories at converters or your customers? And do you believe that they will destock inventory as they see new capacity starting up in the second half?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [69]

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In terms of inventories of customers, we don't -- from what we see in terms of railcar turns and things like that, we don't see anything unusual, P.J. I would suspect that inventories are kind of at normal levels, and there's various industry data available at the producer level and it points to pretty low inventories. And I would say if you kind of combine the 2 together across the PE producer, consumer value chain, likely, we're below average in terms of inventories going into a seasonally higher demand period.

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P.J. Juvekar, Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD [70]

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Okay. And then, we are beginning to see a third wave of ethylene expansion or ethylene capacity announcement for the next decade. And these serious are players, like NOVA-Total and Exxon-SABIC. So do they see this ethylene availability from Permian and Eagle Ford that you talked about, do they see that? And is that what is driving this new wave of projects?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [71]

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I think, to a degree, it may -- it shows conviction about ethane supply beyond the current set of expansions that are coming. But certainly, if you say -- just if I read it correctly, I think the Total cracker is not a world scale. It's an extension of their existing cracker. And then, of course, Exxon-SABIC is a world-scale cracker. But P.J., I think as we look at 2 or 3 crackers, it's not as much as 8 crackers which I would consider more to be a wave as opposed to 2 or 3, which, if you step back and think on a global context, demand grows at a pace where you need about 4 to 5 new crackers every year to meet demand growth. So it doesn't seem to be as large of a wave as maybe what we've seen here recently.

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Operator [72]

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And our next question is from the line of Jim Sheehan of SunTrust Robinson Humphrey.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [73]

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On the PE inventory front, could you also comment on what you're seeing in Asia and if there's still a lot of support for exports, given where inventories might be in that region of the world?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [74]

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Yes, so Jim, in Asia, generally, you do see more volatility in the inventory. And I think in Asia, what I understand is that they're probably a little bit above average in Asia in terms of inventories, but that gets worked off pretty quickly. And again, we're going into, globally, a very seasonally higher demand period in the spring and summer months. So our view is that export opportunities are there. And certainly, our production in the U.S. is now limited because of lack of export opportunities.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [75]

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Great. And you mentioned butadiene prices are down pretty sharply off their peak. Do you see butadiene prices stabilizing anytime soon?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [76]

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Yes. I think, as the -- first of all, sort of the spike we had was a confluence of a few events, some plant turnarounds upcoming. I think there was a pretty good size inventory build especially in Asia. There's still -- if you look at where we are today, we're still above the kind of levels we were even a year ago. So I think the larger part of the correction it seems are behind us and you're seeing now cracker feeds rates adjust back to NGLs here in the U.S., which would indicate less butadiene output and propylene output.

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Operator [77]

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Our next question is from the line of Robert Koort of Goldman Sachs.

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Ryan Louis Berney, Goldman Sachs Group Inc., Research Division - Research Analyst [78]

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This is Ryan Berney on for Bob. I was hoping to get a little clarification on an answer you gave to Jeff's question earlier on the call. If we were to see, hypothetically, polyethylene prices flatten out here in April in the second quarter, would you still see some pricing capture benefits? Is that what you were trying to say?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [79]

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Well, yes. So Ryan, compared to Q1, because Q1, the entire quarter didn't include the increases. We were sort of implementing those through the quarter. So what I was trying to say is that we would see the full impact of the $0.05 and the $0.03 in Q2.

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Ryan Louis Berney, Goldman Sachs Group Inc., Research Division - Research Analyst [80]

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Okay. So but it wasn't designed to mean that there was a delay from the list price change. It was really just kind of the flow-through.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [81]

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Flow-through, exactly.

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Operator [82]

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And our next question is from the line of Matthew Blair of Tudor, Pickering, Holt.

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Matthew Robert Lovseth Blair, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director, Chemicals and Refining Research [83]

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Bob, just on the M&A front, do you think that asset level or corporate level acquisitions would be more attractive right now? And just overall, maybe you already answered this, but do you feel that there's more opportunities out there compared to 6 months ago or fewer?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [84]

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Yes. So I think Matthew, first of all, on M&A, it's really about value creation and whether we can kind of apply our strengths to create value. So I wouldn't limit to either corporate or asset, and so it's really about how we can leverage our platform to create value. More or less, I mean I think as I mentioned earlier, today, we don't see anything compelling, frankly. Just to be clear, valuations are elevated, different products are on different parts of the cycle. And so the whole point of our Investor Day presentation was really to sort of lay out a multiyear sort of plan, not at this quarter what we may or may not do. And as we think about the next couple of 3 years, most of our conversations with investors have been dominated by the expectation of some sort of cycle, so really all we attempted to do was frame how we might think about finding opportunities in a potential cycle.

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Operator [85]

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And our last question comes from the line of Laurence Alexander of Jefferies.

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Jeffrey Michael Schnell, Jefferies LLC, Research Division - Equity Associate [86]

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This is Jeff Schnell on for Laurence. Following up on your comments on pricing mismatch and project announcements and with regard to your potential projects, should we expect announcements to be flagged earlier in the process? Or do you expect them to be announced later to gain timing advantage versus competitors?

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [87]

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You mean, Jeff, in terms of new cracker announcements?

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Jeffrey Michael Schnell, Jefferies LLC, Research Division - Equity Associate [88]

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Yes. Any -- yes, newbuilds, yes.

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Bhavesh V. Patel, LyondellBasell Industries N.V. - Chairman of the Management Board and CEO [89]

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I don't know. It's difficult to say. For us, I think we've clearly stated that we have one more debottleneck we can do at Channelview. We're focused on getting this polyethylene expansion completed in -- by mid-'19, and then we would consider perhaps other polyethylene expansions. So difficult to -- really for me to assess or have a view on other strategies. Okay?

Okay, good. Well, I think that was our last question. So let me conclude with a few closing comments. First of all, thanks, as always, for your thoughtful questions. Markets around the globe remain pretty strong. And I think given that we've had a few quarters of heavier planned maintenance, we're really well positioned for the remainder of '17 to fully capture opportunities and run our global asset base at full rates. Our strategy remains consistent: a strong focus on operational excellence, which means running what we own today very well; deploying the strong free cash flow in a disciplined way to remunerate shareholders through dividend and share repurchases, while continuing to build out our organic growth pipeline. We'll also evaluate inorganic growth, as I've discussed, but it's really in the context of finding opportunities in cycles and we'll have to see kind of how this cycle plays out. But make no mistake that we can -- we're focused on shareholder value creation and thinking about how we can leverage the platform that we have to create more value.

So with that, thank you for your interest in our company, and we look forward to updating you with second quarter results in July. That concludes our call. Thanks.

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Operator [90]

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Thank you, everyone, and that concludes today's conference call. Thank you all for joining, and you may now all disconnect.