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LyondellBasell Inks JV with Sinopec to Produce PO/SM in China

Zacks Equity Research

LyondellBasell Industries N.V. LYB recently announced that it has inked a non-binding Memorandum of Understanding (MoU) with China Petroleum & Chemical Corporation (Sinopec) to form a 50:50 joint venture (JV). The JV will build a new propylene oxide (PO) and styrene monomer (SM) plant in Zhenhai, Ningbo, China, which will serve the domestic market.

The new facility is expected to produce an annual output of 300 kilo tons of PO and 600 kilo tons of SM. Construction of the facility is slated to start early 2020 and the start-up is expected in 2022.

Notably, PO and SM are core products of LyondellBasell and the new facility will employ the company’s leading PO/SM technology. Additionally, the products developed will be marketed equally by both parties, which will considerably boost their respective participation in the Chinese market.  

Post completion, the JV will build upon their existing joint venture that operates in the same location under the name, Ningbo ZRCC Lyondell Chemical Company Limited. The latest cooperation on the second PO/SM unit between Lyondell and Sinopec is based on the successful partnership of their first unit.

With growing demand for construction materials, furnishings and packaging markets, LyondellBasell sees opportunity to unite its leading technology with Sinopec's operational capabilities to better serve the Chinese market.  Per IHS Markit, China constitutes more than 60% of the Asian chemicals market demand and represents 40% of global chemicals growth over the next decade.  

LyondellBasell operates five fully-owned units in China that are situated in Suzhou, Guangzhou, Dongguan, Dalian and Changshu. Moreover, the company is building the world’s largest next generation PO/tertiary butyl alcohol (TBA) facility near Houston, TX.

Shares of LyondellBasell have gained 13.4% in the past year against the industry’s 16.2% decline.


 

During its third-quarter conference call, LyondellBasell stated that it expects to witness seasonal softening of demand for the rest of 2019. Nevertheless, the company expects profitability at its Houston refinery to improve during the fourth quarter. Per the company, the upside is likely to be driven by an increase in demand for low-sulfur marine fuels ahead of the IMO 2020 regulation deadline.

Zacks Rank & Key Picks

LyondellBasell currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Impala Platinum Holdings Ltd. IMPUY, Pan American Silver Corp. PAAS and Air Products and Chemicals, Inc. APD. While Impala Platinum and Pan American Silver currently sport a Zacks Rank #1 (Strong Buy), Air Products carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Impala Platinum Holdings has projected earnings growth rate of 255.2% for fiscal 2020. The company’s shares have skyrocketed 310.7% over a year.

Pan American Silver has an estimated earnings growth rate of 56.4% for 2019. Its shares have returned 58.3% in the past year.

Air Products has an expected earnings growth rate of 15.5% for fiscal 2020. The company’s shares have surged 47.2% in the past year.

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