Shares of plastics, chemicals, and refining company LyondellBasell Industries (NYSE: LYB) jumped 16% in June according to data provided by S&P Global Market Intelligence, a dramatic rise for a stock that was down 10% for the year at the end of May. All in all, LyondellBasell was up just 3% or so through the first half of the year. The S&P 500 Index, for reference, was up 6% in June and 17% through the first six months of 2019.
June was a very good month for LyondellBasell's stock in what has been a rather difficult year. Some of that stems from the first quarter. While the company touted strong operating results, weak margins in key businesses (notably its plastics and refining operations) were a clear negative. That set a bad tone for 2019.
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Added to this negative was the overhang from the company's plan to buy Brazilian petrochemical producer Braskem for $11 billion. That would have been a fairly large deal for $32-billion-market-cap LyondellBasell. There were also concerns about the deal because of SEC filing delays on the part of Braskem and because the company was controlled by a financially troubled construction company.
There was notable improvement on both fronts in June. On the last day of May, LyondellBasell announced that it was expecting a material sequential improvement in its financial results in the second quarter. Although the update provided a wide range of a 10% to 20% EBITDA jump, the key driver of the improved outlook was a positive shift in margins in key businesses. In other words, business was getting better in areas that had previously been under pressure (though not in the refining operation). And then, on June 4, the company announced that it had canceled its plan to buy Braskem. Investors have clearly breathed a sigh of relief on these bits of news, sending the stock higher.
The refining and chemicals industry can be volatile, so the ups and downs that LyondellBasell's stock has been through this year aren't unusual. The Braskem issue complicated things a bit, to be sure, but the long-term picture here isn't compelling, with the stock down roughly 12% over the past five years. Over that span, meanwhile, there were a lot of dramatic advances and declines. This is not a stock that most investors should be looking at, particularly those with a conservative bent. And while things are starting to look up for the company, only investors with a strong knowledge of the industry (and a positive outlook for the sector) should be looking at it right now.
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