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LyondellBasell sees polymer business squeezed by rising ethylene, propylene

Polymer costs are up, but monomer costs have risen higher. That was the perspective on the polyolefin market given by LyondellBasell in a March 5 teleconference detailing the company's January performance. Jim Gallogly, LyondellBasell CEO, and Kent Potter, the company's CFO, laid out the financial performance for the firm in the first month of the new year, for the first time utilizing new business units.

in a March 5 teleconference detailing the company's January performance. Jim Gallogly, LyondellBasell CEO, and Kent Potter, the company's CFO, laid out the financial performance for the firm in the first month of the new year, for the first time utilizing new business units. Those consist of Refining and Oxyfuels; Olefins and Polyolefins; and Intermediates and Derivations, with the olefins and polyolefin unit split between the Americas and Europe, Asia, and International.

Potter described the olefin and polyolefin business as "solid," with polymer volume increasing following a year-end December holiday slowdown. In the Americas, the company saw a $20 million improvement in EBITDA (earnings before income, taxes, depreciation, and amortization), primarily due to higher margins in the olefins business. For January, ethylene was up $0.06/lb while propylene rose $0.05/lb. The rises in monomer costs weren't fully passed through into polyethylene (PE) and polypropylene (PP) prices and did pressure results in the company's polymers business, according to Gallogly.

In the Americas, PE results were off $12 million for January, with prices up about $0.01/lb and volume down 5%. In PP, January results were up $20 million over December, although the company said that operating issues due to a turnaround at its Corpus Christi, TX site had limited the company's ability to exploit further opportunities. Gallogly did say that he expects polymer results to improve going forward.

In European, Asian, and international business, January PE was up $10 million over December, thanks in part to a 100 euros/tonne increase in PE prices. PP prices were up 70 euros/tonne while propylene rose 40 euros/tonne, boosting the company's margins. In the coming months, the company is planning a shutdown of its French operations for about six weeks as it undertakes scheduled maintenance. To prevent significant supply interruptions, the company said it's building inventory and shifting production to alternate sites.

In comments to analysts, Gallogly said that the company had started the year "slightly behind plan," and that it believes thus far, conditions experienced in 2009 have generally carried over into the new year. Gallogly said that while polymer prices have risen, the costs of olefins have risen even more, pointing at some recent trades for ethylene concluded at $0.70/lb, with the monomer rising particularly quickly in the spot market.

A bright spot for the company has been its automotive business, with Gallogly telling analysts that he has been "pleasantly surprised with our sales in automotive." LyondellBasell enjoys a large share of the market, but Gallogly did caution that the company's forecasts posit that it will take a couple of years before the sector returns to pre-economic crisis levels.

The company didn't address ongoing speculation that India's Reliance Industries is vying to buy the company. Numerous late-February press reports said Reliance had raised its bid for LyondellBasell from $13.5 billion to around $15 billion. RIL also reportedly included stock and cash options for shareholders and creditors in its offer, in an attempt to sweeten the pot.—[email protected]

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