LyondellBasell Industries N.V.
Q2 2018 Earnings Call Transcript

Published: 3 Aug 2018

[Operator:]

Hello and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. Following today's presentation, we will conduct a question-and-answer session. I'd now like to turn the conference over to Mr. Dave Kinney, Director of Investor Relations. Sir, you may begin.

[David Kinney:]

Thank you, Johan. Hello, and welcome to the LyondellBasell's second quarter 2018 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 would like to point out that a slide presentation accompanies today's call and is available on our website, www.lyb.com. I would also like for you to note that statements made in this call relating 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 a more detailed information about the factors that could cause our actual results to differ, 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 the earnings release, are currently available on our website at www.lyb.com. Finally, I would like to point out that a recording of this call will be available by telephone beginning at 1

[Bhavesh Vaghjibhai Patel:]

All right. Thanks, Dave. Good day to all of you participating around the world and thank you for joining our second quarter earnings call. By now I'm sure many of you have seen our earnings release that we put out this morning highlighting the specifics of the quarter. While I will go into greater depth on these results shortly, I want to take a brief moment to provide a longer view on why they are significant. Every year, over the past four years, our company has consistently generated more than $5 billion of cash from operating activities under a wide range of oil prices and industry conditions. During the second quarter of 2018, we generated $1.7 billion. In my view, these superior results are a product of our team's outstanding focus on efficiency, value creation, disciplined execution and our strong portfolio of businesses. This approach has not only delivered value, but also created the opportunity for us to develop and execute on a broader growth strategy that goes beyond brownfield expansions and is beginning to yield tangible results. Now, let's begin with slide 3 and review the highlights. During the second quarter, our focus on safe, reliable operations and diligent commercial efforts captured market opportunities, particularly within our Intermediate and Derivatives, Refining and Technology segments. Second quarter diluted earnings were $4.22 per share. Our second quarter results included a $346 million non-cash benefit from the settlement of a prior-year tax positions that increased earnings by $0.88 per share. Excluding this benefit and a one-time benefit from the U.S. tax reform during the fourth quarter of 2017, our second quarter earnings per share represents a quarterly record that exceeds the previous record set in the first quarter of 2018. We also achieved quarterly EBITDA records for both our Intermediates and Derivative segment and our Technology segment. At our Annual General Meeting on June 1st, LyondellBasell shareholders approved a new share repurchase program that authorizes the repurchase of up to 10% of the company's shares over the next 18 months. In a few moments, Thomas will provide further detail on how our strong cash flows supported substantial shareholder returns with more than $700 million of dividends and share repurchases during the second quarter. We continue to advance our growth program during the second quarter, with significant progress on multiple initiatives. In June, we announced that LyondellBasell entered into exclusive discussions with Odebrecht regarding a potential transaction with Braskem. As you might expect, there is little to say at this point in the discussions. Our teams are working diligently to assess the feasibility and shareholder value of such a transaction. Our pending acquisition of A. Schulman moved forward with Schulman shareholders approving the transaction in June. Antitrust clearances have been obtained from the United States, the European Commission, China, Brazil, Mexico, Turkey and Russia, to name a few. Our team anticipates securing the remaining regulatory approval during the third quarter and is ready to begin the integration process. To this end, we announced last week that Jim Guilfoyle, who leads our Intermediates and Derivatives segment, will lead our new Advanced Polymer Solutions segment following the close of the transaction. Until his replacement is named, Jim will continue to oversee our I&D segment. In June, we continue to expand our joint venture portfolio with the announcement of a new 400 kiloton per year of polypropylene plant in South Korea that will utilize LyondellBasell's industry-leading Spheripol technology to serve customers in Asia. Our organic growth programs are advancing well with significant construction activity in our Hyperzone polyethylene plant in La Porte, Texas. This is scheduled to start up in the middle of 2019. We also made very good progress in our PO/TBA project, as we work toward a 2021 start-up. Underlying all of our business results, there's one outcome that is perhaps the most important to us. On slide 4, I would like to take a moment to highlight the significant improvement in the safety performance achieved by our employees and contractors during the first half of 2018. In my view, this is an important indicator for our investors because of the close tie between safety and operational excellence. Although it's tempting to become complacent about safety after years of top decile performance, as a team, we rededicated ourselves to the goal of zero injuries and delivered a 38% improvement in workers safety during the first half of this year. We're extremely proud of this achievement and I want to thank all of our employees and contractors who've contributed such great performance. And now, Thomas will provide more detail on our financial highlights for the second quarter.

[Thomas Aebischer:]

Thank you, Bob, and good day to all of you. Please turn to slide 5, which shows our quarterly and trailing 12 months segments results. During the second quarter, robust demand for polyolefins supported chain margins for both of the regional Olefins and Polyolefins segment, especially in the United States. Strong operations and markets across nearly all product lines generated record quarterly EBITDA for our Intermediates and Derivatives segment, while continued strength in operational reliability and improving markets increased refining results. I also would like to highlight how increased licensing revenue drove a record quarterly EBITDA of $113 million for our Technology segment. Our Technology group has been increasingly successful at licensing both LyondellBasell's polyethylene and polypropylene process technology over the past year. With this strong quarter, LyondellBasell's trailing 12 months EBITDA has increased to approximately $7.5 billion. On slide 6, we describe our recent cash generation and deployment. As Bob mentioned, during the second quarter we generated over $1.7 billion of cash from operating activities and over $700 million was returned to investors through dividends and share repurchases, as we repurchased more than 3 million shares. We increased our investment in capital expenditures to approximately $500 million during the quarter, primarily due to increased activity related to construction of the Hyperzone polyethylene plant. After this activity, our balance of cash and liquid investments grew by approximately $400 million during the second quarter. Over the past 12 months, we generated $5.7 billion of cash from operating activities and used approximately 40% for dividends and share repurchases. After investments in our capital program and other financial activities, the cash and liquid investment balance increased over the past year by approximately $1.3 billion to end the quarter at nearly $3.9 billion. Slide 7 depicts some recent history of our cash generation and deployment. Operating activities at LyondellBasell have consistently generated between $5 billion and $6 billion of cash over the past several years. Our trailing 12 months free cash flow has increased to over $4 billion, with less capital investment during 2017 and stronger cash generation during 2018. Over the remainder of 2018, we expect to increase our capital investment for growth, as we complete the Hyperzone polyethylene plant and ramp up activity for construction of the world's largest propylene oxide and tertiary butyl alcohol plant. Our forecast for capital expenditure during 2018 remains at approximately $2.4 billion, with approximately $1.1 billion allocated to maintenance that supports our high operational reliability. The chart on the right illustrates returns to shareholders in the form of dividends and share repurchases. The foundation of our capital deployment strategy is a leading, sustainable and progressively growing dividend. Our dividend yield of 3.6% remains in the top quartile of the S&P 500. LyondellBasell's substantial cash flow generation continues to provide capability for shareholder returns through share repurchases. As Bob mentioned earlier, our shareholders recently approved the new buyback program for as much as 10% of our shares over the next 18 months. Our tactics to optimize share repurchase may occasionally produce short-term reliability in the rate of our repurchase volumes such as that seen in the fourth quarter of 2017. But share buybacks continue to be a component of our capital deployment strategy. With that, I will turn the call back to Bob. Thank you very much.

[Bhavesh Vaghjibhai Patel:]

All right. Thank you, Thomas. Let's turn to slide 8 and review our segment results. In our Olefins and Polyolefins Americas segment, second quarter EBITDA was $700 million, an $80 million decline from the first quarter. Olefins results decreased by approximately $175 million compared to the first quarter of 2018. Ethylene margins declined by approximately $0.07 per pound and volume increased with improved derivative operating rates. Ethylene operating rates remained strong across our system during the second quarter, averaging 89% despite planned maintenance downtime at one of our Channelview, Texas crackers. Approximately 85% of our ethylene production was from ethane and an approximately 93% came from NGLs. In polyolefins, combined results improved by approximately $105 million. Polyethylene spreads over ethylene increased by approximately $0.07 per pound, as ethylene prices declined while polyethylene prices were relatively unchanged. Planned maintenance on one of our two crackers at Channelview was completed during the second quarter. We estimate that the impact to second quarter results was approximately $50 million. We have no significant planned maintenance in this segment for the remainder of 2018. We continue to see weakness in spot ethylene prices during July, due to inconsistent and lower than anticipated operating rates on downstream derivatives. This is creating length (00

[Operator:]

Our first question is from P.J. Juvekar from Citi.

[P.J. Juvekar:]

Yes, good morning.

[Bhavesh Vaghjibhai Patel:]

Good morning, P.J.

[P.J. Juvekar:]

Bob, question on polyethylene inventory. Typically, converters destock or carry low inventories when they see new plants starting up. So can you talk about where do we stand on inventories in the U.S.? And actually a similar question for China, because with all the tariffs and ban on imported recycled plastic, what's going on there in terms of inventories?

[Bhavesh Vaghjibhai Patel:]

Yeah. P.J., I've commented on this at the last earnings call and my view has not changed. I think converter inventories here in the U.S. are on the low end because of the expectation of new capacity coming, as you rightly mentioned, and I think that will continue here through the fall. So, I think any unplanned events will likely cause more tightness in the market. China inventories, a little bit less visibility in terms of what goes on there. But our sense is that demand is growing at very good rates. Per IHS, the forecast for demand growth for polyethylene is 8.5% for 2018, so a very strong rate, and I think that all points to a very good market in the back half of 2018.

[P.J. Juvekar:]

It is a sort of extension of that question, if you think about these tariffs and plastic bans and all that, would that mean the Chinese MTO plants will run at a higher rate to meet local demand?

[Bhavesh Vaghjibhai Patel:]

I think it's possible. First of all, I think we're – as I mentioned before, we believe that fair and free trade is certainly very important to have healthy markets and a healthy global economy. I think in the near term, demand is fairly fixed. It's a question of how that demand is met. And I think, one consequence of the tariffs could be, yes, that MTO plants run harder. The other is that maybe trade patterns will shift such that China's demand could be met more from the Middle East and perhaps more U.S. product flows to Europe and other places. We've seen a bit of that in styrene. As you know, there have been anti-dumping duties and tariffs that have been levied, but the market has kind of managed through that change very well. So I would expect that we'd see similar things in polyethylene. And I kind of step back from all the tariff noise and say that global operating rates are very high and demand is growing at very good rate.

[Operator:]

Thank you. Our next question is from Hassan Ahmed from Alembic Global.

[Hassan I. Ahmed:]

Good morning, Bob.

[Bhavesh Vaghjibhai Patel:]

Good Morning.

[Hassan I. Ahmed:]

Bob, obviously, strong results within I&D and particularly strong volume growth within the acetyl side of things. My question is that, one of your acetyl competitors recently gave their views about supply/demand fundamentals over the next two years. And they talked about global utilization rates tightening by 600 to 800 basis points between, call it, now and 2020. And two-thirds of that they attributed, so two-thirds of that tightening they attributed to just regular demand growth, but a third to Chinese environmental sort of related closures. So, do you – first of all, do you have a similar sort of supply/demand global utilization rate view? And the follow-up to that would be that, if this is impacting acetic in such a way or VAM in such a significant way, I'd imagine there are other sort of petrochemicals and chemicals which would be impacted as well. So are you – any sort of clarity around this and your thoughts would be appreciated.

[Bhavesh Vaghjibhai Patel:]

Yes, Hassan. So on VAM, directionally I tend to agree that the outlook looks good. I think the magnitude, we'll have to see how that plays out. But the broader point you raised which I think is very important is that, the growing sort of regulation or a more tightening regulatory environment on chemical operations in China is important and meaningful, and I think will tend to favor our intermediate and chemicals business, whether it's EO or VAM or other products. So directionally, I think it's good for our I&D segment and constructive for the market.

[Operator:]

Thank you. Our next question is from David Begleiter from Deutsche Bank.

[David I. Begleiter:]

Thank you. Good morning.

[Bhavesh Vaghjibhai Patel:]

Good morning.

[David I. Begleiter:]

Nice quarter, Bob. Bob, I know you can't discuss the Braskem acquisition. But in theory, what makes that asset attractive? I know you do like polypropylene, but maybe discuss maybe polypropylene or – overall what makes Braskem attractive to you and Lyondell?

[Bhavesh Vaghjibhai Patel:]

Yeah. Well, I've described in the past that from an industrial logic standpoint, there's sort of a consolidation play in the O&P space. It gives us a presence in Latin America that we don't have today, and we think that's a very important market as we look out long term in terms of the Olefins and Polyolefins space. They have very high-quality assets and it's a well-run company. So I think there are a lot of, I think, potential benefits to our shareholders. So, we'll just have to kind of work through our process and see where we come out.

[Operator:]

Thank you. Our next question is from Kevin McCarthy from Vertical Research Partners.

[Kevin W. McCarthy:]

Yes. Good morning.

[Bhavesh Vaghjibhai Patel:]

Hi, Kevin.

[Kevin W. McCarthy:]

Bob, how would you compare and contrast the propylene monomer market these days in the United States versus Europe?

[Bhavesh Vaghjibhai Patel:]

Well, there is a very important distinction in the U.S. is that the cracker fleet in the U.S. is much more flexible. So, that drives some of the variability in propylene supply. Generally speaking, I would say, propylene supply remains very tight in the U.S. and likely will continue to be so. And especially, as over the last decade you've seen more ethane cracking, that's reduced the amount of propylene output and incrementally some new derivatives have come to market. So, I would expect propylene to be more dynamic in terms of prices or continued sort of dynamic as it has been. In Europe, it's more of a stable market and tends to follow naphtha and tends to kind of follow overall cracker margins. It's not as dynamic in terms of price just because of the supply being more stable.

[Operator:]

Thank you. Our next question is from Alex Yefremov from Nomura Instinet.

[Aleksey Yefremov:]

Good morning. Thank you. Just following up on VAM. Bob, is there any interest in perhaps adding to VAM capacity if there is enough return on capital in that area?

[Bhavesh Vaghjibhai Patel:]

Yeah. Good morning, Alex. I've been focusing the team on maximizing the potential of the asset we have on the ground today. And so, we're trying to find opportunities where we can increase output and increase efficiency at little or no cost. And I think we do have some opportunities in that area and I'd like to see us reap those benefits before we think about other assets.

[Operator:]

Thank you. Our next question is from Steve Byrne from Bank of America.

[Stephen Byrne:]

Yes. Thank you. Bob, you put in some data in one of these slides about domestic demand growth for polyethylene U.S. and Canada, almost 55% – sorry, 5% (00

[Bhavesh Vaghjibhai Patel:]

Yeah. So, on the growth rates, I think they're really reflecting a very strong U.S. GDP environment. And as you know, polyethylene growth tends to tie very closely to GDP growth. So I think it's – the growth rates are a reflection of a very good U.S. market and more penetration of plastics into other end users. So, I think that trend is very good and very durable. I've also pointed out in prior earnings calls that, typically our industry experiences most of our annual growth in the first three quarters of the year because of seasonality and the like. So, I think that also plays a role as it does in prior years. Now, let me answer your question on sort of plastics waste. First of all, there's been a lot of press about plastic waste in oceans and rivers and landfills and so on. I can tell you that our industry understands that this is a very, very important issue and something that we must be a part of the solution. It's a key focus area for trade associations around the world including American Chemistry Council and Cefic and others. And we hold membership – we have core (00

[Operator:]

Thank you. Our next question is from Arun Viswanathan from RBC Capital Markets.

[Arun Viswanathan:]

Great. Thanks. Good morning.

[Bhavesh Vaghjibhai Patel:]

Good morning.

[Arun Viswanathan:]

Just a question on your outlook, I guess, for both North America and ex-North America olefins. I guess, we've seen some softening in Asian prices. What do you expect for the rest of the year in North America? I mean, on the polyethylene side we've seen some price increases pushed out. You expect ultimately those would have support or not? And then, secondarily in Europe, it looks like sequentially we are going to be lower on the margin side in Q3, Q4. Just wanted to get your thoughts on those two dynamics.

[Bhavesh Vaghjibhai Patel:]

Yeah. So Arun, first of all, prices like any year tend to follow seasonal patterns. So we typically have a stronger spring and a strong fall sort of period. That seasonality is much stronger in Europe because of a more prevalent sort of summer holiday season or many factory shutdown – converter shutdown. Let me kind of step back and think about operating rates. So last year, globally we had very high operating rates, really near full capacity in ethylene and polyethylene. Now if you look at change in supply and change in demand from 2017 to 2018, supply growth is exceeding demand growth by forecast from IHS by less than 1% from 2017 to 2018. So given that we're starting at very high operating rates, coming off maybe 100 basis points on operating rates is frankly negligible in terms of impact on market. Prior cycles we've seen reduction of 10% in operating rates or greater. It's a very modest reduction. Furthermore, if you kind of peel that back and you look at high-density polyethylene which is kind of 70-or-so-percent of our output in polyethylene – actually, this year demand growth is forecasted to exceed supply growth by almost 150 basis points, and we're seeing that in the way kind of pricing is playing out. And if you look next year, overall polyethylene supply growth and demand growth will be very close to matched; and in HD, supply growth falls short again of demand growth projections. So who would have thought, Arun, that we would have had price rollovers when you've had this much new capacity comes on? And if by the end of the year operating rates have dropped 1% in my view, we still have a very tight market with not so much capacity coming in the next couple of years. I think it's important as we try to sort of sort through all of the noise from month-to-month, just step back and look at where operating rates are and we got a pretty tight market with normal seasonality.

[Operator:]

Thank you. Our next question is from Jeff Zekauskas from JPMorgan.

[Jeffrey J. Zekauskas:]

Thanks very much. I was wondering, Bob, if you could discuss the differences in the European high-density polyethylene market year-over-year? That is, why was it such a better market in the second quarter of 2017 than it is in the second quarter of 2018? And likewise, for the polypropylene market year-over-year in Europe. And then, I have a question about how are cash taxes this year versus last year or the cash tax rate? Thank you.

[Bhavesh Vaghjibhai Patel:]

Okay. Well, I'll take the first part of that and then ask Thomas to answer the second part of that. In terms of the European polyethylene and polypropylene business Q2 2017 compared to Q2 2018, if you go back to Q2 2017, last year was a very strong year in Europe, and I think many units in the industry or many plants were trying to ramp up and didn't run as well last year. We had a very, very tight market last year. This year I think you're seeing a more normal pattern where we see summer weakness in both polyethylene and polypropylene. I expect that with fall turnarounds planned and fall demand coming up, we'll see that come back into balance like we do in most years. And I would expect that the global sort of overlay of both polyethylene and polypropylene being strong will bear out in Europe as well. So, I just think Q2 2017 was unusually tight because of the big demand growth relatively speaking for Europe from 2016 to 2017 and then seasonality here in 2018. So, hope that answers your question, Jeff. And Thomas, on tax?

[Thomas Aebischer:]

Okay, Jeff. Thank you for the question. So with respect to the cash tax rate, so we ended 2017 with a cash tax rate of approximately 19% and we expect now the cash tax rate 2018, as we have communicated earlier, to be a little bit higher, somewhere between 22% and 24% for 2018.

[Operator:]

Thank you. Our next question is from Vincent Andrews from Morgan Stanley.

[Vincent Stephen Andrews:]

Thanks, and good morning, everyone.

[Bhavesh Vaghjibhai Patel:]

Good morning.

[Vincent Stephen Andrews:]

Just two questions, Bob. You talked a little bit about ethane and the price retreat recently in Mont Belvieu. So maybe just give us an update on your sort of $0.07 to $0.10 frac spread forecast. I think it's a bit higher than that now. And secondly, in Conway, a nice big discounts opened up again against (00

[Bhavesh Vaghjibhai Patel:]

Sure. So I'll take those one at a time. On ethane, first of all, I just want to provide some context on how these big tranches of ethane demand occur when new cracker start up. So a new cracker start-up, when it's world-scale cracker like 1.5 million tons, that's about 100,000 barrels a day of additional ethane demand when those start up. Now these are kind of big steps. It doesn't happen gradually. Now as you can imagine on the supply side, the supply then has to adjust and it takes a period of time, maybe a quarter or so, for the supply to adjust, to meet the demand of these big kind of jumps in demand. I've said in the past as you rightly mentioned that – I think $0.07 to $0.10 could be quite normal going forward. As you say, we're above that today. But on the other hand, with higher oil prices, the U.S. sort of advantage and the slope of the global cost curve is still quite good. And we also had in Q2 some issues on the Mariner East pipeline. So that impacted the source of exports of ethane and put more tightness on the Gulf Coast. I think all of this is going to kind of work its way through, as we get to a new normal. But again, when I step back and look at ethane fundamentals, there's a lot of ethane available on the Permian. New pipelines have been announced for Y-grade coming through the Gulf Coast. New fracs have been announced. There's one new frac that's about to start up. One other one recently started up. So kind of if each frac adds 60,000 barrels a day or so of ethane and more logistics are available to bring Y-grade from Permian, I think this will all kind of work its way through. But you have to appreciate that these jumps in demand are quite large for the size of the business that it is in the U.S. in terms of ethane. So, we may see some blips here in terms of ethane being above $0.10 frac spreads. But I think $0.10 is the reasonable thing to plan around longer term. Certainly, we're doing that. The Conway advantage and its durability, that ebbs and flows, it depends again on more about Gulf Coast; and up in Conway, very few consumers. I mean we represent a large part of the consumption of ethane up there. I continue to believe there will be a meaningful advantage in Conway and we should reap the benefits of that for years to come. On Technology, the run rate – first of all, when you think about our Technology business, there is kind of three components. There's our catalyst business which tends to be very steady. We have service income from licenses that we've issued over the years. That tends to be steady and modestly growing as we have more licenses. You can imagine as we have more units out there that are licensed, we're providing more service to those. What makes it more variable is the timing of license payments. And if you go back and look at the number of press releases we issued on new licenses last year, there was a meaningful step up from 2016. So we're seeing now the payments in 2017 of that of – sorry, in 2018 from the 2017 licenses that we signed. 2018 looks to be also a very active year. Again, you go back and you look at our press releases year-to-date, we're having a fairly active year. So, you know I'd caution you from taking Q2 as a run rate, but I would tell you that there's been a step up in activity in 2017 and 2018, and I expect that to continue. Our focus is in China, more polypropylene than polyethylene. So that's how I would kind of characterize our licensing activity. So hope I've answered the three questions.

[Operator:]

Thank you. Our next question is from John Roberts from UBS.

[John Roberts:]

Thank you. Are you contemplating any major I&D investments besides propylene oxide, given the strong performance in the rest of the chemicals in that portfolio?

[Bhavesh Vaghjibhai Patel:]

Yeah. Good morning, John. That's a pretty big investment that we're undertaking. So, I'd like to see our team deliver that before we consider others. As you know, we have a joint venture in PO/SM in China and there is a potential to do more there. But in the U.S., I'd like to see us deliver on our PO/TBA project which is, by the way, the largest capital investment this company or its predecessors have undertaken. So, focus on execution is also really important.

[Operator:]

Thank you. Our next question is from Bob Koort from Goldman Sachs.

[Dylan Campbell:]

Good morning. This is Dylan Campbell on for Bob. In the slides, you mentioned that not all PE units are currently operating at full operating rates. Can you talk generally kind of what's hampering them to come up to speed or to a full run rate, and generally how long that takes across the market? And also with your own Hyperzone HDPE project, how long you would expect that to come online?

[Bhavesh Vaghjibhai Patel:]

Yeah. So good morning, Dylan. Just sort of anecdotal frankly, but my sense is that operations continue to improve. And your question about how long does it take, I would expect from 30 to 90 days something like that, about a quarter, to get to the grade slate and work out the bugs of these. All of these units are redefining world scale. So, we shouldn't minimize the challenge in ramping up and getting to new world scale. I'd expect our Hyperzone is going to be very similar. We're also introducing a new technology here. So if it takes a little longer, it may not surprise me. But I don't think it's a quarter longer, it's maybe a month longer or something like that. But what makes I think polyethylene more complex is that you have multiple products and you have to go through a sort of, what we call, a product wheel as opposed to with ethylene it's one product, and you're just trying to get on spec and get to full rates which in its way is also difficult, but a different set of challenges compared to numerous products in polyethylene.

[Operator:]

Our next question is from Jonas Oxgaard from Bernstein.

[Jonas I. Oxgaard:]

Morning, guys.

[Bhavesh Vaghjibhai Patel:]

Good morning.

[Jonas I. Oxgaard:]

Congrats to Jim to his new job, and way to go out on a high note at I&D.

[Bhavesh Vaghjibhai Patel:]

Well, we expect a lot of him when he gets to our Advanced Polyolefins Solutions (sic) [Advanced Polymer Solutions] (00

[Jonas I. Oxgaard:]

Big job ahead of him. But on that I&D, it seems a lot of the performance was – the volumes are really high. It seems that practically every unit was operating at max capacity. So, does it mean that maintenance was deferred for later – or not deferred perhaps, but at least lower maintenance than average? And so, what can we expect [Technical Difficulty] (00

[Bhavesh Vaghjibhai Patel:]

Yeah. So on the maintenance side on I&D, we just didn't have much planned maintenance. As I mentioned during my prepared comments, we will have planned maintenance at our Bayport PO plant – one of our Bayport PO plants in Q3 and Q4. Look, I think we ran well as we expect to run well. We had in the prior period some issues that were uncharacteristic. So, part of that is the step up in volume from our I&D business. So I think the unplanned part, this is more typical what we did in Q2. The planned is, we don't defer maintenance. We typically do it when we need to do it and in terms of our planned schedule, we'll stay on that cadence. In terms of the run rate and the change in the Technology business, we can't really quantify the change. But I would tell you that, again, compared to – when you look at 2016 to 2017, there was a step up in the amount of licenses that we announced. The 2017 licenses are coming through in the P&L in 2018. We have a similar pace in 2018 signings that will come through in 2019. But when you look quarter-to-quarter, it still can be lumpy because of the way the payments are done. But I encourage you to kind of think about annual time horizons when you look at our Technology segment and quarterly the payments can be lumpy.

[Operator:]

Thank you. Our next question is from Matthew Blair from Tudor, Pickering, Holt.

[Matthew Blair:]

Hey. Good morning, Bob. How are you?

[Bhavesh Vaghjibhai Patel:]

Good morning. Doing well. How are you?

[Matthew Blair:]

Good. Thanks. Could you walk us through what you're seeing in the U.S. polypropylene market? On slide 8, you showed some margin expansion. I think there has been some outages. Where do we stand on inventories? Are the higher absolute prices having any impact on demand? And do you have any update on your potential U.S. PP/PDH project? Thanks.

[Bhavesh Vaghjibhai Patel:]

Yeah. Sure. Well, the PP market continues to be very tight, and any small outages sort of make the tightness more acute. Inventories, my sense is, are average or below average. The industry is kind of working through the usual seasonal high period in PP. I'd expect that to continue until there is meaningful new capacity. Imports have increased because of just more demand in the U.S. that has to be met. And I suspect that whenever new units come on down the road then some of those imports will decline. In terms of our own project, we're still working through the details and sort of the engineering of that. I want to make sure my team provides a very good estimate on capital so that we can make a good decision and with an eye towards creating shareholder value. So, we're still working through it. I don't have anything definitive to report to you today, but we still see the project as being attractive.

[Operator:]

Thank you. And I am showing no further questions. I'll now turn the call back over to Bob, for closing comments.

[Bhavesh Vaghjibhai Patel:]

All right. Well, thank you. Thank you, everyone, for your thoughtful questions, as usual. At LyondellBasell, we recognize that our core focus on operational excellence, cost management, disciplined capital deployment, provides advantages in our industry. We're capturing opportunities to add value by leveraging these advantages with highly targeted growth. I'm very proud of the record-setting results our team delivered this quarter, and I'm confident that our winning strategies will allow us to continue on this trajectory over the coming years. So, thank you very much for your interest in our company and we look forward to updating you on our third quarter results, as well as the progress on all of our growth initiatives during the next call. With that, we're adjourned. Have a great weekend.

[Operator:]

Thank you. And this does conclude today's conference. You may disconnect at this time.