Douglas J. Pike - LyondellBasell Industries NV Bhavesh Vaghjibhai Patel - LyondellBasell Industries NV Thomas Aebischer - LyondellBasell Industries NV.

Ryan Berney - Goldman Sachs & Co. Aleksey Yefremov - Nomura Securities International, Inc. David I. Begleiter - Deutsche Bank Securities, Inc. P.J. Juvekar - Citigroup Global Markets, Inc. (Broker) Duffy Fischer - Barclays Capital, Inc. James M. Sheehan - SunTrust Robinson Humphrey, Inc. Vincent S. Andrews - Morgan Stanley & Co.

LLC Don Carson - Susquehanna Financial Group LLLP Hassan I. Ahmed - Alembic Global Advisors LLC Jonas Oxgaard - Sanford C. Bernstein & Co. LLC John Roberts - UBS Securities LLC Stephen Byrne - Bank of America Merrill Lynch Kevin McCarthy - Vertical Research Partners Jeffrey J. Zekauskas - JPMorgan Securities LLC Frank J.

Mitsch - Wells Fargo Securities LLC Arun Viswanathan - RBC Capital Markets LLC Matthew Blair - Tudor, Pickering, Holt & Co. Securities, Inc. Nils-Bertil Wallin - CLSA Americas LLC.

Good day, everyone. 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. Doug Pike, Vice President, Investor Relations.

Sir, you may now begin..

Well, thank you, Tori. Well, hello and welcome to LyondellBasell's third quarter 2016 teleconference. And I'm joined today by, Bob Patel, our CEO; and Thomas Aebischer, our CFO, who's calling from our Rotterdam office.

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'd also like for you to note that statements made in this call relating to matters that are not historical facts are forward-looking statements.

And these forward-looking statements are based upon assumptions of management, which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. And actual results could differ materially from those forward-looking statements.

Now, 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 both available at www.lyb.com/investorrelations.

And 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.

Now finally, I'd like to point out that a recording of this call will be available by telephone beginning at 2:00 PM Eastern Time today, until 12:00 AM Eastern Time on December 1 by calling 866-425-0182 in the United States, and 203-369-0874 outside the United States. And the pass code for both numbers is 11116.

And before turning the call over to Bob, I'd like to highlight, the comments made on this call will be in regard to our underlying business results, excluding the impacts of LCM inventory adjustments. That being said, I'll turn the call over to, Bob..

Thanks, Doug. Good morning to all of you, and thank you for joining our third quarter earnings call. Let's begin with slide 4, and review the highlights from the third quarter. Our third quarter diluted earnings were $2.31 per share with EBITDA of $1.6 billion. Overall, third quarter business trends developed as we expected.

During the quarter, olefin chain margins continue to be healthy, most notably, excellent results in our European Olefins & Polyolefins business, demonstrated the strength of our global portfolio.

Despite the significant planned maintenance and the Americas, the combined Olefins & Polyolefins results were $1.3 billion, relatively unchanged versus second quarter. While our chemical and polymer operations generally ran well, there was planned downtime in these operations and unplanned downtime in our Refining segment.

Based upon industry benchmark margins, the value of third quarter loss production due to planned and unplanned outages across the company is estimated to have been approximately $285 million. Slide 5 reflects our continued outstanding safety performance.

Our results here today have remained steady despite performing an unusually high amount of maintenance. Thomas, will discuss our financial highlights for the third quarter..

Thank you both, and good morning from Rotterdam. On slide 6, we outlined our quarterly and trailing 12-month segment results. Combined Olefins & Polyolefins continue to generate good quarter results with $1.3 billion of EBITDA and $5.3 billion during the last 12 months.

The Intermediates & Derivatives segment third quarter EBITDA was approximately $300 million, and $1.3 billion over the last 12 months. Utility supply and other operational upsets resulted in a loss at the refinery. Technology continued to perform well at last 12 month's pace of approximately $270 million.

Overall, despite ongoing maintenance and refinery upsets, year-to-date earnings are near a $7 billion annual pace. Please return to slide 7, which provides a picture of cash generation and use. During the third quarter, we generated $1.3 billion of cash from operations. We utilized $1.2 billion for dividends and share repurchases.

Our maintenance and growth capital investments were approximately $590 million during the third quarter with a significant portion of these investments focused on our Corpus Christi ethylene expansion, and the turnaround at our Morris, Illinois facility.

During the third quarter, cash and liquid investments decreased by approximately $420 million to end with a balance of $2.1 billion. Over the last 12 months, quarterly cash generation and spending trends were relatively similar to the third quarter pace. The $2.1 billion ending cash and liquid investments balance remains above our minimum requirement.

Slide 8 provides a longer perspective of cash flow as well as some current financial metrics. I will just mention a couple. First, our last 12 month's cash flow was approximately $5 billion with free cash flow off the CapEx of approximately $3 billion.

With respect to share repurchases during the third quarter, we purchased 10.3 million shares, bringing the year-to-date purchases to 7%. 2016 CapEx spending is trending above our forecast of $2.1 billion. With that, thank you for your attention, I will turn the call back to Bob..

Thank you, Thomas. Let's turn to slide 9, and review segment results. As mentioned previously, my discussion of business results will exclude the impact of the LCM inventory charges. In our Olefins & Polyolefins Americas segment, third quarter EBITDA was $682 million, a decline of $72 million versus the second quarter.

Relative to the previous quarter, olefin results increased by approximately $15 million. Ethylene prices and margins increased, while scheduled plant maintenance at our Corpus Christi and Morris sites negatively impacted the quarter. Olefin operating rates averaged approximately 70%.

Excluding the scheduled maintenance, quarterly operating rates were approximately 95%. Ethylene production from ethane was approximately 70%, and about 87% came from NGLs. In polyolefins, results declined by $70 million. Results were driven by lower margins, partially offset by increased sales volumes.

Polyethylene price spreads declined approximately $0.04 per pound, while polypropylene spreads declined by approximately $0.09 per pound. Polyethylene and polypropylene sales volumes increased by approximately 6% and 13%, respectively.

At third quarter industry benchmark margins, the net value of lost production related to our planned turnarounds is estimated to be about $205 million. Thus far during the fourth quarter, Olefins & Polyolefins Americas industry trends are relatively unchanged.

The Corpus Christi ethylene facility is currently being commissioned after the turnaround and expansion. We expect the plant to be operating at the expanded capacity during the month of November. Let's turn to slide 10, and review performance in the Olefins & Polyolefins Europe, Asia and International segment.

During the third quarter, underlying EBITDA was $584 million, a $48 million increase over the second quarter. Despite a decline in polyolefins and equity income, overall results represent a record quarter. The quarter benefited by $11 million from the restructuring of Asian polypropylene joint ventures and the sale of Australian polypropylene assets.

Olefins' results improved by approximately $95 million as feedstock costs decreased coupled with olefin price increases. Additionally, volumes for the third quarter increased in the absence of second quarter planned maintenance. Advantaged feedstock accounted for 52% of ethylene production, contributing approximately $40 million over naphtha.

Polyolefins' results declined $25 million, driven by reduced polyethylene margins. Equity income declined by $29 million due to scheduled maintenance at joint venture facilities. During the early weeks of the fourth quarter, naphtha feedstock prices have increased, while underlying industry conditions remain relatively unchanged.

Planned maintenance is underway at one of our ethylene crackers in Wesseling, Germany. The value of lost production is estimated to be approximately $25 million. Now, please turn to slide 11 for a discussion of our Intermediates & Derivatives segment. Third quarter EBITDA was $304 million, a decline of $65 million versus the second quarter.

Planned maintenance impacted the quarter by approximately $15 million. Results for propylene oxide and derivatives declined by approximately $15 million as a result of lower derivative margins following propylene price increases. Intermediate chemicals declined approximately $60 million versus the second quarter.

Styrene margins were the primary factor with a decrease of approximately $0.03 per pound. Oxyfuels' results were relatively unchanged with increased volume offsetting lower margins. Thus far in the fourth quarter, I&D industry conditions are relatively unchanged from the third quarter.

However, it is typical for oxyfuel margins to weaken during the fall and winter months. Let's move to slide 12 for a discussion of the Refining segment. Third quarter EBITDA was a loss of $10 million. Crude throughput averaged 209,000 barrels per day as throughput and yields were impacted by operating disruptions.

The industry Maya 2-1-1 spread decreased by approximately $2 per barrel to average $19 per barrel in the quarter. Based on the third quarter industry benchmark spreads, the lost profit opportunity due to operational issues is estimated to be approximately $65 million.

Our Technology segment continued to perform well with third quarter EBITDA of $45 million. Let me summarize our results with slide 13. Overall earnings and cash generation continued to be satisfactory, and industry trends generally developed as we anticipated.

Olefins & Polyolefins conditions remained quite tight as evidenced by increased prices in U.S. ethylene and polypropylene chains. Although our O&P results were impacted by a heavy planned maintenance schedule, they remain consistent with the prior quarter.

In the I&D segment, increased raw material prices impacted PO derivative and styrene results, while planned maintenance impacted the ethylene derivatives. These events are temporary and within the normal quarter-to-quarter variability.

During the fourth quarter, we anticipate some typical seasonal slowing in the ethylene chain in oxyfuels and Refining. However, reduced scheduled maintenance, completion of the ethylene expansion at Corpus Christi and improved Refining operations should provide a positive counterbalance.

While there will be some planned maintenance within the system, the current testament of the lost production value is approximately $75 million to $100 million, well-below the maintenance impact of second and third quarters. I expect that there are some questions regarding the refinery status within our portfolio. Let me address that now.

The company currently is exploring its options relating to our Houston Refinery, which is the core asset of the Refining operating segment. As the company has stated in the past, we believe the Houston Refinery may be more valuable to others. We've engaged an investment bank to assist us in a process to explore our alternatives.

We believe this refinery is a very unique asset, and to that end will only consider a sale if it is in the best interest of all stakeholders.

Any sale of the Houston Refinery would be subject to the approval of our Supervisory Board, and assuming such approval is obtained, certain regulatory approvals and customary closing conditions would also apply.

No decisions by our Supervisory Board with respect to the sale have been made at this time, and any further comments on a potential transaction would be speculative in nature.

Before I finish with closing remarks, I'd like to spend a few minutes looking at the near to medium-term outlook for supply and demand, particularly within the ethylene chain for both LyondellBasell and the global industry.

Turning to slide 14, I'd like to outline how LyondellBasell's heavy maintenance schedule for 2016 compares to our relatively light plans for 2017. We typically have turnarounds at only two crackers in a given year. However, during 2016, we had four major cracker turnarounds and significant derivative turnaround activity.

We also expanded the capacity of our Corpus Christi cracker by 800 million pounds. With this hard work completed during 2016, we have no cracker turnarounds scheduled during 2017.

At the refinery, planned and unplanned maintenance helped crude runs to a level that is projected to be 40,000 barrels per day below our 2017 planned throughput availability. And that behind the increased earnings power associated with these volumes is pretty straightforward, and we have provided 2016 benchmark margins for each of these businesses.

The additional throughput has the potential to add hundreds of millions of dollars to the LyondellBasell bottom line during 2017. As we look forward to 2017 and beyond, the combination of delayed and capacity additions and continuing growth in global demand is improving our views on the market.

Let's turn the slide 15, and view the drivers of O&P demand. Within our polyethylene and polypropylene businesses, approximately two-thirds of the demand for our polyolefins comes from non-durable end users that are largely driven by population growth and a rising standard of living around the world.

The large population's GDP growth and consumption trends seen in China, India and other emerging economies will continue to drive these markets towards higher consumption. We believe that polyethylene and polypropylene can maintain the 4% to 5% demand growth that we have seen for these products over the past 25 years.

Given this demand growth, the operating rate question turns to the capacity additions that we have outlined on slide 16. Crackers require billions of dollars of investments with long engineering and construction lead times. This enables good visibility of olefin capacity additions for the coming five years.

Earlier this year, we combined the IHS supply and demand outlook with a 4% forecast for planned and unplanned maintenance downtime to arrive at the effective operating rate illustrated by the green dotted line on the right side of slide 16.

Operating rates were forecast to remain strong with only a brief decline in 2018, below the 90% to 94% range shaded in blue. This is a range where we would consider markets to be in a transition between loose and tight conditions.

Over the past several months, consultants have upgraded their views on capacity additions to reflect their increasing likelihood of project delays and cancellations. The result is a 6 billion pound reduction in an available capacity for 2018 that elevates global operating rates by about 1.5%.

We also reviewed recent operating history on the left side of the slide 16, which shows that downtime from planned and unplanned maintenance averaged 6%, 2% higher than our previous 4% estimate. The net result of these updates is shown as the black line on the right.

A historical shape for this operating rate curve shows good correlation with profitability that the global industry has seen since late 2014, when prices and margins began to surpass the cost of the marginal producer.

While we likely see reductions from current operating rates as new capacity comes online, it appears that these reductions in operating rates will be shorter and less severe than previous estimates.

On slide 17, global balances are quantified in terms of the annual capacity of a world-scale cracker using ethane feedstocks to produce 3 billion pounds of ethylene. The three time periods provide perspective of the oncoming shale-based capacity additions relative to global demand growth, and earlier capacity additions in other parts of the world.

As seen in the left chart from 2007 to 2011, global capacity additions exceeded demand by approximately eight crackers. Most of these new crackers were built in the Middle East to leverage advantaged feedstocks, and these crackers ran at maximum rates, even through the 2009 recession.

Over the past five years, world demand has outpaced capacity additions by an amount equivalent to three crackers, primarily due to growing demand in China. As a result, global markets have tightened.

Even with the eight cracker equivalents forecast to come online in the United States by 2021, the forecast is relatively balanced over the next five years. In summary, delays and cancellations coupled with continued population-driven demand create a positive outlook for the coming years.

Our team has completed several major turnarounds and we head into 2017 very well-positioned. The view of the next several years is indicating better operating rates and conditions than we forecasted earlier this year. Finally, I'm pleased to announce that we plan to host an Investor Day on April 5 in New York.

Please hold that date on your calendars, and we look forward to seeing you there. Thank you, and now we're pleased to take your questions..

Thank you. Thank you. Our first question is from Robert Koort from Goldman Sachs. Your line is now open..

Good morning. This is Ryan Berney on for Bob. I was hoping you could provide, maybe your view on – your expectations for ethylene price discussions ahead of what sounds like there's going to be three or maybe even four new crackers next year.

In the past when you've seen supply come into market, maybe in some your other regions; how does that impacts kind of your contract discussion with your customers?.

Yeah. Good morning, Ryan. In the case of ethylene, generally price discussions are not quarterly or annual; they're more longer-term sort of contracts. So it's really, the discussions have been about how our customers might bridge supplies.

They're adding derivative capacity that has a different timing than crackers, and some are pure merchant buyers, who need to continue to buy. So our pricing discussions tend to be more longer-term rather than quarter-to-quarter in nature..

Great.

And then do you think that there'll be any additional – or do you think the lag between when the derivatives and the crackers come up this cycle will be materially different from kind of a normal six-month period?.

Yeah, I think next year, it seems that some derivatives may come earlier than the cracker start-ups, but ultimately that'll catch up in 2018. So if there is a lag, it's a six to nine month sort of lag..

Thank you very much..

Thank you. Our next question is from Aleksey Yefremov of Nomura Securities. Your line is now open. You may ask your question..

Good morning. Thank you.

In propylene oxide business, would you describe the decline in margins as temporary, and do you expect to pass through higher costs of propylene in the near-term?.

Hi, Aleks, this is Doug. Yeah, I think what you're seeing in propylene oxide is you saw propylene price movements; and it takes a little bit of time to move that through particularly the derivatives. So we'll see how propylene responds this quarter.

But I think it's temporary, and as we've said in the past, propylene oxide business tends to be a very stable business, overall. But you are going to see quarter-on-quarter movements, particularly with raw material changes like that..

Thanks, Doug. And in O&P your year-over-year, the benchmark integrated margin for polyethylene is quite a bit lower, and yet your EBITDA is higher.

How will you explain this?.

Yeah. So first of all, I think our results, Aleksey, in Europe are reflective of strong global operating rates. We talked about that earlier.

That markets are pretty well-balanced, and for us, our sense is that, the operating rates in the region have increased significantly, demand is growing at 1% to 2% per annum, there's really not a lot of capacity growth. In our case we have – we're running at pretty high utilization rates.

So that in part could explain the difference versus benchmarks as just – with the exception of planned maintenance, we've been running pretty full in Europe..

Great. Thanks a lot..

Thank you so much. Our next question is from David Begleiter of Deutsche Bank. Your line is now open. You may ask your question..

Thank you. Good morning..

Good morning..

Bob, just looking at polyethylene margins into 2017, as you know they're bringing on capacity either new or previously shutdown.

Do you expect and how do you expect ethylene markets to trend, I guess likely down over the course of the year?.

Of ethylene or polyethylene, David?.

Of polyethylene. Polyethylene..

Okay. Well, I think we'll have to kind of see how demand develops and how oil prices develop, and so on. But certainly, Asian demand is growing to the extent that new capacity likely will be exported.

So our sense is that, certainly through the first half of the year there's not a lot of new capacity, more of the new capacity which is in the second half of next year. So we'll just have to see how that develops. But our sense is that Asian demand is growing at a pace where that production will be needed overseas..

Very good. And Bob, just on M&A and buybacks going forward, how is the M&A pipeline, and how are you thinking about – I think you said you've purchased about $15 billion of stock since 2013.

Is the focus weight now a little more towards M&A going forward?.

Well, no. Our cash deployment hierarchy that we've shown you in our prior IR materials is relatively unchanged. What I would say is that, in terms of M&A, I think we're very clear about who we are. We know what we do well.

We understand, I think what it takes to safely, reliably and cost-effectively run large-scale assets that are kind of in our core businesses. So I think we deploy capital pretty well. So our intention is to patiently look for opportunities to apply these strengths and create more shareholder value.

So to the extent that those opportunities present themselves, and we can create meaningful value applying those strengths, then we would certainly consider those..

Thank you..

Thank you. Our next question is from P.J. Juvekar of Citi. Your line is now open. You may ask your question..

Yes. Thank you. You know, polypropylene spreads declined in the quarter.

Is that related to supply/demand? Or is there any substitution going on among different plastics?.

Yeah, I think part of that was propylene movements during the quarter. The other part of that, P.J., was that there were some imports early in the quarter that came in, but I think those were somewhat sporadic. It's more about propylene movements in the month. We still see pretty high operating rates in PP, here in the U.S.

with really not a lot of new incremental supply in the near-term..

And P.J., when you look across multiple quarters, you'll see that our results differ a little bit from the benchmarks. For example, in the second quarter, while the benchmark was off by, I think $0.05 to $0.07, we were down at $0.02. So a little bit of it's probably catch-up from that type of movement too.

But I think when you look across year-to-year, we're actually well ahead of the benchmark..

Okay. And then in polyethylene, polyethylene margins declined while ethylene margins went up.

So do you think there is any rebalancing of margins between the Olefins & Polyolefins meaning that margin is going back to olefins now?.

Well, I think, P.J., what you're seeing is, you saw the tightness in ethylene price moved up, while polyethylene was sort of moving sideways at that point in time. As turnarounds complete, we may see a little bit of loosening on the ethylene side.

So I think it'll just balance across, I think you're looking at kind of noise quarter-to-quarter, and of course, the goal is, we want to capture the chain margin..

Exactly. And, P.J., if you remember that the ethylene prices are much more regional, while polyethylene prices are more global in terms of how they're set. So spot price movements and the spot market is very thin in ethylene, so that has some influence..

Okay. Thank you for that..

Thank you..

Thank you. Our next question is from Duffy Fischer of Barclays. Your line is now open. You may ask a question..

Yeah, good morning, fellows..

Good morning, Duffy..

The chart, the updated forecast on page 16, pretty meaningful change.

Is your confidence in that great enough that that would change some of the ways you'd think about investing in the business, either building new capacity ahead of with a tighter outlook, maybe buying back more shares or increasing the dividend?.

Well, our investment plans haven't significantly changed. We've tilted to a bit more growth capital, and as you know, we announced at the last call that we would build a new polyethylene plant. So that project is now underway, and so we're systematically evaluating other opportunities as we look further out into the cycle. But no, no material change.

I think it's just a reflection of the reality of some of the delays that have been announced, and frankly ramp up schedules of these very large plants..

Okay. And then a follow-on question kind of on that same topic with the change in outlook there.

Does that materially impact your outlook for NGL pricing in North America?.

Well, I think it certainly provides for more ethane in the near-term and maybe even more rejection until some of these crackers come up. In the meantime, if oil prices incrementally rise, that should provide more ethane supply. Our view, Duffy, on ethane is relatively unchanged over the medium and long-term. We think that there's enough resource here.

Ultimately ethane has traded recently and will trade above its fuel value. Historical average has been somewhere around $0.07 per gallon. We think that's reasonable and that still affords the U.S., a reasonable advantage, vis-à-vis the rest of the world. So relatively unchanged.

I think as some of these crackers start up, there could be a bit more volatility, but over the long-term, we think there's enough ethane here..

Great. Thank you, guys..

Thank you. Our next question is from James Sheehan of SunTrust Robinson Humphrey. Your line is now open. You may ask your question..

Morning.

Could you discuss the impact of coal-to-olefins projects in China in terms of your global supply/demand view of ethylene?.

Yes, James. Some of those projects have already been canceled, and I think that's partly what's reflected in the IHS numbers. Because of the availability of water, environmental impacts, capital costs; so we continue to watch that. Our sense is that more could be delayed, and that the capital costs could be prohibitive as well.

So that certainly adds to the operating rate increase in the latter years that we show in our materials..

Great. And looking at Europe, the spreads of polypropylene over propylene have narrowed considerably of late.

Do you think that's a trend that continues in 2017?.

No. I think that's just kind of in-quarter market volatility. If you kind of step back and look at operating rates in Europe, they are increasing. As I mentioned earlier, there's really no new capacity coming.

And if you think about in an environment where we have a relatively weaker euro compared to a couple of years ago, our customers are finding it more – they're more able to export competitively as well. So we see a pretty balanced market in Europe with a global strong operating rate overlay..

Thank you..

Thank you. Our next question is from Vincent Andrews with Morgan Stanley. Your line now open. You may ask your question..

Thanks very much.

Bob, if we made the assumption that you were successful in selling the refinery, could you help us a bit on what the tax leakage would be? And then what the use of proceeds would be? And how fast you would look to use the proceeds?.

Yes. Well, good morning, Vincent. I think it's little early to speak to the tax leakage, but I think, the operative word is if. And let's say if we were to sell the refinery, I think our aim is to replace the earnings over time.

First of all, you know that would have a increasing capital program where we're looking to grow organically; where we'll also thoughtfully and patiently evaluate other growth opportunities. Our aim over time, if you think about cash deployment and some balance sheet is to have a strong, stable dividend, a strong rating through the cycle.

And so we'll kind of balance all of that, but our aim is to replace those earnings..

Okay.

And it doesn't sound like the means to do that would be by reducing the share count? Or did I misread you?.

That wouldn't be the highest priority..

Okay. Thank you very much..

Thank you. Our next question is from Don Carson with Susquehanna Financial. Your line is now open. You may ask your question..

Thank you. Bob, you talked about the delays you've seen in crackers, and I guess associated derivative plants, which is obviously positive for margins next year.

But is there impact on you? I mean, is your polyethylene plants going to be affected by equipment and labor tightness that's leading to the delay in cracker construction?.

No. I think our polyethylene plant that we're just starting now on construction, it's phased such that the things that we need are – those things are already completed in many of these plants. So I think, we're well-positioned, we're still aiming for the middle of 2019 for start-up of that polyethylene plant.

And I think, we've really planned well for it. So we should be on schedule..

And then you said, you had about $205 million in outages in O&P Americas. I think your original estimate was $135 million.

Was it primarily volume that accounted for that difference? Or was it that, when you do have to go in the marketed and buy spot ethylene that have surged much more than you expected? Just wondering if you could kind of give a variance versus your original expectations?.

Yeah. That's a increase in the delay in the Corpus Christi expansion, and then frankly, just higher margins during the quarter..

Okay. Thank you..

Thank you. Our next question is from Hassan Ahmed of Alembic Global. Your line is now open. You may ask your question..

Good morning, Bob..

Good morning, Hassan..

Bob, one of the things that we saw over the last couple of months was a big spike up in Asian coal pricing, Chinese coal pricing. Now, obviously you guys produce ethylene, methanol, acetate, a bunch of these products that in some production degree rely on coal as the feedstock.

So could you give us a sense, looking at a variety of these products, where coal may potentially have an impact on pricing? Where it may not?.

I think coal pricing is still, if you think about marginal cost of production of ethylene or olefins in China, coal pricing is still relatively low. I still, think MTO is probably more of the price header than CTO, at these oil price levels.

As oil price rises, if it were to rise materially, then maybe naphtha would kind of crossover in a lower gas price environment. But I think coal, it's really more, as I said earlier, about the capital costs and the environmental impacts of coal-based chemical production that I think will continue to pressure new additions..

Understood. Understood. Now, as a separate sort of topic. On the styrene side of things. Obviously, we saw some slippage in pricing, margins seem to have been holding up quite well over the last couple of quarters. And recently, there was some price slippage, some margin slippage.

Should we extrapolate that trend? Or is it just a one-off and you see things sort of decently balanced in the styrene market going forward?.

Well, this time we've come off of pretty high levels. So if you look back historically, still where we are today, styrene margins are relatively healthy. If we can say that with styrene. So I still think that in the near term markets look to be reasonably balanced.

There will be some new capacity coming next year and the year after, which will incrementally add a bit more styrene into the market. But we're relatively constructive about styrene in the coming, let's say 6 to 9 months; difficult to see beyond that, frankly..

Fantastic. Thank you, Bob..

Thank you..

Thank you. Our next question is from (39:00). Your line is now open. You may ask your question..

Hi, there. I wanted to ask both advantaged cracking in Europe. I see that in Q3 last year, it was about 65%, and it's dropped to 52% in this quarter.

Is that a trend that you expect to continue that naphtha cracking actually has become more profitable?.

No. I think, it's just reflective of butane prices over there, this summer compared to last summer. So it's more about sort of individual feedstock prices. We still think that there's – LPG market should be pretty favorable for us and we also cracked some heavy condensates over there. So not a trend, I don't think..

And around 50% has been our typical advantaged feed level. So I'd say, it was just a typical quarter from that standpoint..

And the second question, when does your cracker in Wesseling start up in Europe?.

It will start up later this month..

Okay. Thank you..

Thank you. Our next question is from Jonas Oxgaard of Bernstein. Your line is now open. You may ask your question..

Morning, guys..

Good Morning..

I have a two-parter if you don't mind related, but – so returning to the coal prices in China, it makes carbide PVC less competitive. So my first part here is, what kind of impact do you think that could have for global utilization? And then the follow-up to that is, it also makes Chinese chlorine less competitive, and thus U.S.

caustic prices are rising. That in turn leading to the higher ethylene prices we're seeing in the U.S.

So do you think that trend will continue or do you have an opinion about this at all?.

Yeah. No. I think that's a very astute observation, certainly that will allow the U.S. PVC producers to export more competitively.

And frankly, I think that bodes well for the ethylene market here, because generally when you think about incremental sales of ethylene and then the stock market, that's kind of the incremental decision that gets made in our market here is incremental exports of EDC or PDC. And I think that should be net positive for U.S.

ethylene going into Q4 and Q1..

Thanks.

And on the global utilization, do you think ethylene is helped by this coal price in China? Or is that just a blip?.

No, I think it's helped. I think it's helped, and I think it'll have an impact longer term on new capacity, and what's being considered..

That makes sense. Thank you..

Thank you..

Thank you so much. Our next question is from John Roberts of UBS. Your line is now open. You may ask your question..

Great. Thank you. I think the refinery has been non-core for a long time.

Why would now be the right time to be having divestment discussions on the refinery?.

John, it's also – it's kind of a factor of opportunities and interest in the market. So I think, it's as simple as that. But again, I want to emphasize that, we see this as being, while it may be non-core, it's still a very high-quality asset in a great location. Very complex in terms of the crude slate it can process.

So we're very value minded in our consideration here..

Okay. Thank you..

Thank you..

Thank you. Our next question is from Steve Byrne with Bank of America. Your line is now open. You may ask your question..

Just following up on your comments a little earlier there, Bob, on your outlook for ethane supply, and pricing versus fuel value. Can you provide your outlook for propane in a similar context? And do you expect any meaningful shifting in your U.S.

cracker feedstock mix over the next one to two years?.

Yeah, I think first of all, propane and ethane will continue to compete for the feed slate in the U.S. We're continuing to invest in flexibility incrementally, but it's something that I have the team focused on, but I do think longer-term difficult to predict how these various feedstocks will develop and flexibility will be important.

So we view that as very strategically important to us. I think, propane is going to be abundant here, as wet gaskets develop, there's a lot of export capacity.

When you think about export costs, local consumption will still be favored, so there will be a good, healthy interplay between ethane and propane and the industry in terms of the existing cracker fleet, has a reasonable amount of flexibility, which should help to balance any kind of run up in ethane prices..

And just briefly on that, what would you – how would you characterize that feedstock mix right now?.

For us, or the industry?.

For you..

For us, I think, we mentioned earlier that about 87% or so of our ethylene was from NGLs, and about 70% was from ethane. So we're generally in the same ballpark today..

Okay. Very good. Thank you..

Thank you. Our next question is from Kevin McCarthy of Vertical Research Partners. Your line is now open. You may ask your question..

Yes, good morning, gentleman. Bob, many years ago when Lyondell gained control of the refinery and integrated the asset; one of the benefits that was touted was increased flexibility to move products across the fence or over the fence.

If you were to pull the trigger and divest the asset at some point; can you talk about your ability to preserve that flexibility? And maybe update us on what you're doing typically between the refinery and petrochemicals?.

Sure. Well, good morning, Kevin, and welcome back. We have connectivity between our Channelview site and the refinery, and then modestly with a couple of the other sites, but mainly between Channelview.

First of all, we transfer various products at market, so to the extent that there's pipeline connectivity and the Channelview site is the most logical sort of partner, then I think sort of the economic impact is really negligible. And that connectivity and the benefits of that connectivity should continue whether we own it or somebody else owns it.

So we review that very carefully, and we don't see any impact..

That's good to know. And then as a brief follow-up, sticking with the refinery.

Were you running at full rates in October? And do you have any thoughts on the explosion of the Colonial gasoline pipeline overnight that seems to be impacting gasoline markets at least here in the Northeast?.

Yeah. So in terms of rates at the refinery in October, we were not really at full rates. In Q3, we had a sudden power disruption, which was sort of an external impact. And generally, what happens with those is, you see kind of a knock-on effect. When you suddenly lose power, it creates a dislocation. It's similar to crackers as well.

And so, we've kind of discovered some of that after we recovered from the power outage. And I think we're just about there now. In fact today, the refinery is running at 250-plus thousand barrels a day. So – but we've been sort of ramping up, and we expect to stay there, frankly. In terms of the Colonial Pipeline, it's still pretty fresh news.

As of this morning we don't expect any material impact to our refinery or the operations there..

Thank you very much..

Thank you..

Thank you. Our next question is from just Jeff Zekauskas of JPMorgan. Your line is now open. You may ask your question..

Thanks very much. There's of course the first wave of new ethylene crackers, Dow, ExxonMobil, Phillips and Occidental. And they should all be on stream by the middle of 2018. But then there's a second wave, and the second wave is Formosa and Shintech and Sasol and Indorama.

Do you think a meaningful part of the second-wave capacity comes on in 2018? Do you think it's at least 50%? Or do you think it's really deferred into 2019?.

Well, good morning, Jeff..

Good morning..

I think some of those producers have announced new timelines. Difficult to say whether the others would be delayed or not, but I can tell you from our own experience of some of these debottlenecks, that we've done these projects in a very congested window, and they're very large, complex plants.

So it wouldn't surprise me, but I don't have any other information beyond what's in the press..

And then secondly, from the tenor of your comments earlier in the call, is it the case that your capital expenditures from say 2017 through 2020 may be more in a $2 billion to $2.5 billion band, rather than closer to $2 billion?.

Yes. I think we've indicated that in past calls as well. But Jeff, that's right. And we're with our polyethylene plant, that's already underway, and then, if we decide to go ahead sometime mid of next year on the PO/TBA project, those two are pretty large projects that will meaningfully add to our earnings power in the future.

So we would step up to above the $2 billion range..

Okay. Great. Thank you so much..

Thank you..

Thank you, speakers. Our next question is from Frank Mitsch of Wells Fargo Securities. Your line is now open. You may ask your question..

Yes. Hi, good morning. Bob, I appreciated the slide on the maintenance impact in 2016, and the much lesser impact in 2017. And you went through ethylene, and ethylene derivatives and Refining. I'm just curious in terms of I&D, I&D had been a really good segment for the company, very consistently above $1.5 billion EBITDA since 2012.

Obviously, 2016 slipping somewhat on a margin side.

Well, how should we think about the outlook for the I&D segment? And to get back to that $1.5 billion plus EBITDA?.

Well, I&D is still a very strong and somewhat stable contributor to our earnings. Frank, I think, we compare and contrast last year and this year, there's a few big drivers. First of all, in the oxyfuels area, our earnings are lower, long gasoline market, and then you see that in Refining as well. So that impacts oxyfuels.

Octane was a little more balanced rather than tight, so ramping-ins (51:12) were lower. And butane in the U.S. was higher priced compared to fuel value or oil price. So those all kind of contributed to lower margins in oxyfuels. We do think that, those certainly can reverse themselves next year.

I would say last year, butane trading at 35% of oil price in the summer, that was probably unusually low. And this year we've been on the high side. So I think that's one contributor. The other is methanol has come off some. Methanol was very different last year, new capacity coming. We've already paid for our restart.

So for us, our methanol asset is much more opportunistic, and a play on still cheap natural gas in the U.S. And then lastly, styrene margins are good, but they've come off of a really great year last year. So that's how I would kind of compare and contrast 2015 and 2016.

Oxyfuels, methanol, and styrene, and the oxyfuels being probably the most dominant of the three in terms of the change..

All right. That's very helpful. And then, not really much in the way, a delta, in the way of plant turnarounds or anything like that 2017 versus 2016 in the segment.

Is that correct?.

No, not really. No. Most of that is in the ethylene, in the O&P segments..

Terrific. Thanks so much..

Thank you..

Thank you, speakers. Our next question is from Arun Viswanathan of RBC Capital. Your line is now open. You may ask your question..

Great. Thanks. Good morning. Just wanted to understand, I guess, some of the impacts in Q3 in O&P Americas, the $680 million or so in EBITDA. It looks like you were impacted on the maintenance line around $180 million or so. So if we take that out, we would be closer up to $860 million.

So if we kept margins kind of where they were, is that a fair run rate going forward? And what would be kind of offsets to that?.

Yeah. I think, first of all, Arun, the – if you think about the impacts in the Olefins & Polyolefins in the Americas, we have two big crackers down.

Right, we had Corpus still down through the quarter as we're completing our de-bottleneck, and we had our Morris site, which includes derivatives, because we don't have ethylene connectivity or the ability the store ethylene up there. So when we do a cracker turnaround, we basically shut down that equivalent amount of polyethylene.

So that has kind of an integrated impact. The two together in the high $100 million, about $200 million, let's call it, range. So yeah, I think, you could add that back. On your question about run rate, I think you got to go back and look at, as you go forward, adjust that for whatever the market does in terms of margin evolution.

But certainly, that's all planned maintenance, that was not unplanned..

Great. And then just looking at Europe, similar question, I guess. You really reached a new level of earnings power in that business. Maybe, you can just give us your view on how you'd characterize your outlook there.

If oils kind of stays in this similar kind of $55 to $60 level, do you expect naphtha margins to get compressed? Or can you offset with increased condensate and other advantaged fuels? And so do you expect to still keep earning in a similar range? Thanks..

I think, Arun, in Europe, the earnings power is really related to, first of all, global operating rates being relatively strong, and regional operating rates have been ramping up in the last two, three years. We've been running full since about 2013, late-2013, early 2014.

So my sense is that, with demand still growing 1%, 2% a year, no new capacity and euro is now below $1.10. So our customers can export a little more competitively, and imports probably don't look as attractive to people from outside of Europe.

So all of that seems to me creates a very balanced market, and what's going to be important is for us to operate really well. And this year we have. Other than one turnaround in France early in the year that went a bit long, we've operated well, which has contributed to a really strong third quarter. We had strong volumes in Q3.

So I think Europe is going to continue to be pretty strong..

Thanks..

Thank you..

Thank you. Our next question is through Matthew Blair of Tudor, Pickering, Holt. Your line is now open. You may ask your question..

Hey, good morning. Thanks for taking my question. Just on your near-term PE outlook for the U.S., I think there's been some reports of potential contract price drops for November.

What are your thoughts in that area?.

Well, there's always seasonality in these businesses, and it is contract season in November/December for the next year. So we'll kind of have to watch and see how things develop. Our sense is that – and I think the publications have reflected, the prior $0.05 increase in Q3. And so, I think, we'll have to see how that develops.

But typically we see volumes come down a little bit seasonally in Q4, and there's a bit of competitive activity around contracts. So that's kind of normal..

Great. Great. Thanks.

And then, given your improving view on ethylene going forward, would you look to maybe ramp up the potential Channelview expansion? Or are you looking more to balance your Olefins & Polyolefin exposure in the Americas?.

Well, so implementation of those de-bottlenecks is also dependent on shutdown timing, and kind of how we layer in those capital projects. But for now, I want us to stay focused on executing these polyethylene projects that we've started, flawlessly get it on, on time. And I think in due course, we will do those the de-bottlenecks at Channelview.

And we may have the ability to bring those forward, but for now, we're going to stay with our plan through 2019 certainly to get this polyethylene project moving..

Thank you. I appreciate it..

Thank you..

Thank you. Our next question is from Nils Wallin at CLSA. Your line is now open. You may ask your question..

Great. Thanks for taking my question. I think that there is a fair amount of visibility on the capacity adds in 2017 through 2019 timeframe. But after that, there is limited capacity coming out in 2020 and 2021 as far as the consultants are concerned. So it would seem like this is the time now to start thinking about the capacity additions.

How are you guys thinking about potential capital projects in the next decade? And are you hearing anything outside of the U.S., perhaps in Asia, where margins are now sort of at reinvestment economics?.

Yeah. Yeah, I mean, I'll speak for ourselves; can't speak for others. But what I think about, Nils is, in terms of U.S., we need to first take a view on oil-to-gas. And again, as I said earlier in the call, I think the U.S. will have advantage, given the abundance of the resource we have here in natural gas, and fracking and so on.

But in a lower oil price environment and incrementally higher capital costs, to me it's not obvious that we would invest in a new cracker facility here in the U.S. in post 2020.

So first and foremost, we've got to take a view on oil-to-gas ratio, and even if capital costs come up some compared to this really sort of heightened period we've just been through, we're still at a level where returns, to me, they look marginal when you look at a $50 oil price, and let's say $3 gas, and in fact paying some premium over a fuel value, which I think it's reasonable to assume.

So I think all that still needs to be better understood before we as the company would take a view on the new project in the next decade..

That's very helpful.

And just on your, the revision to your operating rate outlook, does that materially change your view on profitability? I mean, we know that there's pretty good rules of thumb around oil, but if your operating rates go up 300 basis points, 400 basis points globally, do you have a view of what that could do to global profitability on a cent per pound basis?.

Well, I think – what we're trying to indicate is that, the cycle that's been talked about for the past year or two may be more muted than was expected, as we learn more about the timing of expansions and the actual operability of assets around the world.

And so with higher operating rates, Nils, we would expect that there is potential for higher margins. I won't give you a specific number today, but I would say that directionally, we expect markets to be firmer than we did a year ago. And the cycles to not be as deep or as broad as we might have thought a year ago..

All right. Thanks very much..

Okay, thank you..

Thank you, speakers. At this time we don't have any questions on the phone..

Okay. So I'd like to just close with a few comments before we conclude our call. First of all, I think we had a solid quarter despite two cracker turnarounds in the U.S. and some I&D planned maintenance. I think we're really well positioned to finish the year strong.

Our focus is to get the Corpus Christi cracker started up here in November, and realize the benefit of 800 million pounds of more capacity and to have that cracker back online.

With a very large planned maintenance here this year, next year, as we've outlined in our materials, we're going to meaningfully add to our volume, and I think we're really well-positioned for what we think will be very good markets next year as project timing has been pushed out.

And longer-term as we outline, we think that operating rates for ethylene globally probably shifted up a bit from our prior estimates, given ramp up time and start-up of new projects. So I think we'll continue to be well-positioned both near-term and long-term. So we look forward to updating you on our full earnings in February.

And thanks as always for your interest in our company. Thank you..

Thank you, speakers. And that concludes today's conference. Thank you all for joining. You may now disconnect..