David Kinney - Director of Investor Relations Bob Patel - Chairman of the Management Board, Chief Executive Officer, Thomas Aebischer - Chief Financial Officer, Executive Vice President.

Arun Viswanathan - RBC Capital Markets Steve Byrne - Bank of America Vincent Andrews - Morgan Stanley Don Carson - Susquehanna Financial David Begleiter - Deutsche Bank Kevin McCarthy - Vertical Research Partners Jeff Zekauskas - JPMorgan Jim Sheehan - SunTrust P.J.

Juvekar - Citi Frank Mitsch - Wells Fargo Securities Aleksey Yefremov - Nomura Instinet Hassan Ahmed - Alembic Global Duffy Fischer - Barclays Jonas Oxgaard - Bernstein John Roberts - UBS Bob Koort - Goldman Sachs Matthew Blair - Tudor, Pickering, Holt Dan Rizzo - Jefferies.

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. [Operator Instructions]. I would now like to turn the conference over to Mr. David Kinney, Director of Investor Relations.

Sir, you may begin..

Hello and welcome to LyondellBasell's fourth quarter 2017 teleconference. I am joined today by Bob Patel, our CEO and Thomas Aebischer, our CFO. 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 at 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 upon 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 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 available at www.lyb.com/investorrelations.

Reconciliations of non-GAAP financial measures to GAAP financial measures, together with any other applicable disclosures, including 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 2:00 P.M.

Eastern Time today until March 5, by calling 866-677-5199 in the United States and 203-369-3133 outside the United States. The passcode for both numbers is 6549.

During today's call, we will focus on the fourth quarter and full year 2017 performance, the current environment, our near-term outlook and then we will take a little time to provide you with an update on LyondellBasell's strategic progress.

Before turning the call over to Bob, I would like to call your attention to the non-cash lower of cost or market adjustments or LCM which we have discussed on past calls. As previously explained, these adjustments are related to our use of LIFO accounting and declines in prices of raw materials and finished goods inventories.

While no LCM adjustments were recorded during 2017, LCM did affect results for prior years. Comments made on this call will be in regard to our underlying business results excluding the impacts of these LCM inventory charges. With that being said, I would now like to turn the call all over to Bob..

Thanks Dave. Good morning to all and thank you for taking the time to join our fourth quarter earnings call. Let's begin with slide four and review the results we delivered during the 2017 and our progress in advancing our growth strategy.

During last year's fourth quarter teleconference, we described how our work in 2016 to complete both an unusually heavy maintenance schedule and 20% expansion program for our U.S. ethylene capacity would lead to higher volume in 2017.

Our team overcame challenges from capacity additions in our industry and obstacles from Hurricane Harvey to deliver significant volume improvements and an 8% increase in EBITDA. Our profitability resulted in an 8.4% free cash flow yield and capital returns that exceeded the company's cost of capital by more than three times.

LyondellBasell's shareholder returns in 2017 continue to surpass the strong growth of the S&P 500 and the S&P chemical index benchmarks. During our Investor Day in April of 2017, we outlined our ambitions to build on our strengths and skills by adding value through organic growth and a disciplined pursuit of inorganic opportunities.

Last year, we advanced organic growth by moving forward on two major greenfield capacity additions by expanding our global reach with a third compounding plant in China and by partnering with SUEZ on a venture for plastic recycling in Europe.

We improved our capabilities in readiness for growth with targeted investments in people to support increased activity for both organic project development and inorganic growth.

We also applied our strengths in operational excellence to drive improved reliability at our refinery while extending our legacy technical innovation within our polymer businesses. Our strong 2017 results have a foundation in our core values which include a fundamental commitment to top-tier safety performance. Turning to slide five.

Our safety performance during 2017 continued to be among the best in our industry. Our employees had fewer injuries than any prior year in the company's history. In addition to a lower number of injuries, we saw significant reductions in the severity of environmental and safety incidents across our company.

While I am pleased to see the improvements, we remain focused in our drive to capture the lessons learned from our experiences and work towards safety perfection.

In addition to the obvious benefits for our employees, contractors and communities, we continue to believe that a consistent focus on safety cascade benefits throughout the company's operations, reliability and ultimately our financial results. Slide six summarizes the improvements in our quarterly and annual results relative to 2016.

Fourth quarter 2017 income and earnings per share increased primarily due to an $819 million one-time, non-cash benefit from U.S. tax reform that increased earnings by $2.07 per share. The quarterly EBITDA profile in the bottom of the slide reflects typical seasonal trends for our industry, with stronger results in the second and third quarters.

Fourth quarter 2017 EBITDA benefited from volume and margin strength following third quarter inventory declines in the U.S. driven by Hurricane Harvey.

During our third quarter call, I mentioned that we would incur October impacts, primarily in our La Porte cracker from the effects of Hurricane Harvey and also that one of our German crackers incurred downtime during October. These events impacted fourth quarter results by approximately $100 million and $40 million respectively.

EBITDA increased by 23% for the fourth quarter relative to the same quarter last year and 8% for the year relative to 2016. Year-over-year EBITDA improvements were driven by improved margins and increased volumes following our investments in maintenance and growth during 2016.

Slide seven shows how our team delivered on volume improvements during 2017 with 23 of our plans around the world setting annual production records. With a lighter maintenance schedule than 2016 and the completion of our U.S. ethylene expansion program, our global fleet of crackers produced 13% more ethylene in 2017.

The improved monomer availability allowed us to run our equity derivatives at higher rates and increase polyethylene and ethylene upside volumes by 4%. Volumes could have been even higher if not for the disruptions caused by Hurricane Harvey.

Our focused maintenance and reliability efforts at the refinery increased 2017 throughput by 35,000 barrels per day, a 17% year-over-year improvement. I sincerely thank all of our employees around the world for their hard work and dedication in delivering these impressive results. And now Thomas will provide more detail on our financial highlights..

Thank you Bob and good morning to all of you. Please turn to slide eight which shows our fourth quarter and full year segment results. I am pleased to report that our Olefins & Polyolefins Europe, Asia and International segment achieved the fourth consecutive year of record EBITDA. In 2017, we show an EBITDA improvement in four of our five segments.

These results will be reviewed in detail during the segment discussion. As mentioned by Bob, fourth quarter results include an $819 million one-time, non-cash tax benefit related to the passage of U.S. tax reform in December. This benefited fourth quarter results by $2.07 per share and full year results by $2.05 per share.

Full year 2017 results also include a $106 million after-tax charge due to bond refinancing and the $103 million after-tax gain from the sale of our interest in the Geosel pipeline and storage system in France. Please turn to slide nine which provides a picture of our cash generation and use.

During 2017, we continued strong cash generation with $5.2 billion of cash from operating activities. Our capital spending was lower than anticipated for the year due to later timing for the final investment decision for our PO/TBA plant and the classification of certain project related spending as intangible.

During the first quarter of 2017, we took advantage of favorable markets and refinanced $1 billion of 5% notes due in 2019 with an equivalent amount of 3.5% bonds due in 2027. With this transaction, we also derisked refinancing risks in 2019. In the third quarter, Standard & Poor's raised LyondellBasell's senior unsecured debt to BBB+ from BBB.

Our strong cash flow allows us to finish 2017 with a cash and liquid investment balance of approximately $3.4 billion, approximately $1 billion higher than the year. Turning to slide 10, let's look at the evolution of our cash deployment over time.

Our strong cash generation has allowed us fund both value creating growth project and returns to shareholders. Over the past five years, we have funded $8.3 billion of capital investments. Approximately 45% of this investment was allocated to profit generating growth projects.

We have returned $22.9 billion through dividends and share repurchases over the past five years. We implemented our ninth dividend increase to $0.90 per share in the second quarter. Since the inception of our share repurchase program, we have repurchased approximately 189 million shares or approximately 33% of the initial shares outstanding.

At the end of 2017, we had repurchased approximately 6.5 million shares or 16% of the current 18 months share repurchase authorization that started in May 2017. On slide 11, I would like to describe our current understanding of how U.S. tax reform will benefit LyondellBasell. We have already mentioned the $819 million non-cash benefit for 2017.

This benefit arises from the remeasurement of our deferred tax assets and liabilities after new lower corporate tax rate. While this is a provisional estimate based on our current best understanding of the legislation, we do not anticipate any material adjustments over the coming year.

In the middle chart, you will note that a substantial portion of our global income is earned in the U.S. As a result, in 2018 we expect our global effective tax rate will be approximately 21%. We do not expect any material impact from deemed repatriation, interest deductibility limit or the base erosion provision.

As we do every year, I would like to address some of your 2018 modeling questions. Regarding capital, we are currently planning to spend approximately $2.4 billion during 2018. This spending level advances both our base maintenance and growth program. Approximately 55% is targeted toward profit generating growth.

The majority of this growth investment in 2018 will be dedicated to the new Hyperzone polyethylene plant and the PO/TBA plant. Although not all plants are finalized, we estimate capital spending to average $3 billion annually through 2022. Approximately 65% is targeted towards profit generating growth.

The largest individual growth project in this period is, as we have talked about, PO/TBA plant for which we obtained final investment decision in the first-half of 2017. Our net cash interest expense for 2018 is expected to be approximately $375 million. 2018 annual book depreciation and amortization should be approximately $1.2 billion.

We plan to make regular pension contributions in 2018 that total approximately $110 million and we estimate the pension expense of approximately $65 million. As I a mentioned before, we currently expect the 2018 effective tax rate of approximately 21%., the cash tax rate is expected to be higher for 2018 due to payments covering higher non-U.S.

income in prior years. With this, I will now turn the call back to Bob for a discussion of our segment results in more detail. Thank you very much..

Thank you Thomas. Let's turn to slide 12. In our Olefins & Polyolefins Americas segment, fourth quarter and full year results were supported by Hurricane Harvey supply constraints and strong global markets. Fourth quarter EBITDA was $784 million, $168 million more than third quarter. For the full year, segment EBITDA was $3 billion.

Relative to the third quarter, ethylene margins increased by $0.05 per pound. Despite some lingering disruption from Hurricane Harvey at our La Porte facility, our ethylene cracker operating rates remained strong during the quarter averaging 92%. 79% of our ethylene production was from ethane and approximately 87% came from NGLs.

In polyolefins, combined results improved by approximately $40 million. During the quarter, our polyethylene price spread over ethylene improved by approximately 40.02 per pound.

For the full year, results increased by $105 million primarily due to ethylene production volumes improving by 17% as we captured the benefits of our expanded capacity at Corpus Christi and the absence of planned maintenance.

Polyolefins results declined by approximately $70 million from the prior year as polypropylene spreads declined by approximately $0.05 per pound, partially offset by an increase in polyethylene spreads by approximately $0.02 per pound.

During January, IHS is forecasting a decrease in polyethylene margin with some improvement by the end of the first quarter. The U.S. Gulf Coast experienced unusually cold weather during the third week of January that caused disruptions across the industry.

Our assets were also affected and we currently estimate that these disruptions will reduce LyondellBasell's first quarter results by approximately $45 million, with approximately two-thirds in O&P Americas and most of the remainder in intermediates and derivatives.

In addition, we have planned maintenance on one of our two crackers at Channelview during the first and second quarter that is estimated to have a $100 million impact on results with approximately 50% of that occurring during the first quarter. Turning to slide 13. Let's look at the forecast for the global ethylene industry.

2017 results support our view of a relatively modest reduction in operating rates over 2018 and 2019. Industry project delays coupled with supply constraints from Hurricane Harvey and Chinese reforms have improved the outlook for the next couple of years.

Demand growth over the past six years has outpaced capacity growth resulting in extremely high operating rates, near 95% over the past two years. As new capacity comes online, operating rates will decline, however they are forecasted to remain in the mid low 90s.

Let's turn to slide 14 and review performance outside the Americas in the Olefins & Polyolefins Europe, Asia and International segment. During the fourth quarter, EBITDA was $356 million or $342 million lower than the third quarter. For the full year, EBITDA was our fourth consecutive record, $2.3 billion, a $215 million increase versus 2016.

Olefins results decreased versus the third quarter by approximately $100 million primarily due to lower margins resulting from increasing costs of raw materials. As I mentioned in our third quarter call, we had an unplanned outage at one of our crackers investment in Germany in October.

The value of lost production due to the upset impacted the fourth quarter by $40 million. Combined polyolefin results declined by $75 million as we experienced seasonal sales volume declines for both polyethylene and polypropylene. Olefins results for the full year increased by approximately $190 million over 2016.

Margins improved with increased ethylene price. With no planned maintenance in 2017, volumes increased following the completion of planned maintenance at two crackers in Europe in 2016. Our polyolefins results decreased approximately $50 million year-on-year, primarily due to decreased polyethylene spread over ethylene.

During January, markets were relatively consistent with demand improving after the holidays. Within the industry, five European crackers are scheduled to be in turnaround during the first half of 2018. Consultants are forecasting approximately 9% of regional capacity will be unavailable during the second quarter.

We will have planned maintenance on one of our European crackers in the second half of the year. Now please turn to slide 15 for a look at the improvement in our intermediates and derivatives segment. Quarterly EBITDA has been steadily increasing with fourth quarter EBITDA At $410 million or an $8 million improvement over the third quarter.

For the full-year, the segment generated EBITDA of $1.5 billion, a $157 million increase over 2016. 2017 marked a return to the historic levels we have typically seen for this business.

The fourth quarter reflected a net result of seasonal declines in oxyfuel margins and volume improvements in PO and derivatives and oxyfuels as production returned to normal levels post Hurricane Harvey.

During 2017, the $157 million increase in EBITDA was largely due to margin improvement in PO and derivatives and intermediate chemicals relative to 2016.

Oxyfuels and related products declined by approximately $60 million as volumes were restricted due to planned maintenance in the first half of 2017 and margins declined due to increased butane pricing. We expect to see continued strength in the market pulling into the first quarter of 2018.

The strength in styrene and methanol margins will help offset these low volume declines. Let's move to slide 16 for a discussion of our refining results. We have seen a positive trajectory in our operational improvement and margin capture in 2017. Fourth quarter EBITDA was $104 million, an improvement of $46 million from the prior quarter.

For the full year, the segment generated $157 million of EBITDA, an improvement of $85 million versus 2016. During the fourth quarter, the majority of the increased profitability was provided by a benefit from last in, first out or LIFO inventory.

Relative to the third quarter, crude throughput improved by 5,000 barrels per day to 245,000 barrels per day. The Maya 2-1-1 benchmark declined by $1.55 per barrel. However, we are able to capture margin improvement due to favorable heavy to light differentials in the crude oil markets. The cost of RINs increased by approximately $20 million.

During 2017, crude throughput averaged 236,000 barrels per day, up 35,000 barrels per day from 2016. The Maya 2-1-1 benchmark increased by $1.32 per barrel and averaged $20.56 per barrel.

The consistent improvement quarter-over-quarter and year-over-year in refining demonstrates our commitment to improve this asset's reliability and performance going forward. We look forward to stronger contributions from our refinery in 2018. Slide 17 might be familiar to some of you from our April Investor Day presentation.

In the time since our listing as a public company in 2010, we have established the culture, skills and systems required to build the next phase of value generation at LyondellBasell.

We continue to focus on the foundational elements of operational excellence, cost discipline and prudent financial stewardship that created significant shareholder value over the past seven years. We aim to extend our reach and apply these capability and strengths across a larger set of assets.

Let's turn to slide 18 and review the plans for our organic growth pipeline. Over the past year, we have described the progress of our new Hyperzone high-density polyethylene plant and our next PO/TBA plant. We also talked about two additional ethylene debottlenecks at Channelview, the first of which will start up in 2020.

Over the past year, we have also made selective investments in people to support additional project management and engineering teams to increase the cadence of these growth investments. Our pipeline of attractive projects is strong. It targets multiple value chains and our goal is to bring on new capacity that will grow EBITDA nearly every year.

Our teams are moving forward with preliminary engineering, planning and analysis for these potential projects to reach final investment decisions.

The initial projects to emerge from our pipeline include polypropylene plants in North America and Europe, build-or-buy scenarios for propylene monomer to support these expansions and an additional PE plant after our second Channelview ethylene debottleneck.

On slide 19, we have an update on the first project, our Hyperzone HDPE plant, which is under construction at our La Porte site which is near the Houston Ship Channel. As you can see in the photo, major components of the multi-zone reactor are already onsite and construction is proceeding on schedule.

The charts on the left provide more insight regarding our selection of high-density polyethylene for this project over other types of PE. With global demand growing at an annual rate of about 4%, the world needs approximately 12 new world scale, high-density plants over the three years from 2018 to 2020.

Linear low and low density PE serve smaller markets with demand growth to support only 10 and four plants, respectively over the same time period.

In addition, IHS is forecasting HDPE capacity additions equivalent to only seven new plants over the next three years, while linear low and low density appear to have some excess capacity in the short term. We believe that our new Hyperzone HDPE capacity is well timed to capture growing market demand with a projected startup date in mid-2019.

Slide 20 provides some perspective on the drivers for expanding our global polypropylene business. In 2017, global demand for polypropylene was approximately 150 billion pounds and growing at an annual rate of approximately 5%. Unlike the ethylene chain, no region has a clear feedstock advantage across propylene derivatives.

After many years of industry capacity rationalizations and very little expansion, we are confident that new capacity is needed in both North America and Europe.

With approximately 17 billion pounds of global polypropylene capacity across our JVs and wholly owned plants, our leading position in PP technology and catalysts and almost three billion pounds of downstream polypropylene compounding capacity, we believe our company is uniquely positioned to capture this opportunity across the value chain.

In addition to building new assets, we continue to drive improvement on our existing asset base. Turning to slide 21, I would like to highlight the great work by our team at the Houston refinery in improving the reliability and profitability of this asset over the past year.

2016 and the first quarter of 2017 were difficult times for our refinery due to high levels of both planned and unplanned maintenance downtime. I am pleased to say by rededicating ourselves and applying our deep institutional knowledge of operational excellence, the team achieved great improvements in our refinery performance in 2017.

The refinery achieved near nameplate crude throughput to capacity during the second quarter of 2017 and maintained strong operations for the remainder of the year despite challenges of Hurricane Harvey. Widening light-heavy crude differentials, coupled with strong diesel demand, has improved the market outlook for 2018.

In early 2017, our refinery completed the investments needed to meet the new Tier 3 gasoline sulfur specifications. As one of the largest heavy sour coking refineries in the U.S., LyondellBasell's refinery is well positioned to benefit from the new International Maritime Organization regulations that reduce the amount of sulfur in marine fuel oil.

Refining consultants believe that these regulations could add several dollars to the Maya 2-1-1 refining benchmark, which could translate into hundreds of millions of dollars in additional profitability at our refinery.

While we await implementation of the IMO regulations at the start of 2020, our refinery continues their trajectory to improve reliability and capture increased profitability.

LyondellBasell's portfolio of refining and commodity chemical businesses have demonstrated resiliency across a dynamic environment, changing feedstocks, feedstock cost and economic conditions. Slide 22 provides a perspective on the elements behind our results.

LyondellBasell's two global O&P segments generated somewhat complementary results over the past five years.

When Europe, Asia and International experienced higher naphtha feedstock cost during the periods of elevated crude oil from 2013 to 2014, the Americas segment continued to benefit from low-cost, shale-based NGL feedstocks and realized higher margins due to the upward global pressure on polymer pricing.

Conversely, the naphtha-based EAI segment improved margins under relatively low crude oil prices since late 2014 while American margins compressed. The complementary results provide a relatively stable earnings profile in the upper left chart, generating an average EBITDA of about $5.2 billion across our global O&P segments.

The more diverse portfolio of businesses within I&D, refining and technology, depicted in the upper right chart, also produced a stable earnings profile with an average EBITDA of approximately $2 billion.

Our strategy aims to build upon the consistent overall results depicted on the bottom chart by continued growth and optimization of this business portfolio. LyondellBasell continues to generate substantial cash flow and on slide 23, an illustrative chart describes our strategy for allocating these resources towards value-driven growth.

The foundational priority of our strategy is ensuring that our existing assets continue to operate safely, reliably and profitably through investment in maintenance capital. Next, we gradually increased our dividend yield since 2011 to achieve a top quartile level among our peers.

We have committed to a progressive dividend that is sustainable through business cycles. As we built our project execution capabilities over the past five years, we have increased our investment in profit generating growth projects.

As I discussed, we are increasing the cadence of this investment toward a more consistent growth profile targeting multiple value chains. Since 2013, we have allocated the remainder of our cash flow and some incremental borrowing toward our $16 billion of share repurchases.

The incremental borrowing was part of our debt recapitalization and optimization that ultimately reduced our cost of debt. We do not intend to borrow further to support repurchases, but continue to believe that our shares are undervalued relative to our peers. As such, repurchases will continue to play a role in our capital deployment strategy.

Finally, we maintain a strong balance sheet to preserve our capability to pursue any compelling and accretive inorganic growth opportunity that may arise at various points within business cycles. At the same time, we remain committed to maintaining the flexibility afforded by our investment grade credit rating.

As shown on slide 24, our thinking around inorganic growth continues to be focused on targets where the application of our strengths and skills can add value. As we outlined during Investor Day in April of last year, these opportunities typically overlap, extend or stood adjacent to our existing footprint in petrochemical process industries.

Let's turn to slide 25 and briefly consider the opportunities afforded by our rich history of innovation. LyondellBasell is the global leader in polypropylene compounding with almost three billion pounds of capacity at our JV and wholly owned plants in 18 locations around the world.

This business develops innovative materials for interior, exterior and underhood applications that enable manufacturers to reduce vehicle weight by substituting polyolefin compounds for heavier and higher cost metals and engineering resins.

Our group works closely with both manufacturers of internal combustion engine vehicles and new electric platforms to pursue improved performance, fuel efficiency for EV range. LyondellBasell's compounds have a leading position with many vehicle platforms, including the Tesla Model 3.

Compounding is a natural extension of our polypropylene value chain from technology to catalyst to polymer to colored compound. Another example of our innovation capability is our new HDPE plant which will be the first facility to deploy our new Hyperzone technology.

This represents a new application of a technology originally developed for polypropylene that differentiates and improves the properties and capabilities of polyethylene.

Our Hyperzone technology improves the value proposition for our customers by offering the potential for improvements in processing efficiency and weight reduction while maintaining strength and durability. I would also like to highlight our recent announcement to partner with SUEZ to manufacture premium recycled polyolefins.

While small in scale, the venture answers an increasing call from many brand owners to source a portion of their polymer demand from recycled materials. We look forward to clearing regulatory approvals and closing the acquisition in the coming weeks. In summary, let me distill our strategy to a few guiding principles depicted on slide 26.

We understand what drives our core advantages and we will continue the benchmarking and continuous improvement that extends these leading positions. Our company has a resilient portfolio of businesses that can leverage geographic, feedstock and market diversity to achieve superior results.

Our increasing focus on growth will be guided by advantaged positions and where LyondellBasell's strengths create tangible value. The financial strategy is underpinned by assigning strong value and commitment to our investment grade credit rating.

The aim of all of this is aligned with you, our owners, towards the delivery of consistent, top quartile shareholder returns. Finally on slide 27, let me summarize our 2017 results and outlook. The hard work of LyondellBasell's employees drove volume improvement that captured opportunity in a strong global market. U.S.

tax reform increased 2017 [ph] earnings and will continue to provide benefits for the company in the coming years. In 2018, we look forward to continuing the trajectory of improving reliability and profitability at our refinery while pursuing our strategy of value driven growth. Before we open the line for your questions, please turn to slide 30.

In March, we will again be holding a reception here in Houston for those of you who will be in town attending conferences that week. We will begin late in the afternoon on Wednesday, March 21 at our usual location, near our offices and the IHS conference venue.

The reception will allow you time to interact with members of our executive leadership team. Please watch your e-mail for invitations or contact Dave Kinney for further details. With that, we are now pleased to take your questions..

[Operator Instructions] Arun Viswanathan from RBC Capital Markets, you may go ahead..

Great. Thanks. Good morning..

Good morning Arun..

First, on your ethylene and polyethylene outlook. On slide 13, you show an excess of seven billion pounds over the next couple of years for a 2% drop in operating rates. And you also mentioned that IHS has margin declines forecasted for January. But other consultants have actually settled January flat.

The industry has a $0.04 per pound increase for February.

So how do you expect these declines to play out? Is it more second half of 2018 phenomenon? And is there a possibility that delays in demand upside would result in limited price to margin compression over the next couple of years?.

Yes. So Arun, as we finished last year, the market still were quite balanced or tight as there was some recovery from the Harvey effort. Incrementally, the weather here in Houston in January did impact production, including ours, as I mentioned.

So our sense is that the backdrop is perhaps even a little bit tighter than what folks had depicted when some of those publications came out.

And if you will recall, in our third quarter earnings release, I had described that typically in a given year, given seasonality in our business, most of the growth in a year happens in the first week orders of the year. So I suspect that we are going to have pretty firm market conditions through most of this year.

And we will look for perhaps some weakness in Q4 when demand seasonally declines..

Okay. Thanks. And just as a follow-up, maybe you can just discuss your strategic priorities a little bit. There was limited buyback activity, it appears, in Q4 and Thomas mentioned M&A.

So what are you thinking there? What are you seeing there? Is there any kind of time frame as to what you would want to get something done? Or how is that playing out? Thanks..

Yes. So first, I would say, Arun, I wouldn't tie the two together. As I mentioned during my prepared remarks, when we think of our cash deployment priorities and our hierarchy, share repurchases continue to be firmly a part of that plan.

So maybe I will turn over to Thomas to describe some of the tactics around how we engage in our share repurchase program to better explain how we go about things.

So Thomas?.

Thank you, Bob. So we finished the year, obviously, very strong. We had a strong quarter. We had real strong cash generation in the fourth quarter. And as I have mentioned, the balance is $3.4 billion of cash, which actually is also very well balanced when you look at it from a business perspective. We have about 44% of our cash in Euro and 49% in U.S.

dollars and very equivalent of how we are actually running the business. So we are very deliberate how we manage that position. In terms of your question on share buybacks, as Bob has mentioned it, that we have an existing program. In May 2017, we approved another 10% of share buybacks.

Out of that program in 2017, we have bought back about 16% of that particular program. The intention clearly is in our next AGM to get an approval of an additional 10%. So having said all this, you also saw that in the fourth quarter, we have not had any shares purchased. But that's mainly related to the strategy. We have 10b5-1.

You know how the process works. We are opportunistic and buy back opportunistically our shares. We commit on that 10b5-1 to a grid. The share price traded throughout the fourth quarter outside of that grid. That's virtually, in a nutshell, the explanation. But we are committed that this is one of the cash allocation strategic positions..

[Operator Instructions]. Steve Byrne from Bank of America, you may go ahead..

Yes. Thank you. Just wanted to drill into your views on these Chinese reforms.

How much polyolefin capacity in China do you believe has been curtailed in recent months due to some of the government initiatives there?.

Yes. Good morning Steve. I don't have a firm number on that. But I think there's been some impact in addition to the reduction in some of the recycling.

So if you step back and look at polyethylene supply/demand growth and kind of look globally, from 2017 to 2018, we are expecting that PE capacity is probably going to grow about 5.6% on a nameplate basis and HDPE is going to grow 4.1%, which is about equivalent to its growth rate annually.

So whether it's Chinese reforms, weather related issues here, I think all of it kind of nets out to very balanced market conditions for the foreseeable quarters and that we don't see this supply excess as being significant. And we are starting at very high operating rates.

So I think all these things you mentioned, they all have incremental impact on that supply/demand balance..

Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. You may go ahead..

Sorry. I was on mute. Thank you. Bob, I haven't heard you talk about feedstock prices, ethane, in particular and sort of what the outlook is for that as we move through 2017, maybe particularly given now that we have a nice high oil price and maybe some more associated gas production.

So not to lead the witness, but what's your outlook for ethane for the year? Or maybe for next year?.

Good morning Vincent. So ethane kind of followed gas prices here recently. When you step back and look at the numbers, the last number that we have they had been published in November and it had the production of ethane was kind of the order of 1.6 million barrels per day, consumption was about 1.3 million barrels per day.

So we still have more ethane production than demand. And this is in a backdrop where propane and butane weren't really in the mix because they were quite expensive.

So as we move through this year and as propane and butane prices moderate, I think that, combined with more ethane coming to market with new fracs and new pipelines from the Permian, we continue to believe that there's enough ethane nearby the Gulf Coast to supply the new crackers that will come online.

And if anything, as you mentioned, higher oil prices will likely increase the output of ethane, especially from the Permian. So we are watching it, but we continue to believe that ethane supply will be sufficient, if not in excess, as we move through the year..

Thank you. Our next question comes from Don Carson with Susquehanna Financial. You may go ahead..

Yes. Thank you. Bob, a question on some of your growth plans. You mentioned that you are looking to secure more propylene. Can you sort of define how much you are looking to secure? And what would be the format? I notice you put a PDH plant on there.

And while you have some experience running those in your joint ventures, PDH certainly hasn't been the most reliable way to source propylene lately.

Would you look at another metathesis unit? Or what other options do you have on the table?.

Well, I think, for us, very frankly, PDH would be the leading case because with the metathesis it's sort of an optimization tool that we have. And it doesn't always run full. It depends on propylene relative to ethylene price. And I think some of the challenges that you mentioned on PDH is a couple of things.

One is, some of the most recent PDHs are the largest of their kind that have ever been built. So that brings complexity by itself. And much like ethylene crackers, that could take a bit of time to kind of iron out some of the bugs and work through on some of the startup issues.

But the way we are kind of thinking about this is that we are a fairly significant buyer of propylene and if it's really kind of a make versus buy decision. But I see us as continuing to be a merchant buyer of propylene even if we were to build a world-scale PDH plant. And in terms of operability, that wouldn't hold us back from considering PDH.

I think it's just uniqueness because of the first and second of this kind in terms of scale that are being built today..

Thank you. David Begleiter from Deutsche Bank, you may go ahead..

Thank you. Good morning. Bob, on your slide 18, detailing your cadence of new investments, I am struck by the lack of a new ethylene cracker. You only have a small expansion over the next eight years. And given your positive view of U.S. ethylene, why isn't there a greenfield ethylene cracker in the longer term horizon? Thank you..

Yes. So David, we run early with our debottlenecks and so we focused quite a bit on ethylene over the last four, five years and so really now our focus is to consume more of that ethylene internally and convert it to polyethylene. I think we are still going to be a merchant seller of ethylene, but likely less so than we are today.

So when I think about sort of the opportunity set in front of us with more polyethylene potential given the amount of ethylene we have, a PDH polypropylene here, perhaps PP in Europe, continuing to execute our PO/TBA, I think we have many other high return opportunities before we would consider a new cracker.

I do think at some point we will undertake the analysis on that and it's just more a matter of phasing. And also I like the fact that our organic growth program is targeting multiple value chains. So we have ethylene, polyethylene, propylene, polypropylene and propylene, PO/TBA.

So it gives us some diversity, if you will, as well in terms of our growth program..

Thank you. Kevin McCarthy from Vertical Research Partners, you may go ahead..

Yes. Good morning. Bob, with regard to the refinery, each quarter improved as 2017 progressed. Meanwhile, with the reduction in tax rate, one would think that separation could result in a lower tax bill than you might have thought last time around.

So in that context, can you update us on your strategic thinking as it relates to the refinery?.

Yes. Good morning Kevin. Our focus has really been on improving the operation. We know we can run better and we demonstrated that last year. In fact, it was one of the few assets that ran through the hurricane even if at reduced rates. So we are firmly focused on that. We see the IMO opportunity getting closer.

There's a wide-ranging set of views around how it will impact light-heavy differentials, but this is a really premier asset with significant scale and in the amount of sour crude processing capability and coking capacity we have. So we are just going to focus on running it reliably and let's see what this IMO opportunity brings.

We think there's some upside. And as the year progresses and we get towards the end of the year, I think we will have even more visibility about the magnitude of that upside. So frankly, that's our focus today..

Thank you. Our next question comes from Jeff Zekauskas from JPMorgan. You may go ahead..

Thanks very much. Just have a two-part question.

The first is, how much does your cash tax rate go up in 2018? And what happens to the cash tax rate in 2019? And secondly, in table 11, you isolate your pension settlement charge for the fourth quarter of 2016 of $58 million, but I think you took a charge of $20 million this quarter but you haven't isolated that as an item.

Why is that?.

Thanks for the question on the tax rate.

So the cash tax rate, as I have said in my prepared remarks, for 2018, we expect, if you start with an ETR of 21%, the guidance we have given, the rate from that guidance of 21% will be effective tax rate on the cash tax rate we are expecting somewhere in the area of three to five percentage points higher cash tax rate.

The reason why this has mainly to do with taxes into some of the European countries, especially Germany, now where we pay actual taxes now in 2018 taxes for years of 2015, 2016 and also 2017. So that's the main driver for the higher tax rate. Obviously, your question is absolutely correct.

Now looking to future years, 2019 and the years beyond that, we expect the cash tax rate to be clearly below the 21%. So 2018 is an exceptional year due to the reasons I have explained and in 2019 and years thereafter, cash tax rate below the 21% of ETR. And on the pension charge, yes, that's correct.

So we had a pension charge in December of 2017, also related to Germany, the reason for that charge was it's a multi-employer pension plan. And we had some of it is due to reduction of the discount rate that impacted it.

And we also had pension settlement charges where we took advantage from lump-sum payments in 2016 and you have mentioned that correct amount too..

Thank you. Our next question comes from Jim Sheehan with SunTrust. You may go ahead..

Thank you.

Moving to EAI, can you talk about how MTO dynamics are impacting you in China and I guess also in intermediates and derivatives? And related to that, could you talk about the naphtha price outlook and your use of advantaged feedstocks in Europe going forward?.

Yes. So good morning Jim. On MTO, certainly, given where global operating rates have been in ethylene, MTO continues to be the last increment of supply for Asia and therefore for the rest of the world. And you can see that evidenced in ethylene prices over in Asia.

And to the extent that there's a delta between that and naphtha based cost, it certainly affords EAI a reasonable margin in terms of ethylene. And you rightly point out the tie to our intermediates business. As there's a call on the methanol, we see methanol values rise and margins rise. So there's a dual benefit for the MTO being in the money.

As we look into 2018, our sense is, given that operating rates are so high that during seasonally strong periods, likely MTO is still going to be needed in a very meaningful way. And so I would expect that continue..

Thank you. P.J. Juvekar from Citi, you may go ahead..

Yes. Hi. Good morning..

Good morning P.J..

Bob, on slide 13, you show your effective operating rates remaining close to 95% through 2020.

My question is, can the global system run at 95% effective rate day-in and day-out, given the age of the plants, et cetera when we just saw that temperatures dropped in the Gulf Coast and the six plants went down? So where do you think global system can run sustainably? Thank you..

Yes. Thank you, P.J. I think at these levels, it's been difficult to sustain. And as you think about new, very large crackers starting up, much like I described with PDH, there's a lot of challenge in the ramp-up. They are very, very capable companies who have undertaken these expansions, but they are very complex process units.

And so I suspect, as we have seen in the past when operating rates have been this high or stayed this high, markets are very sensitive to small unplanned outages as there's not enough margin. So I think the consequence is, first of all, MTO will be needed more consistently.

Secondly, you could see a propensity for ethylene prices to rise when there's some unplanned downtime. And so we will just kind of have to watch that. But that's been our point the last couple of years that we don't really see a large drop in the operating rates.

And when you are in the mid-90s like we are today, even if you are at 93% for a year, during seasonal peak periods, you are actually running in the upper 90s. So we consider that to be a very tight market..

Thank you. Our next question comes from Frank Mitsch with Wells Fargo Securities. You may go ahead..

Good morning gentlemen..

Good morning..

I wanted to follow-up on the share buyback. I just wanted to make sure that I was understanding this correctly. So you set up a 10b5-1 plan so that you can buy back stock regardless if you were in possession of material nonpublic information. And it was predicated on where the share prices were trading.

And you set that price at a level where you were interested in buying the stock was lower than where the shares were trading throughout Q4.

And so that's why there was no shares bought back during the quarter?.

Well, so Frank, what we do is we, Thomas and I, sit together and we kind of look at where the current share price is, what's our expectation for cash flow and we set up a grid that, again, allows us to accomplish our objective of being opportunistic. And then we let that run its course.

And then again, as we are doing currently, we are evaluating the next 10b5 plan. So yes, generally, you are correct..

And our next question comes from Aleksey Yefremov from Nomura Instinet. You may go ahead..

Thank you. Good morning everyone. Bob, you mentioned that CapEx would have about $3 billion through 2022 per year. So you are starting with $2.4 billion this year.

How do you imagine the ramp? And as a second part of this question, does this $3 billion average assume that most or all of the projects on the slide 18 actually get executed?.

Yes. So the ramp will be in 2019 will be pretty close to $3 billion and in 2020 will be at $3 billion or a little above. It assumes most of those projects go forward, yes. And what drives that number today is our PO/TBA project is a fairly significant investment.

So as we get into the construction and sort of the peak of the spending for that project, which will be 2019 and 2020, that drives those numbers. And then you will see those come off in 2021 even though we are going to continue with these other projects. The PO/TBA project by itself is pretty significant..

Thank you. Our next question comes from Hassan Ahmed from Alembic Global. You may go ahead..

Good morning Bob..

Good morning..

Obviously, we have seen propane prices going up recently. And obviously, they have taken up propylene prices as well.

So my question to you is, on the naphtha-based ethylene margin side of it, do you see this being a sustainable sort of boost for naphtha-based ethylene margins, number one? And number two, how should we also think about this as an input for you guys on the polypropylene side of things?.

So first of all, Hassan, I think part of the driver for the polypropylene price increase has been some of the challenges on startup of a couple of very large PDH units here and one of those companies is a merchant seller of propylene. So I think that's been a pretty significant driver of propylene prices in the very near term.

Propane prices coming up certainly contributed to some of that. I think propylene, as it has been recently, will continue to be somewhat dynamic in terms of price.

And it doesn't really affect our thinking in terms of our new polypropylene plant because if you think about if we do build PDH and we are thinking about propane to polypropylene essentially and if I think around the propane side of that equation with the Permian ramping up, more ethane, more NGLs, we think there's going to be lots of propane.

And we think that the PDH-based polypropylene can be economical here in the U.S..

Thank you. Our next question comes from Duffy Fischer from Barclays. You may go ahead..

Yes. Good morning. A question just around the M&A opportunity. The projects you show come in somewhere around four to five times EBITDA. You guys trade a little bit over seven. It doesn't look like there's anything in the market that would kind of sell in the private market anywhere close to that.

So if you do a deal, what should we expect to see from an EBITDA multiple? And then would it be higher than where you trade then with synergies you get lower? Or do you think you can actually buy stuff that's cheaper than your multiple currently?.

Duffy, the ultimate goal is about value creation for the long term. And I know those words are easily said. But look, I will tell you, we are focused on that. When we think about whatever it might be and we think about synergies, we think about cost, operational synergies.

And I will tell you very frankly, we are well positioned today with our cash position, with the balance sheet and so on. I don't feel that we have to go do something right now. You are going to see us continue to be patient, be value minded and think about how do we apply our strengths to create value.

And the kind of position we have today, it affords us a lot of flexibility going into whatever sort of market environment exists. So I don't feel the urge that we have got to go out and do something because we have all this flexibility. And I don't think you should expect that that is going to change anytime soon. We will again be very value-minded..

Thank you. Jonas Oxgaard from Bernstein, you may go ahead..

Hi. Good morning guys..

Good morning..

Bob, you were talking about the supply, but can you talk a little bit on the demand side? It looked like demand was surprisingly strong last year and now with the impact of Chinese recycling, it looks even stronger.

What are you seeing in the marketplace? And how are you thinking about it for the next year or two?.

Jonas, we are seeing very good demand at the moment. And if you think about last year, especially in the U.S. with first of all, in polyethylene in a tight market had a very, very strong year because of more onshore oil and gas drilling and so on. Industry exports actually declined significantly in 2017 from the U.S.

And certainly for our company, they declined dramatically. So if you assume that global demand for high-density polyethylene, for example, grows at 4%.

Typically, given that there's a lot of packaging and things that are more nondurable in nature, I actually think that there's a potential for even higher growth catching up from last year's constrained environment from a supply standpoint.

And from the U.S., because we had to cut back so much on exports, I think getting back to more traditional or more recent averages on exports in the U.S., that creates demand for U.S. based production. So I am quite constructive.

And as I cited some of those statistics, supply growth for high-density polyethylene is about 4%, 2017 to 2018 and demand growth, I think, should be at least that. So I think we are going to see pretty good conditions..

Thank you. Our next question comes from John Roberts with UBS. You may go ahead, sir..

Thanks. Bob, the next wave of shale-based chemical investments, whether in the olefin or methanol chains has a number of projects that have been sitting on the shelves.

Do you think the current expensing of CapEx that begins next year will cause some acceleration in the groundbreaking of the projects industry-wide? Or do the lead times required and engineering constraints just make that unlikely?.

Yes. So John, it's a great question and one that I have been asked in different forums. I can't speculate what others will do, but I will tell you how we are thinking about it. I continue to encourage my team to think about the investment logic and sort of why we would build something. And I think tax reform, it might add to returns.

It's not the reason to undertake organic growth because it could change frankly. And as you rightly point out, the cycle is somewhat long in terms of building.

So from LyondellBasell standpoint and from my standpoint, there's got to be solid investment logic and we would think about undertaking this investment in the prior tax regime or in the new one. And so we will have to see how that plays out.

But even if some of the capital spending increases, we are probably looking at five years from now or so before we see capacity hit the market..

[Operator Instructions]. Our next question comes from Bob Koort with Goldman Sachs. You may go ahead, sir..

Thanks very much. I appreciate you guys going long to get the questions in. Bob, your large North American peer opined yesterday that maybe this Chinese recycling ban wasn't really going to affect virgin PE growth rates and that scrap might end up somewhere else and get reprocessed.

Have you seen any impact from that at all or do you think it's not really that relevant in the grand scheme of things?.

Well, I think, Bob, in the near term, we haven't seen anything, but I do think that some of it will get dislocated and move to other countries. But that takes time and there's a bit of a space or a lag in between what's happened in terms of regulations in China and where that product shows up.

The other thing I would mention is that, I think globally there's more scrutiny on the quality of recycled resins. So I think it probably provides some tailwind here in the next 12 to 18 months until that ends up somewhere else or a part of it does. And that's the period where we are seeing more capacity.

So I think directionally, it probably still helps us..

Yes. Bob, I think you have to consider that the recycling industry in China took nearly a decade to build up. And so that won't happen overnight somewhere else. Thanks..

Thank you. Our next question comes from Matthew Blair with Tudor, Pickering, Holt. You may go ahead..

Hi. Good morning. I just wanted to gauge your interest in the idea of ethylene exports out of the U.S. Your long ethylene and U.S. ethylene trades at a discount to other regions.

So I guess, how do you weigh the advantages of a long-term shipping commitment for ethylene versus the option of building out more ethylene derivative capacity?.

Yes. Good morning Matthew. And I am sure you are referencing the announcement that came out earlier in the week. I think generally, from an industry standpoint, I kind of look at it as, it's another derivative that's being built for ethylene. So I think that's directionally good. For our company, we would see a terminal like that as being opportunistic.

And we might engage through the stock market to do some of that. Today, I don't know that we would participate on a structural basis in something like that. Our focus is on supplying some of our strategic ethylene customers here in the U.S. and directionally building out more polyethylene capacity..

Thank you. And our last question comes from Laurence Alexander with Jefferies. You may go ahead, sir..

This is Dan Rizzo, on for Laurence.

The opportunity you guys mentioned in compounding, are you planning solutions for specific models? And can these compounds be applied to other end-markets?.

Yes. So on the compounding, our focus has been in auto, in polypropylene compounding and generally, the direction is for lightweighting of vehicles. And we sit with OEMs and we discuss what's possible. And that's been our focus.

And if you think about it, we are able to then develop polypropylene and catalysts that enable the compounds which lightweight vehicles. So that's our focus. I do think, to your point, that that methodology can translate to other segments and our capability is certainly there..

Thank you. This concludes the question-and-answer portion of today's conference. It would be my pleasure to turn the conference back over to Mr. Bob Patel for any closing comments. Thank you, sir..

All right. Well, thank you, again, for all the great questions. Let me offer a few closing remarks. I hope what you see today is that our strategy and approach remains focused and consistent. Markets are tighter than we anticipated as we enter 2018 in a good position to accommodate the capacity additions across our industry.

At LyondellBasell, our focus is, first and foremost, on safe, reliable, cost efficient operations. That earns our position as a supplier of choice for our customers for today and tomorrow. We are building out our organic growth pipeline, as I described. We are targeting multiple value chains.

And our next investment will start up in the middle of next year in 2018. We are working diligently to pursue value driven growth for you, our owners. So thank you very much for your interest and we look forward talking to you again soon..

Thank you. And this concludes today's conference call. You may go ahead and disconnect at this time. Thank you for your participation..