LyondellBasell Industries

I'm joined today by Bob Patel, our Chief Executive Officer, and Michael McMurray, our Chief Financial Officer. Before we begin the business discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.LyondellPassell.com. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements, the presentation slides, and our regulatory filings, which are available at www.mindupsell.com slash investor relations. Reconciliations of non-GAAP financial measures to GAAP financial measures together with other disclosures, including the earnings release, are also currently available on our website. Finally, I would like to point out that a recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until May 31st by calling 800-944-6417 in the United States and 203-369-3942 outside the United States. The passcode for both numbers is 36941. During today's call, we will focus on first quarter results, the current environment, our near-term outlook, and provide an update on our growth initiatives. Before turning the call over to Bob, I would like to call your attention to the non-cash, lower of cost, or market inventory adjustments for LCM that we have discussed on past calls. These adjustments are related to our use of last in, first out, or LIFO accounting in the recent volatility in prices for our raw materials and finished goods inventories. 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 would now like to turn the call over to Bob.

Thank you, Dave, and good day to all of you participating around the world. We appreciate you joining us today as we discuss our first quarter results. Before we get into the discussion of our results, I would like to take a moment to recognize the tremendous progress that has been made in fighting the COVID-19 pandemic and how much hard work still needs to be done around the world to reduce the effects of this disease. While financial markets are focused on the economic upside enabled by increased vaccination and the eventual reopening, today our employees, customers, suppliers, and the communities where we operate in India in particular, as well as Brazil and even parts of Europe are still suffering from terribly high case rates and fatalities. We are working closely with governments around the world to do our part to advance immunity for our employees, and their communities, and to hasten an end to the devastation brought on by this virus. Our thoughts remain with those most affected by this pandemic. Now, moving into the discussion of our Q1 results. Blind Elbazel is continuing to build upon the momentum seen in the second half of 2020. During last year's recession, we advanced on our strategic initiatives to grow our asset base and emerge stronger from the downturn to position our company to capture the benefits of a recovering economy in 2021. Let's begin with slide three and review the highlights. In the first quarter, earnings more than doubled from the same quarter of last year to $3.18 per share. LionVal Bazell's first quarter net income improved by 25 percent relative to the fourth quarter as we earned approximately $1.6 billion of EBITDA. Our businesses benefited from strong demand and tight markets that improved margins across the majority of our segments. Our olefins and polyolefins Europe, Asia, and international segment achieved their highest quarterly EBITDA since 2018, while the O&P America segment reached a quarterly EBITDA level that has not been seen since 2015. Strong cash generation enabled us to pay down $500 million of debt in January and end the first quarter with nearly $5 billion of cash and available liquidity. After the quarter closed, we paid down an additional $500 million of debt in April. We expect that our robust cash generation should continue throughout the year, and our top priority for capital deployment in 2021 is debt reduction. which will enable meaningful progress toward improving our credit metrics to two turns of total debt to EBITDA. As we approach the end of the first month of the second quarter, low inventories and persistently high demand are driving higher margins for most of our products. The unusually cold weather and associated power outages that occurred during February in Texas resulted in approximately one month of downtime for a significant share of total U.S. capacity located within the state. Deferred turnarounds from 2020 are resulting in high levels of planned maintenance downtime for many of our competitors during the second quarter. Blind Elvizel has no major planned maintenance for the second quarter at any of the global assets that we operate. We are focused on running our assets safely, reliably, and at maximum rates to supply our customers' needs and capture the opportunities available in these strong markets. We expect markets will remain tight through at least the end of this year due to very high demand, low inventories, and the capacity that will be lost during planned downtime. With customer demand exceeding production, the full extent of our customers' backlogs, deferred consumption, and unmet demand are unknown. In the days after the Texas freeze, North American PE exports fell by 13 percent for the month of February, and we expect the March data to reflect further declines in exports. It will likely require quite some time before North American polyethylene industry can fulfill backlogs, satisfy domestic demand, and return to last year's pace of selling 40 percent of production into the export market to serve global demand. And this scenario of replenishing inventory over the course of 2021 does not factor in an additional wave of demand that is likely to arise in the second half of this year from restocking and increased activity in the travel, leisure, and hospitality sectors as vaccines provide for increased mobility. The reopening and considerable pent-up demand will add another leg of growth across our businesses. Increased mobility and rising demand for transportation fuels should enable our oxy fuels and refining businesses to deliver meaningful profit improvements in the second half of 21 and into 2022. Let's turn to slide four and review our recent safety performance. At Lyondell Vazell, the first topic on the agenda for a meeting of our leadership or any group of employees throughout the company is typically oriented toward improving the health and safety of our teams. Our consistent emphasis on a culture of safety provides clear and direct benefits towards improving the health and welfare of our employees, contractors, and communities. We also believe the attention to detail embedded in our safety culture cascades indirect benefits towards our work to ensure reliable operations, commercial leadership, and ultimately, differential financial performance. As such, I'm pleased to report that in the first quarter of 2021, our employees and contractors achieved the best safety performance we have attained in any prior year. We look forward to continued progress on our journey toward our goal of zero injuries. Earlier this month, we launched our Circulant Portfolio of Polymers described on slide five. to enable our customers and brand owners to improve the sustainability of their products. Circulin Recover Polymers are already in use producing consumer products such as the Samsonite Magnum Eco Suitcase line depicted on the slide. We are stepping up volumes of Circulin Renew Polymers in Europe and advancing our proprietary catalyzed pyrolysis technology at our Moritech molecular recycling pilot facility in Italy with the goal of bringing this potentially game-changing technology for circulant revived polymers to a commercial scale. Over the past 70 years, our polymers have played a central role in advancing modern living by reducing food waste with protective packaging, delivering safe drinking water through plastic pipes, and advancing healthcare with sterile and affordable devices and equipment. With the introduction of our circulant product line, who are making further progress toward Lyondell-Bazell's goal of producing and marketing 2 million metric tons of recycled and renewal-based polymers annually by 2030. On slide six, we highlight how Lyondell-Bazell's technological advancements can enable our customers to independently improve the sustainability profile of their product formulations. Our new hyperzone HDPE process is capable of producing polyethylene with more than five times the crack resistance of standard polyethylene produced with a chromium catalyst in a slurry loop process. This premium performance of polyethylene from our hyperzone multi-zone process can be directly leveraged by customers to produce packaging such as detergent bottles with thinner walls and less polyethylene that reduces weight without sacrificing durability or performance. As our customers seek to improve the circularity of their business models, many plastics converters have set aggressive goals to increase their utilization of post-consumer recycled or PCR plastics in packaging and other applications. Hyperzone's outstanding performance can also be leveraged to allow for increased blending of PCR without sacrificing performance. As you can see in the chart, hyperzone HDPD blended with 25% PCR can still exceed the crack resistance of standard polyethylene by 70%. Our customers are leveraging Lyondell-Bazell's advanced technology to improve the crack resistance, top load strength, impact resistance, and other critical properties for their products while simultaneously improving the sustainability profile of their business models. Now let's step back a bit, and on slide seven, review some of the macroeconomic forces that have been driving Lyondell Vazell's business performance during the pandemic and the ongoing recovery. One way to think about the trajectory of the economy is to untangle a few of the societal trends that are fueling demand in markets for non-durable goods, durable goods, and transportation. In the early days of the pandemic in March, April, and May of 2020, we saw elevated demand for non-durable goods as households engaged in pantry stocking to protect against supply disruptions and adapt to the transition toward increased working from home, schooling from home, and other lifestyle changes associated with quarantines and societal lockdowns. Lyondell Bazell's olefins and polyolefins businesses benefited from the double digit improvement in packaging demand has increased utilization of non-bulk packaging and e-commerce deliveries boosted demand for our materials. In 2021, consumer packaged goods demand remains elevated by single digit percentages relative to pre-pandemic levels. We expect somewhat elevated demand for packaging will persist following the pandemic with some permanent changes in society as a portion of the population continues to work remotely, school remotely, and use home delivery for convenience. The second economic driver for our businesses has been the recovery in consumer, industrial, and construction related demand for durable goods that began in the third quarter of 2020. This trend can be reflected by the dark blue line that tracks the ongoing recovery in vehicle production in North America. With government stimulus supporting the U.S. economy and limited options for travel, leisure, and public dining, consumers remodeled homes and purchased appliances, home entertainment, and vehicles that drove recovery for the industrial economy. This trend has been boosting demand for Lyondell Wiesel's propylene oxide from our intermediates and derivative segment that is used in polyurethane foams for furniture and construction insulation. as well as polymers from our O&P segments that are used both directly and in plastic compounds produced by our advanced polymer solutions segment. The third significant trend is the increased mobility that is developing around the world as vaccination rates improve and activity in the travel, leisure, and hospitality sectors returns to some semblance of normalcy. Increases in vehicle miles traveled are supporting a rebound in crude oil and gasoline prices to bring back margins for our oxy-fuels business in the IND segment. While a slower rebound in international air travel is holding back demand for jet fuel, strong demand for diesel and improving demand for gasoline is expected to improve profitability for Lime Del Vazel's refining segment during the second half of this year. Increased mobility will also benefit our polymer businesses as the restaurant, hotel, and tourism industries restock and begin to address substantial pent-up demand. The sum of these trends points to a strong outlook for both the global economy and Lionel Bezal during the remainder of 2021 and well into 2022. On slide eight, these trends can be seen in first quarter global demand growth for our two largest products, polyethylene and polypropylene relative to pre-pandemic levels seen two years ago in the first quarter of 2019. Over this period, we've seen modest improvements in European demand. In the first quarter of 2021, North American demand was quite strong but constrained by lack of supply due to the downtime triggered by the cold weather and associated power outages in Texas. Northeast Asian demand increased by an astounding 23 percent, driven by the post-pandemic strength of the Chinese economy. Since imports account for approximately 40 percent of China's demand needs for polyethylene, China's growth benefited Lyondell Bazell's production sites in the United States and the Middle East that export polyethylene to China. Global demand for polyolefins has grown by 14 percent over the past two years. far above the long-term trends of 4 percent and 5 percent annual demand growth for polyethylene and polypropylene, respectively. Strong global demand and constrained production have supported polyethylene contract price increases of $950 per metric ton in the U.S. from May 2020 through March of this year. With $420 per ton occurring since November, and more than $300 per ton of additional price increases on the table for April and May of 2021. As demand should get even stronger as we progress through the recovery, we expect tight markets and strong margins for polyolefins to persist into next year. On slide nine, I would like to remind you of our view on the cyclical outlook that we discussed during our fourth quarter call. In January, We talked about concerns that global polyethylene capacity additions, particularly in China, could outpace global demand and depress operating rates and profitability over the coming years. This quarter, we have updated the chart we discussed during the fourth quarter call to address operating rates for both polyethylene and polypropylene. Predictions of reduced operating rates due to new capacity are highly reminiscent of forecasts from consulting reports published in 2016. These are depicted by the dotted blue line, which predicted global operating rates would dip due to capacity additions on the U.S. Gulf Coast from 2017 through 2018. The actual operating rate depicted by the solid line demonstrates that press releases announcing capacity additions often have ambitious timelines and typical delays in construction and commissioning can allow consistent demand growth to absorb capacity additions with less impact on operating rates and margins than predicted. More importantly than delays in capacity, we believe recent forecasts are underestimating demand growth. Early in the pandemic, many predicted declines in PV demand for 2020. By the middle of the year, forecasts improved to flat demand. Most consultants now believe that global polyolefin demand grew by approximately 4 percent in 2020, similar to growth rates seen consistently over the past 30 years. Adjusting these forecasts to 4 percent demand growth for both 20 and 21 results in a predicted operating rate shown by the dotted gray line. Last quarter, we suggested that 2021 would likely follow the patterns seen after prior recessions and this year's demand growth could be higher than the historical trend of 4%. A 7% growth in demand during 2021 for only one year with reversion to the historical mean in 2022 and beyond would generate the robust operating rate forecast depicted by the dotted orange line. Today, with global polyolefin demand growing in the first quarter by 14% over the past two years, we are even more confident that the recovering economy is likely to facilitate a more orderly absorption of this new capacity by the global market, which should support robust margins. With that, I will turn the call over to Michael, who will describe our financial and segment results over the past quarter.

Thank you, Bob, and good morning, everyone. Please turn to slide 10, and let me begin by highlighting our track record of strong cash conversion. Over the last 12 months, Lime Del Bazelle converted almost 80% of our EBITDA into $3.4 billion of cash from operating activities. In the first quarter of 2021, our businesses delivered over 40% more pre-operating cash flow relative to the same period last year. We expect continued improvement of our LCM performance as we progress through each quarter of 2021. Let's turn to slide 11 and review further details of our cash generation and deployment during the first quarter. As Bob mentioned, our goal for this year is to accomplish meaningful deleveraging to further strengthen our investment-grade balance sheet. In the first quarter, while paying dividends of $352 million and investing a similar amount in capital expenditures, we reduced the balance on our term loan by $500 million to close the first quarter with cash and liquid investments of $1.8 billion. After the quarter closed, we repaid an additional $500 million on the term loan in April. We expect that robust cash generation should enable continued progress on deleveraging throughout the year. Before I continue with a more detailed discussion of our segment results, let me provide a brief update on our 2021 modeling guidance. We continue to be on track to invest approximately $2 billion in capital expenditures during 2021, targeted equally towards profit-generating growth projects and sustaining maintenance. Due to extremely strong demand for propylene oxide, we have shifted a turnaround at one of our POTBA units in Bayport, Texas, from the second quarter to the third quarter of this year and reduced the scope and associated downtime for the maintenance. With this change, we expect no major planned maintenance downtime in the second quarter of 2021. And based on expected volumes and margins, we estimate that the third quarter EBITDA impact due to lost production associated with planned maintenance across the company will increase by $30 million to $75 million. In total, the EBITDA impact associated with all of Lionel Bezell's 2021 planned maintenance downtime should decrease by $30 million relative to our original guidance to approximately $140 million for the year. Let's turn to slide 12 and review our quarterly profitability. In the first quarter of 2021, Lime Del Bezel's business portfolio delivered EBITDA of $1.6 billion. This was an improvement of more than $300 million relative to the fourth quarter, exceeding typical first quarter seasonal trends. The upward trajectory of Linedale-Bazell's profitability reflects improving demand and margins for our products driven by the recovering global economy and tight markets. As Bob mentioned, cold weather and associated power outages resulted in unplanned shutdowns that constrained first quarter production for Linedale-Bazell and nearly all of our competitors in the state of Texas. This downtime was exacerbated by strong global demand that tightened markets in elevated margins across most of our businesses. While it's clear that we lost production during the first quarter due to unplanned downtime, the offsetting effects of higher margins and sales from inventory complicates the effort to quantify the impact on first quarter business results. In the second quarter, we plan to operate our assets at nearly full rates as profitability improves for oxy fuels and refining businesses. We expect further EBITDA improvement during the second quarter. On the left side of the chart, our all-time high quarterly EBITDA, excluding LCM, of approximately $2.2 billion reported in the third quarter of 2015 provides useful perspective. While profitability for transportation fuels was quite strong in 2015, today our company has more earnings power from a larger asset base. Over the last six years, we have added ethylene capacity at Corpus Christi, expanded our compounding business through the acquisition of A. Shulman, started a new hyperzone HDPE plant in Houston, and added significant joint venture capacity in Louisiana and China. In 2021, Lionel Bezell is poised to capture opportunities that are emerging in the rebounding global economy with a larger asset base. Now, let's review the first quarter results for each of our segments. As mentioned, My discussion will describe our underlying business results, excluding the non-cash impacts of LCM inventory changes. I will begin with our olefins and polyolefins America segment on slide 13. Third quarter EBITDA was $867 million, $145 million higher than the fourth quarter. Tight markets and strong demand resulted in improved margins, driving quarter results higher than we have seen since 2015. OLFN results increased approximately $155 million compared to the fourth quarter. OLFN's margins increased with higher ethylene and propylene prices outpacing higher feedstock and utility costs. Volumes decreased due to downtime driven by Texas weather events, partially offset by a full quarter of volume from our Louisiana joint venture that we formed in December. The ethylene cracker at the joint venture ran continuously throughout the weather events and exceeded ethylene nameplate operating rates by 9 percent during March. Polyolefin results for the segment decreased by about $15 million during the first quarter. Polyethylene margin decreased while polypropylene margin improved. Polyethylene volume increased due to a full quarter of contribution from the Louisiana joint venture, partially offset by lost production during the weather events. We anticipate both volume and margin improvement for our O&P Americas segment during the second quarter. Volumes are expected to rebound in the absence of weather-related downtime. Tight markets due to high demand, low inventories, and customer backlogs are expected to continue to support strong integrated chain margins. Now, please turn to slide 14 to review the performance of our Olphans and Poly-Olphans Europe, Asia, and International segments. During the first quarter, EBITDA was $412 million, $161 million higher than the fourth quarter. Strong demand, expanded margins, driving quarterly results higher than we have seen for the segment since 2018. Olfin's results increased $30 million, driven by increased margins and volumes. Ethylene margin improved due to increased ethylene prices and lower fixed costs, despite higher feedstock costs. Demand was robust during the quarter, and we increased volumes by operating our crackers at a rate of 98 percent, almost 10 percent above industry benchmarks for the first quarter. Combined polyethylene results increased approximately $150 million compared to the prior quarter. Strong polymer demand drove spread improvements for both polyethylene and polypropylene prices relative to monomer. Margin improvements at our Middle East and Asia joint ventures were offset by higher LPG feedstock costs pressuring profitability at our new board joint venture in China, resulting in little change in equity income for the segment. During the second quarter, we expect strong demand and tight markets to drive further margin improvement for our O and P EAI businesses. Please turn to slide 15 as we take a look at our intermediates and derivatives segment. First quarter EBITDA was $182 million, $14 million lower than the prior quarter. Margins improved with higher product prices while volumes declined due to the Texas weather events and planned maintenance in our propylene oxide and derivatives business. First quarter propylene oxide and derivative results decreased by approximately $35 million due to lower volumes offsetting stronger margins driven by tight market supply. Intermediate chemical results decreased about $55 million due to lower volumes as a result of the weather events. oxyfuels and related products, results increased by approximately $25 million as a result of higher margins benefiting from improved gasoline prices that were partially offset by constrained volumes. We expect both volumes and margins to improve for our IND segment in the second quarter. Strong demand for durable goods coupled with continued tight market supply are expected to increase profitability across most of the businesses in this segment. Now, let's move forward and review the results of our advanced polymer solution segment on slide 16. First quarter EBITDA was $135 million, $9 million higher than the fourth quarter. Volumes improved driven by higher demand for our products, partially offset by lower margins. Compounding and solution results were relatively unchanged, with higher volumes driven by improved demand being offset by compressed margins due to rising feedstock costs. Advanced polymer results increased by approximately $15 million due to both higher margins and volumes. In April, North American feedstock costs for our polypropylene compounds rapidly declined to reverse much of the price escalation that occurred during the first quarter. We expect that falling feedstock prices combined with continued price improvements for our compounded products will expand margins during the second quarter. Now, let's turn to slide 17 and discuss the results for our refining segment. First quarter EBITDA was negative $110 million, a $36 million decrease versus the fourth quarter of 2020. Higher cost for renewable fuel credits, or RENs, and lower crude throughput overwhelmed improvements in the Maya 211 industry crack spread. In the first quarter, the Maya 211 crack spread increased by $5.21 per barrel to $15.32 per barrel, As a result of the Texas weather event, the average crude throughput at the refinery fell to 152,000 barrels per day. In April, we continue to see improvements in refined product demand, and we are running the refinery at nearly full rates. Strong demand for diesel and improving demand for gasoline is expected to improve both volumes and margins at our refinery during the second half of this year. However, we don't expect a full recovery until there is further progress in vaccination rates and a rebound in global demand for jet fuel driven by increased business and international air travel. Please turn to slide 18 as we review the results of our technology segment. First quarter technology segment EBITDA was $94 million, $49 million higher than the prior quarter. Catalyst profitability increased with customers rebuilding inventories and increased demand from Asia and the Middle East. Based on anticipated timing of upcoming licensing milestones and catalyst demand, we expect that second quarter technology business profitability will be similar to the first quarter. With that, I'll turn the call over to Bob.

Thank you, Michael. Let me summarize our view of current conditions and the outlook for our businesses with slide 19. We began this year with low inventories and increasing demand from a recovering global economy. During our fourth quarter earnings call in January, we thought that strong February order books, increasing seasonal demand, and tight industry supply would support strong margins for at least the first half of 2021. Since January, our industry lost several weeks of supply due to Texas weather events during February, and deferred maintenance from 2020 is resulting in high levels of planned downtime across the industry particularly in the second quarter. North American inventories were depleted during the downtime and European inventories have been pressured by unusually strong first quarter demand. While our company normally maintains over one month of polyolefin sales inventory, our European PG and PP businesses ended March at levels well below those targets, most notably with less than two weeks of low-density polyethylene inventory. Logistics constraints are exacerbating the situation due to shortages of shipping containers on critical routes and escalating freight rates that are limiting opportunities for regional arbitrage. China remains structurally short of polyethylene and U.S. exports to China have vanished as North American suppliers seek to replenish inventories and address order backlogs from domestic customers. Backlogs for finished goods are rising as the recovering global economy continues to be supported by government stimulus and pent-up demand emerges with increased vaccination rates. In summary, we believe that tight global markets are likely to persist well into the second half of this year and continued improvements in mobility and associated economic activity could sustain strong volumes and margins into 2022. Please turn to slide 20, and let's review Lyondell Vazell's profitability over the course of the first complete business cycle for our company. In the years following the 2008 Great Recession, our company nimbly captured the benefits of low-cost feedstocks that arose from the development of North American oil and gas resources. Lyondell Vazell typically delivered between $6 to $7 billion of EBITDA over the past 10 years. Our EBITDA after LCM inventory adjustments reached $8.1 billion in 2015 during my first year as CEO of our company. At the end of 2019, we thought we might simply be coming to the end of a very long business cycle until we learn more about COVID and the extreme tolls it would take on our society the economy and ultimately in human lives. As we rebound from the pandemic and contemplate how our company could perform through the recovery and the next business cycle, it is worthwhile to consider the factors that should provide additional earnings power relative to our performance last year and in the previous cycle. Recovery in automotive and other durable goods demand is rebuilding volumes within our new APS segment back towards 2018 levels. Increased utilization of our capacity should provide greater visibility on the more than $200 million in synergies that we've built into the business since acquiring A. Shulman. In 2020, we added 500,000 tons of polyethylene capacity utilizing our next-generation HyperZone technology. During the depths of the pandemic, and recession, our strong balance sheet enabled us to move forward and form a creative joint ventures for integrated crackers in China and Louisiana that provided immediate returns on our investments. This quarter, we finalized an agreement to form our second propylene oxide joint venture with Sinopec. Beyond the broad-based margin improvements that are currently underway for many of our products, Full recovery in demand for transportation fuels still lies ahead and should drive margin improvement for our sizable refining and oxy-fuels businesses over the coming quarters. Our larger asset base is well poised to capture the opportunities of a recovering economy, establish new earnings benchmarks, and position Lionel Vazell for further growth over the upcoming business cycle. Let me close with slide 21. The title of our 2020 Annual Report is Emerging Stronger, and it is an appropriate description of Lyondell Vazell's trajectory as the global economy recovers from the pandemic and recession. Our leading and advantaged business positions are primed to capture the benefits of a recovering economy. In the second quarter, we have no major planned downtime, and we are operating our highly reliable and low-cost global network of assets at maximum rates to capture rising margins. We have remained steadfast to our disciplined financial strategy. Over the coming year, our priority will continue to be deleveraging while supporting shareholder returns with a strong and progressive dividend. We remain committed to an investment-grade credit rating, and our plan is to bolster our credit metrics through increased earnings and additional debt reduction over the coming quarters. Our aim is to maximize free cash flow by leveraging our larger asset base, efficiently converting earnings into cash and deploying capital in a prudent manner toward high return investments. All of this will help drive our ultimate focus on delivering strong shareholder returns. The outlook for our business is quite promising and we look forward to delivering our commitments over the coming quarters. We are now pleased to take your questions.

Thank you. We would now like to open the phone lines for questions. If you would like to ask a question, please unmute your phone, press star 1 and record your name clearly when prompted. If you need to withdraw your question, you may do so by pressing star 2 at any time. We respectfully ask that you limit your questions to a single question so that we are able to get to as many questions as possible on today's call. Our first question comes from from JP Morgan. Sir, your line is open.

Thanks very much. If your peak EBITDA in 2015 was 8 billion, what do you think your peak EBITDA is now after you bring on your 2023 extensions?

So, good morning, Jeff, and for everyone, thanks for your patience with our longer prepared remarks. There's a lot going on, so we wanted to provide color. So, Jeff, in terms of peak EBITDA, if you think about kind of mid-cycle margins, up to now, we've added between 1 and 1.2 billion of EBITDA. In 2023, we'll add another $500 million with our Sinopec POSM project and the POTBA project. So I would say at mid-cycle margins, we've added $1.5 to $1.7 billion of EBITDA. And if you were to consider peak earnings, then it would be something even more than that.

Thank you. Our next question comes from PJ Juvicar from Citi. Your line is open.

Hey, Bob.

Good morning, PJ.

Hey, first of all, I like your brand names, Circulant, Recover, Revive, Recover, Revive, and Renew. It was very, very nice. Thank you. My question is on regular polyethylene. You know, you talked a lot about higher polyethylene demand and, you know, during COVID time. on slide nine, can you discuss how much of the capacity, on the capacity side, how much of capacity possibly was delayed due to COVID? Because there are some numbers out there above one to two million tons of capacity delayed. And then just any, I saw something in the headlines about phase two of Borough Joint Venture. Can you also talk a little bit about that? Thank you.

Sure, Vijay. So first of all, in terms of capacity delays, I think in China we should assume that capacity will come on per the schedule for those projects that are already underway. I think for projects that haven't started in China, certainly the CTO and MTO projects are probably at risk. And we've learned recently that government is considering canceling those projects for the environment. In the U.S., because of COVID, the projects that are underway maybe were delayed a quarter or two. especially Q2, Q3 last year as there were slowdowns until we all figured out how to manage density in our sites and construction sites. So maybe a couple of quarters for those projects that are underway. And if you think longer term, projects that are CTO, MTO based in China could be at risk. Oh, and Borah. Your question about Borah Phase 2. So we're still discussing with our partner on Borah Phase 2. No definitive decisions yet. I would say that would be middle of the decade or beyond in terms of product hitting the market.

Thank you. Our next question comes from Steve Byrne from Bank of America. Sir, your line is open.

Yes, thank you. I was curious to hear how your marketing of the polyethylene out of Lake Charles may have changed since it was solely run and managed by Sasol. Maybe more importantly, this broader share position you have in the U.S. market, are you picking up anything from your customer relationships where the industry is might be trying to allocate more tons into this premium market to capture that premium versus spot pricing ex-US?

Yeah, so good morning, Steve. On this household marketing, so pre-pandemic, you know, our view was that we would plug that volume into our global network. and sell in Europe, in China, and also supplement in the U.S. So that's still our plan. But in the near term, because of the supply disruptions, really spot sales have been zero. We've been on allocation. So exports are only those where we have contracts. We're not doing spot exports. We don't have enough volume today. And our inventories are below our typical levels. So our focus in the near term will be to meet domestic demand which we still don't know what level that demand is because of the supply constraints. And then we'll look to resume exports.

Thank you. Our next question comes from Arun Vishwanathan with RBC Capital Markets. Sir, your line is open.

Great, thanks for taking my question. Congrats on the good results here. Just wanted to get your thoughts on PE inventories and kind of the outlook for the next couple of quarters. Obviously, as you noted, the storm, you know, reduced those inventories materially. And how do you see those evolving over the next couple of quarters? When do you expect that we'll be back at normal? And what does that imply for the next couple of price increases that have been announced? Thanks.

Yeah, thank you, Aaron. First of all, in inventories, I was actually just looking at that data this morning, the industry data. And industry inventories, both PE and PP, are below typical levels that we've seen in the past. Again, I think following on from what I answered to Steve earlier, we still don't know what's the level of demand. My guess is the level of demand is higher than what we saw in February and March. And so our first priority is to meet the demand of our customers and then find the opportunity to rebuild inventory. So, if you think about what's ahead, we still have reopening ahead in the US. We have reopening ahead in Europe. Many parts of Asia, ex-China, still reopening ahead. So, you know, stronger demand period. Typically, we see seasonal improvement. So, you know, opportunity to rebuild inventory. We may not have that until later in Q3. Also, recall that there's a lot of planned downtime in the industry because many producers deferred planned maintenance last year into this year. So, I mean, I think all of these reasons are why the setup looks to be for a very tight market for most of this year, if not all.

Thank you. Our next question comes from Kevin McCarthy from Vertical Research Partners. Sir, your line is open.

Good morning. Bob, the spread between polypropylene resin and propylene monomer has widened quite a bit since October. I think 21 cents per pound or so. Perhaps you have a slightly different number. But my question is, you know, what is the trajectory that you would foresee for that spread moving through the back half of the year? How sustainable is it, you know, given the inventory levels that you mentioned and your view of supply demand?

Yes, so Kevin, on polypropylene, more of it goes into durable goods than does polyethylene. And I'm sure all of our listeners have heard about the shortage of chips that have limited automobile production. I think that's going to cause more demand as some of those constraints relieve themselves and there's more chips available. And generally speaking, auto sales are up, inventories are low. have fleet sales have been low. Rental car fleets have been depleted last year. So all of that has to be replenished. So my sense is that polypropylene market will continue to be strong. And if I were to look at inventories, the data that I saw this morning from an industry perspective, in the U.S., PPE inventories are actually lower than PE inventories. And this data that I'm citing is 60 days in the rear. So my guess is that trend will continue to decline as we see data for March and April.

Thank you. Our next question comes from Vincent Andrews from Morgan Stanley. Your line is open.

Thank you and hi everyone. Bob, maybe on polyethylene, you know, there's a pretty epic spread now or ARB spread between the US and Asia. I think it's the highest level ever. And, you know, usually those get arbed out. What do you think is going to happen? Do you think the Asian price is going to need to move up a lot more than the U.S. price is going to need to move down? Or how do you envision this playing out over the coming quarters?

Yeah. So, Vincent, first of all, I think we have to differentiate between the polypropylene price and polypropylene spreads. The polypropylene price could continue to come down on an absolute basis as propylene comes down. Polypropylene, yeah. But the spreads are widening. You know, we've announced another spread increase. Markets are very tight. So my sense is that global prices will likely come up. And as propylene comes down some, or has come down in the last month, you could see polypropylene absolute price moderate. But I think spreads will continue to widen because the market is very tight.

Thank you. Our next question comes from John McNulty from BMO Capital Markets. Sir, your line is open.

Hi, good morning, Bob. This is Bhavesh Ladai for John. Congrats on another strong quarter. So following on your comments you made around cash deployment, cash flows are obviously very strong this year and they will likely continue so as the new products come online. You noted that you plan to pay down some more debt this year. So what's the target leverage for you, and how should we think about further allocation of capital? Like, how should we think about buybacks, and do you think this is the right setup, given the high margins, to maybe expand your organic capex beyond that $2 billion mark?

Yep, so let me start, and then I'll ask Michael to add as well. Deleveraging continues to be our top priority. We want to get our debt-to-Ibida metrics down below 2%. and absolute debt in the 12 billion sort of range. And I think we're well positioned to hit those kind of numbers by year end based on what we see as the trajectory of our earnings. Buybacks could certainly enter the picture after we reach these targets that we have. Could be as soon as next year, early next year, that buybacks could be part of the picture. It's unlikely that we'll add to organic growth. We have our POTBA project that we're executing. We want to make sure we complete that. And beyond that, we don't have plans to start a new large organic project in the next 12 to 24 months. Michael, anything else to add on capital allocation?

Yeah, I mean, maybe just a couple of comments, Bob. I mean, just a reminder, you know, last year we generated very strong cash flow, $3.4 billion from ops, almost 90% conversion. We more than covered capital and our dividend. And that was, I think, pretty impressive. As Bob said, we expect very strong cash flow generation this year, and we do expect to make meaningful progress in debt reduction. We've taken out a billion of debt year to date, and I think kind of looking towards the end of the year, I think three to four billion in total debt reduction for the year is within reach.

Thank you. Our next question comes from Mike Sisson from Wells Fargo. Your line is open.

Hey, good morning. Nice start to the year. Bob, in terms of your PE and PEPP, effective operating rate chart of slide 9, there is a little dip there in 22 and 23. Is that considered mid-cycle in your outlook? And if so, would you still be able to generate some EBITDA growth in OPEAN Americas in 22?

Yeah, so Mike, he asked, I mean, that's kind of mid-cycle or better than mid-cycle. That dip, if you look at the operating rate, it's still above 90%. And generally, when operating rates are greater than 90%, typically the seasonal highs tend to be very tight. So Q2, Q3 tend to be tight quarters in an annual average that's above 90%. My sense is we're going to be somewhere mid-cycle or better in 22 and 23, and then after that, as there's really not a whole lot of new capacity ex-China, we should see the cycle play out. I wanted to also answer Vincent's question about polyethylene. Vincent, I thought you asked about polypropylene, building on the prior question. On polyethylene spreads, You know, market is still extremely tight, so our sense is that the price increases that have been implemented could remain in place through Q3. There are more increases out there. Market remains tight, and again, as I've said several times, we really don't know where the real level of demand is because we've been on allocation. And we know our customers want more if we had it, so if we had the product. So I think that these spreads should stay well into Q3 for polyethylene.

Thank you. Our next question comes from Duffy Fisher from Barclays. Your line is open.

Yeah, good morning. Uh, Bob, you just kind of made a comment working off your slide nine, that the dip you see coming kind of takes us to mid cycle and then obviously better than that going forward. So kind of next five to seven years all look like they're better than mid cycle. So can you walk us through what that would mean for reinvestment economics for a new cracker in the U S and then maybe touch on globally, obviously with your catalyst business, you get a first look at what everybody's thinking about doing globally. How many new announcements for new crackers should we expect this year?

Sure, Duffy. So, first of all, on mid-cycle returns, I think if you, first of all, if you look at that chart, it's actually probably better than mid-cycle, other than maybe 22. And again, if demand grows at 7%, then I think you have a chance of actually having just a flat line and not much of a dip at all. and we're headed in that direction, it seems to me. So based on that and where CapEx has turned out recently on new projects, I still think it kind of leaves us at maybe, you know, low double-digit kind of returns. More importantly, you know, many companies who would think about investing are likely thinking about repairing their balance sheets from last year and paying down debt, so I don't expect with this sort of a profile for there to be a rush in terms of new project announcements, let's say ex-China. But let's see how it develops, you know. Each company has its own considerations. But certainly for us, we don't have plans to take on additional organic growth in O&P in the near term. In terms of your question about what are we seeing from catalyst activity and licensing activity, We are seeing slower activity in China compared to what we saw over the last two years, especially in polyethylene. So, you know, and we participate in most if not all tenders that occur for new projects. So, it seems the activity is slowing compared to 18 and 19.

Thank you. Our next question comes from John Roberts from UBS. Sir, your line is open.

Yes.

Hi, Bob. Just to beat Slide 9 to death here on the polyethylene outlook, aren't the Chinese now building plants in three years so that anything beyond 2023 may not be in the consultant's forecast now for supply?

Yes. So, John, first of all, I think Slide 9 is really important when you think so. We can't beat it to death enough, I suppose. So I would say that we're already into 21, right? So the forecasts up through 25 are probably pretty firm in terms of what could be built and what sort of supply we should expect from China. Post-25, it remains to be seen. But I would say three and a half years, something like that is the build time.

Thank you. Our next question comes from Bob Cort from Goldman Sachs. Your line is open.

Thank you very much. I guess we'll keep beating away then, Bob. You mentioned that time duration. I thought maybe in the Bora project you guys worked on the construction to commercial ops was a little bit faster. So was there something unique to that project or what insights did you get from working with those guys there about what it might suggest across the industry in China? As you can appreciate for a lot of investors, the lack of transparency there makes it sort of difficult to handicap what's actually going to happen.

Yes. So, Bob, on Bora, remember, first of all, it was in the north, which is a less congested area in terms of new projects up in the Leone province. So, and we joined the project while it was already in construction. And we started our discussions. And of course, we signed the definitive agreements within a month or two of startup. I still think about three to three and a half years is probably the right time to think about a project being approved to the time we have production.

Thank you. Our next question comes from David Beglader from Deutsche Bank. Your line is open.

Thank you. Bob, just on oxyfuels refining, can you discuss the improvement you're looking at for Q2 and even in the back half of the year? And refining, do you think we'll have positive EBITDA next year in this business?

Yeah. So on oxyfuels, we've already seen improvement as gasoline prices have come up and we've seen the blend premium come back a bit. So it's recovered more than our base refining business has. We're getting closer to break even. David, my hope is that in Q3 we get to break even and Q4 we're positive in the refining business. Now that depends on the pace of reopening. I can tell you here in Houston the traffic is back in the evening when I drive home. It's I-10 coming out of Houston is full going both ways. So I think more and more we're going to see the summer driving season could be very strong with a lot of pent up demand for vacations and people wanting to get away. So I think the refining business should see break even soon and positive profitability certainly by Q4.

Thank you. Our next question comes from Matthew Blair from Tudor Pickering and Holt. Your line is open.

Great. Thanks. Good morning, Bob. You know, so many things going right here. Let me ask about the one area that's lagging, of course, and that's refining due to these historic RIN obligations. Is there anything you can do to mitigate your exposure maybe by buying extra RINs forward or potentially looking at like a renewable diesel project?

Yeah, Matthew, you're right. The RINs have been quite a burden for us this year in our refining business. we're probably spending something like 3x more than we did last year on RINs. In the near term, I don't see anything else we can do. At some point, the government will reset the mandate on RINs, and then we could see, you know, the price moderate. But in the near term, we're doing all we can. In terms of renewable diesel sort of projects, you know, that would be much more longer term. And at the moment, we're not pursuing those sorts of projects in our refining business. So we're just trying to run hard, run at maximum rates, and anticipate the recovery in miles driven.

Thank you. And our last question comes from Frank Mitch from Fermium Research. Sir, your line is open.

Mr. Kenny, good job saving the best for last. Very much appreciated. Bob, I was very struck by the comment that the market's going to be tight through the end of the year, because I think just like two months ago, the thought process was it would be tight through the end of the third quarter. So apparently you've gained a little bit more visibility. feel that it's going to be tight through the end of the year so that's obviously that's pretty positive and you're going to be operating full out in the second quarter which begs the question where were you guys in the first quarter on your on your own P businesses in terms of operating rates and and as we look at the second quarter where do you think the industry is going to be operating at in the in your own P segments yep so Frank on the operating rates I mean that's in

Q1, we lost about 30 days of production on average in our Texas assets. One of our crackers was down for almost 90 days. So now we're back up and running fully. I suspect that our competitors do have some planned downtime, maintenance that they had planned last year that was diverted into this year. So likely our operating rate on a planned basis is higher than most in Q2. Your earlier question about our confidence about the outlook, I mean, I think, Frank, as time goes on, I just see the number of shortages on consumable items, on automobiles, lumber, steel. Like furniture, if you want to buy furniture, there's like a six-month delay from the time you order to the time you receive. And then reopening is still in front of us. I think there are so many factors that provide a very strong setup for how demand will develop for really all of our products in the company. So that makes me more optimistic about the fact that we'll have tighter markets for longer as we go through the year. So thanks for your questions. I do have a few closing remarks if I may. First of all, really good questions as always and slide nine will continue to be part of our discussion as we go forward. I want to emphasize a couple of things. First of all, Q2, we're going to run full rates, no planned downtime. As I mentioned, there's a lot of backlog. We have reopening still in front of us that should benefit our refining and oxy fuels business and continue to underpin demand strength in the other businesses that have been doing well. I think it's very important to note that with the larger asset base that we have, we've added 1 to 1.2 billion more of EBITDA as we sit here today, at mid-cycle kind of margins. Now, clearly today, we're well above mid-cycle margins in some of our businesses. So, I think that's a bit differential for Lionel Bezal, that in 2021, more assets deployed in a much, much stronger market. And I'm really pleased that we can see a path to perhaps reaching our leverage targets by year end, both on a gross debt basis and on the debt to EBITDA metrics. That, as I mentioned earlier, brings buybacks kind of back into the equation as we think about capital allocation as we go into 2022. So, we look forward to giving you an update in July on our Q2 results. In the meantime, have a great and safe weekend. Thank you.

Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest of your day.