Lyondell Basell: Phoenix From the Ashes

If there was a major blight on the outlook on the chemical industry in recent years, it was LyondellBasell Industries US operations filing for Chapter 11 bankruptcy protection in January of 2009. Although the company officially emerged from bankruptcy in May this past year, it was LyondellBasell’s reported second-quarter earnings that left little doubt as to the health of the company and the health of the industry. Time to time, a good company can get stuck with a bad balance-sheet (often imposed by so-called financial engineers), with disastrous consequences; as is often the case, these financial engineers do not fully appreciate the complexities involved in the operational facets of the chemical industry and are incapable of implementing changes that can truly benefit the company stakeholders.

LyondellBasell reported second-quarter net income of $203 million as well as sales of $10.4 billion (+7% QoQ and +40% YoY up), cash increased to $3.8B from and total liquidity is now ~ $5B and the EBITDA was $1.4 billion (Net Debt / LTM EBITDAR of 1.1x). All five reporting segments have done well; however, improved olefin and polyolefin margins coupled with a better cost structure have driven attractive results!

Evidently, LyondellBasell has emerged from Chapter 11 restructuring a much stronger company, particularly operations in the US; operating income in the company’s olefins & polyolefins in the Americas segment was up 123% from the year-ago quarter. Looking forward, LyondellBasell expects similar positive performances as the US ethylene market rebalances following several turnarounds. It will be interesting to observe how operating rates and margins going forward will be influenced once the increased capacity comes online in the Middle East and Asia. LyondellBasell is one of the world's largest independent petrochemical companies that resides in the commodity end (upstream) of the value-chain. However, one can nonetheless appreciate LyondellBasell’s remarkable rebound, which ultimately reflects the good health of the broader chemical industry and could potentially illustrate why now is the opportune time to invest within the industry: specific markets within the industry are rebalancing and opportunities for growth are widespread and plentiful.