LyondellBasell Industries N.V. (LYB) Q3 2026 Earnings Call Transcript

Operator: Hello, and welcome to the LyondellBasell Teleconference. At the request of Lyondell, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Mr. David Dennison, Head of Investor Relations. Sir, you may begin.

David Dennison: Thank you, operator, and welcome, everyone, to today's call. Before we begin the discussion, I would like to point out that a slide presentation accompanies the call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our third quarter 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 in the presentation slides and our regulatory filings which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per diluted share excluding identified items. Additional documents on our investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern Time today until November 30 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746219. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Agustin Izquierdo; Kim Foley, our Executive Vice President of Global Olefins and Polyolefins; Aaron Ledet, our EVP of Intermediates and Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. With that being said, I would now like to turn the call over to Peter.

Peter Z. Vanacker: Thank you, David, and thank you all for joining today's call as we discuss our third quarter results. I continue to be impressed by the passion and motivation from our employees to deliver excellent results in this volatile market environment. Petrochemical and energy markets continue to be impacted by the conflict in the Middle East, affecting production, feedstock availability, logistics and freight flows. Nevertheless, in this environment where uncertainty has persisted longer than many expected, the LYB team kept unwavering focus on our key priorities: maintaining safe and reliable operations; leveraging our commercial agility; and a disciplined execution of our value enhancement program and cash improvement plan. This helped the company to deliver strong EBITDA and cash generation in the third quarter with 18% EBITDA margins, $1.4 billion in free cash flow and an impressive 100% of EBITDA, and a $600 million increase in our cash position after having paid back a EUR 500 million bond. It is clear that our successful portfolio transformation, our value enhancement program and our cash improvement plan are helping to improve our results. In polyolefins, margins fluctuated through the quarter. Over the summer, customers who restocked earlier in the conflict slowed down purchases impacting pricing. However, from September, prices were boosted by strong demand, reemerging supply concerns and higher feedstock costs. This shows that a return to a post-conflict normal is unlikely to occur in a linear fashion. Another highlight from the quarter has been the benefit of our diversified portfolio. Though polymer margins were sequentially weaker, this impact was largely offset by higher oxyfuel margins and the restart of our Bayport PO/TBA operations, which led to a record EBITDA in our Intermediates and Derivatives segment. Our diversified end market exposure helps balance cyclical demand cycles and stable demand growth. Even as the outlook remains uncertain, we continue to believe that any eventual normalization in markets is likely to take quarters, not months. However, maintaining focus on our strategic priorities, controlling what we can control along with our disciplined capital allocation support our ability to create long-term value for shareholders. With that being said, let's take a moment to review LYB's safety performance. Safety is foundational to how we operate. Our year-to-date total recordable incident rate of 0.12 remains among the best in our sector. Our team continues to successfully navigate external uncertainty and internal improvements while delivering some of the best safety performance in our corporate history. This demonstrates safety is truly in our DNA and reflects the strong commitment and focus of our employees and contractors. Next, I would like to spend a few minutes on our recently announced agreements to sell the site of the former Houston refinery and the implications for our business. As you may all know, we announced that LyondellBasell has entered into an agreement with Valero to sell the site and associated assets as part of our ongoing portfolio management efforts. The transaction value is $320.5 million, all cash and payable at closing and is expected to close by the end of 2026 subject to regulatory approvals and customary closing conditions. Post-closing, Valero is assuming responsibility for ongoing site operations, environmental liabilities and pension costs and related employee obligations. This transaction aligns the site with an owner whose core business is refining, creating an opportunity for the site's assets and infrastructure to support future operations. This site has been an important part of the company's history and success for many decades and we are grateful for the contributions of our employees, contractors and leaders who help operate the site safely and reliably throughout its history, including the safe and orderly shutdown of operations in 2025. Since Capital Markets Day, we have taken deliberate actions to strengthen our portfolio, including investing in advantaged assets, exiting businesses that are noncore and transforming the APS business. And ultimately, this is another step in creating a more focused and streamlined portfolio. Since announcing our decision to cease refining operations, we have said that future investments and opportunities for the site would depend on market conditions, capital allocation priorities, regulatory developments and our investment criteria. We thoroughly evaluated a range of potential opportunities that could leverage the site's existing infrastructure. As market conditions evolve, selling the site emerged as the most attractive opportunity to create value from the site. At the same time, we remain committed to pursuing attractive circular and low-carbon opportunities in regions where market conditions and regulatory frameworks support long-term investments. We continue to advance our investment in MoReTec-1 demonstrating this commitment. From a financial perspective, the proceeds help support balance sheet strength and financial flexibility, increasing our optionality over time. Beyond the proceeds, this next step helps support our broader focus on strengthening the LYB portfolio and improving our cash flow by approximately $50 million to $100 million annually, while creating additional flexibility to focus our capital and resources on our core priorities. Overall, this is another important step in building a more focused and resilient LYB. It simplifies our portfolio, while allowing us to focus capital on long-term value creation. Now I would like to highlight how the breadth of markets we serve is an important strength for our portfolio on our next slides. Our diversified portfolio is balanced across durable and consumable applications, each with different demand drivers and economic cycles. This reduces our reliance on any single market or economic cycle. LYB is well positioned across end markets with building and construction representing only about 5% of our overall end market exposure. At the same time, we participate in areas such as infrastructure that offer more attractive current growth. This diversification provides different sources of earnings and growth potential across the cycle. The stable demand from consumables provides the foundation for the portfolio, while more cyclical markets, such as housing and consumer goods can provide meaningful upside as conditions improve. We're seeing this dynamic play out currently, where strong octane values have supported attractive margins and record EBITDA in the I&D segment, demonstrating the earnings power embedded in our diversified portfolio. Now turning to the next slide, which puts our end market exposure into the broader context of different economic cycles. As the chart on the left illustrates, the relative strength of consumables, durables and gasoline demand rotates over time. Consumables have historically provided a more consistent source of demand, supported by everyday applications such as packaging and have demonstrated greater resilience through periods of economic weakness. We're also seeing attractive growth in areas such as health care providing additional opportunities. Our oxyfuels business adds another differentiated demand driver, growing faster than gasoline as fuel quality requirements and biofuel regulation increase. Strong octane values are supporting attractive margins today, providing earnings strength even as several durable markets remain challenged. This demonstrates the benefit of how differentiated market exposures can contribute to LYB's earnings power at different points in the cycle. Certain durable applications tend to be more cyclical. Housing and automotive markets have remained muted for several years but continue to represent a big potential. Other durable demand was elevated during the pandemic as consumers pulled forward purchases. While the timing of recovery remains uncertain, replacement cycles create near-term demand uplift opportunity. At the same time, infrastructure and data center investment globally is supporting strong demand growth across applications such as pipe, conduit and wire and cable. Each of these markets have experienced periods of relative strength and weakness at different times. A broad portfolio does not remove cyclicality, but it reduces our dependence on any single demand driver and helps provide earnings resilience through the cycle. Turning to our financial performance. I'll walk through our results for the quarter. During the third quarter, earnings were $2.54 per diluted share with EBITDA of $1.5 billion. Cash increased by approximately $600 million to $3.2 billion and our liquidity increased to $7.7 billion at quarter end. I will now hand over to Agustin to discuss our financial performance in more detail.

Agustin Izquierdo: Thank you, Peter, and good morning, everyone. Let me begin with outlining our cash generation. Cash conversion for the third quarter was very strong, reflecting underlying profitability alongside continued working capital discipline. We have further rationalized inventory volumes through incremental sales to attractive spot markets in September. This has more than offset the headwind from higher prices on receivables. Over the past 12 months, LyondellBasell converted EBITDA into cash from operations at approximately 84%. We continue to exceed our long-term target, which is noteworthy given prices remain higher than we would have expected at the beginning of this year. As Peter mentioned, in the third quarter, our cash balance increased to $3.2 billion, and our available liquidity increased to $7.7 billion. Now let's turn to the next slide and review the details of our third quarter capital allocation. During the quarter, we generated approximately $1.7 billion of cash from operating activities, a result of robust profitability and strong cash conversion. We continue to execute on our capital allocation priorities this quarter. Our capital expenditures in our operations were $303 million. We returned $224 million to shareholders in dividends. As planned, we also repaid a EUR 500 million note in September using the earmarked funds we raised in our $1.5 billion bond offering last year, and we strengthened our balance sheet by increasing our cash balance by approximately $600 million. Despite the highly dynamic environment, our capital allocation priorities remain unchanged. We are committed to strengthening our assets by investing in safe and reliable operations through our sustaining CapEx program and selective investment in profit-generating growth. We will remain disciplined in how and when we deploy any additional capital in investments that strengthen our competitive position. We continue to prioritize our investment-grade balance sheet as the foundation of our disciplined capital allocation framework. We also continue to make progress on our $500 million cash improvement plan goal driven primarily by lower capital expenditures and fixed cost reductions. Our streamlining of the organization continues as our workforce is approximately 18% smaller now compared to the beginning of last year driven by portfolio changes and ongoing restructuring. We are maintaining a strong discipline on working capital as demonstrated this quarter. However, the full year change in working capital will remain dependent on year-end prices. These actions are enhancing financial flexibility while positioning LYB to create value across the cycle. Now I'll provide a brief overview of our segment results on the following slides. During the third quarter, our business portfolio generated $1.5 billion of EBITDA, which was a step down from the second quarter, but up over 80% from the third quarter 2025. Profitability fell in our O&P segments, largely due to lower polymer prices, record EBITDA in I&D partially offset this with material benefits from higher oxyfuel margins and the restart of Bayport PO/TBA. Given stronger profitability in the U.S., we now expect to be at the upper end of our prior guidance for effective tax rate for the full year 2026. With that, I will turn the call over to Kim.

Kimberly Foley: Thank you, Agustin. Let's now turn to the performance of the Olefins and Polyolefins Americas segment. During the third quarter, O&P Americas EBITDA was $641 million. Market conditions were dynamic throughout the quarter. In the summer, demand was weaker and prices fell as a result of some consumer destocking and the expectations of further price declines. Overall, lower prices for polymers, olefins and other co-products caused our margins to fall from record highs in the second quarter, but still remains substantially above last year. However, starting in August, the conflict in the Middle East escalated and concerns about product availability returned. U.S. domestic polyethylene prices rose $0.05 per pound in September driven by stronger domestic and export demand and lower producer inventories. Year-to-date, prices are up $0.25 per pound. North America demand for polyethylene and polypropylene strengthened with domestic sales volumes up approximately 6% and 5% year-on-year, respectively. Industry price initiatives for polyethylene continue with price increases of $0.05 per pound announced for both October and November. These price initiatives are well supported by our strong domestic and export order books and higher polyethylene export prices, which are up $0.10 to $0.12 per pound versus July lows, but rising feedstock costs may partially offset price increases. Polypropylene market dynamics were similar with a $0.03 per pound spread compression in August followed by increasing concerns on product availability in the fall. Strong export demand for North American polypropylene is supportive of a $0.03 per pound spread increase for November. Our third quarter operating rate for the segment was approximately 85%, with our crackers operating at approximately 90% during the quarter. Operating rates were impacted by our Clinton turnaround which we completed on time and below budget during the quarter. Our investments and operating improvements through our value enhancement program support higher productivity. An example of this in the quarter was at Morris where we increased high-density polyethylene production through our new operating mode, allowing us to better meet customer demand with minimal capital investment. In the fourth quarter, we plan to operate our assets in line with market demand and complete planned maintenance activities at the Lake Charles polypropylene site. As a result, the fourth quarter operating rates across the segment are projected to be approximately 85% of nameplate capacity. With that, let's turn to the results of Olefins and Polyolefins Europe, Asia and International segment. During the third quarter, the segment generated EBITDA of $13 million. The sequential decline reflects the expected reduction in volumes following the sale of our 4 European assets in May, along with significant margin compression. Polymer pricing weakened as customers purchased cautiously following stronger buying in the second quarter. Conditions were challenging in September as low Rhine water levels constrained logistics. Results also reflected the absence of the second quarter gain from the sale of the emissions credits. Looking ahead, we expect European market conditions to remain challenged as elevated energy and logistics costs continue to pressure integrated margins. Low Rhine water levels are expected to constrain logistics and keep our crackers near technical minimum operating rates. Across the segment, we are targeting operating rates of approximately 60% in the fourth quarter, slightly below the approximate 65% in the third quarter. We will continue to align production with market demand while actively managing feedstock availability, inventories and customer requirements. Our portfolio actions are reducing the structural cost base of the business. Following the sale of 4 European assets, we are continuing to rightsize corporate and support costs for the smaller footprint. Our teams are also optimizing feedstock and production plans to manage Rhine and broader logistics constraints. Through VEP, we are also improving maintenance execution, including the expanded use of faster, low-cost access methods to reduce operating costs. These actions should improve the resilience of the remaining portfolio and position the segment for stronger performance as the European industry conditions recover. And with that, I will turn the call to Aaron.

Aaron Ledet: Thank you, Kim. Turning to the Intermediates and Derivatives segment. Third quarter EBITDA more than doubled sequentially to a record level of $795 million. This outstanding performance reflected both strong operational execution and favorable market conditions. As we outlined in the slide last quarter, oxyfuels margins benefit from higher crude prices, but that is not the whole story. In the third quarter, oxyfuels margins were driven by tighter gasoline supply which drove higher crack spreads and favorable gasoline pool economics leading to improved octane values. These factors contributed to significant margin expansion in both Europe and the U.S. including into the fall where margins are usually seasonally weaker. PO&D, methanol and acetyls also performed well, with margins remaining well above pre-conflict levels. Our record third quarter performance also demonstrates the strength of our operational execution. The safe restart of Bayport restored meaningful TBA and PO production capacity allowing us to fully participate in exceptionally strong oxyfuels markets. We have improved reliability across our acetyls and methanol assets, and through VEP, increased oxygen feed at Channelview is helping us to sustain PO/TBA production above nameplate capacity. Looking ahead, we expect profitability to moderate following the exceptional third quarter. PO&D and methanol margins should normalize from elevated levels. However, seasonal de-icing demand should provide some support for propylene glycol. The oxyfuels outlook remains particularly constructive. Although gasoline cracks typically moderate following the summer driving season, tight global product supply and continued octane demand should support fourth quarter margins. Overall, while results may moderate sequentially, the fourth quarter outlook remains historically strong. Across the segment, we are targeting operating rates of approximately 75% in the fourth quarter compared with approximately 85% in the third quarter. This reflects some planned maintenance and normal seasonality as we align production with market demand and maximize the value of our integrated portfolio. With that, I'll turn the call over to Torkel.

Torkel Rhenman: Thank you, Aaron. Let's now turn to the results for the Advanced Polymer Solutions segment. Third quarter EBITDA was $45 million, broadly consistent with the prior year period but lower sequentially from a particularly strong second quarter. The sequential decline primarily reflected seasonally lower automotive volumes, including typical OEM downtime in Europe. Purchasing also remained cautious across several end markets. Our favorable product mix provided some support but did not fully offset weaker volumes and competitive market conditions. Looking ahead, the fourth quarter is typically the seasonally weakest period for APS. We expect automotive production to moderate towards year-end with continued softness across other durable end markets. Competitive conditions are also expected to place additional pressure on margins. While automotive demand remains soft, we are seeing strong demand for electrical components supporting data center expansion and grid build-out. Against this backdrop, our teams remain focused on the factors within our control. We continue to advance cost reduction and operational improvements while taking actions to optimize our specialty powders and European polypropylene compounds portfolios. Together, these actions are creating a leaner, more responsive APS organization and a stronger operating foundation. Despite some headwinds, we expect to see a meaningful improvement in full year EBITDA compared to 2025. With that, I will return the call to Peter.

Peter Z. Vanacker: Thank you, Torkel. I will now discuss the results for the Technology segment. Third quarter results declined sequentially to $29 million, reflecting lower catalyst demand following unusually strong second quarter buying, particularly in Asia and the Americas. Catalyst mix and inventory preparation ahead of the planned Ferrara shutdown also affected results. Looking ahead, we expect catalyst demand to improve across Asia and the Americas. Licensing and services revenue should also increase, although milestone timing remains dependent on customer and project developments. That said, we continue to see increasingly weaker demand for new licenses over the past 3 years, which indicates a dramatic slowdown of new capacity additions by the end of the decade. Overall, we expect technology EBITDA to remain flat sequentially with some variability related to the timing of licensing milestones. Turning to the near-term outlook. We expect some seasonal moderation in the fourth quarter, but conditions vary significantly by region. Geopolitical uncertainty continues to influence costs, trade flows and market behavior and could moderate some normal seasonal patterns. In North America, we expect polyethylene demand to remain resilient across domestic and export markets. Recent order activity has been unseasonably strong, and reduced inventories, elevated freight costs and planned industry outages are contributing to firmer market conditions. At the same time, competitive pricing and higher feedstock costs could impact margins and demand is likely to moderate as we approach year-end. Europe presents a more challenged outlook as customers navigate tighter supply while managing purchases cautiously, higher energy and logistics costs, lower polymer spreads and reduced feedstock flexibility could compress integrated margins. Seasonality and ongoing logistics constraints are also expected to weigh on operating rates, likely driving a sequential decline for O&P-EAI. In Asia, we expect conditions to remain weak but relatively stable. Inventories remain relatively lean, likely limiting further downside. However, soft downstream demand should keep customers cautious and purchasing could be contained to near-term demand. Looking across our key end markets, packaging, which represents a substantial portion of polyethylene demand should remain resilient due to its exposure to essential food, health care and consumer applications. In Building & Construction, affordability should continue to constrain housing activity. However, infrastructure investment should provide some resilience, particularly in pipe, conduit and wire and cable applications, supporting data centers, power transmission, and water management. Automotive demand is expected to remain subdued across the major regions. Affordability pressures and year-end production patterns should limit near-term improvements, particularly for polypropylene compounds. Finally, fuels fundamentals should remain strong despite normal seasonal moderation, although gasoline cracks are expected to decline sequentially, they should remain historically strong for the fourth quarter. Tight supply, robust demand for octane and continued constraints in global product markets should support margins above typical seasonal levels. Overall, we expect a constructive but measured outlook in North America, continued resilience in essential end markets and fuels and significantly greater pressure across European markets. As we conclude today's call, I would like to acknowledge that throughout the third quarter, our team continued to make smart decisions to successfully navigate a rapidly changing environment and ensure that we continue to serve our customers. We remain heavily focused on delivering lasting value for all our stakeholders. Now with that, we're pleased to take your questions.

Operator: [Operator Instructions] Our first question comes from the line of Kevin McCarthy with Vertical Research Partners.

Kevin McCarthy: I appreciate your forward commentary on the Intermediates and Derivatives segment, given the relative strength in the third quarter. Maybe you can walk us through some of the structural strength we're seeing in MTBE lately, which has been on a bit of a roller coaster, last 4 weeks or so relative to the seasonal weakness. Just kind of the puts and takes here and a little bit more color would be helpful on the sequential move into 4Q.

Aaron Ledet: Yes. Thanks for the question, Kevin. I appreciate it. As we said in our planned remarks, margins were at record levels coming out of September, and we have seen a steady decline throughout October, and that's primarily driven by declining gas cracks and MTBE premiums coming off. Add to that an increase in butane prices. If you look at butane as a percentage of crude, it's almost 70% in the U.S. and close to 90% in Europe. Both of those regions are seeing margins compressed as a result of the higher butane. Now, Europe hasn't declined quite as much as the U.S. has in October with continued logistics constraints associated with the Rhine. But again, butane prices are putting downward pressure on margins in the region. Just a reminder, and Peter mentioned it in his planned remarks, that seasonality does play a role in the fourth quarter and from a demand perspective, we are seeing that impact some of our volumes in Q4.

Operator: Our next question comes from the line of Salvator Tiano with KeyBanc Capital Markets.

Salvator Tiano: Yes. I wanted to ask a little bit about the refinery sale. Also, you said you examined everything, and I believe it was going to be part of potentially -- alongside that facility where you may have MoReTec-2. Does this mean that MoReTec-2 is pushed further to the right or potentially canceled? And are there any other implications with regard to, I guess, your supply chain from the refinery being sold? Any other assets like the hydrocrackers that you may have been -- wanted to use one way or another? And on the other hand, could there be any tailwinds by the refinery starting? Could you get cheaper feedstock supply from Valero? Is there any such agreement?

Peter Z. Vanacker: Thank you, Salvator, for your question. This is Peter here and nice to meet you. Well, you know that we have announced a while ago that we continue to invest in circularity because we believe that it has an attractive value proposition. And while our overall strategy for sustainable solutions remains consistent, executing strategy in a value-accretive way means that we are adapting to the new information that we are gaining from engaging with brand owners, with policymakers, other stakeholders in the value chain. We also mentioned in our latest sustainability report, that achieving our strategy for circularity is dependent on 3 key enablers. Let me repeat them. I mean, first of all, supportive regulation; secondly, customer demand; and third, investment and infrastructure capability. You rightfully noted that we delayed the final investment decision for MoReTec-2 last year. And earlier this year, we also updated our volume and value goals for circularity. And of course, I mean, before we updated those goals, we took a hard look at regulation and how that could impact demand over the next few years. In Europe, there is a strong regulatory support for circularity. You know that we are progressing with MoReTec-1 in Europe. In the U.S., we do not yet see strong regulatory support that would eventually enable an investment in MoReTec-2. So as a result, if you look at the dynamics in the different regions, we currently are more assuming that MoReTec-2, once, of course, we have successfully started at MoReTec-1, and we have learned out of MoReTec-1 -- remember it's a semi-industrial plants that we're building in Wesseling, so we're assuming that MoReTec-2 would also be in Europe and any MoReTec deployment in the United States would be aligned, I mean, to demand visibility and also progress on regulation. To your other questions, of course, a strategic decision was our exit from refining, and you know that we announced the exit from refining in 2025. We also executed it in 2025. And since then, the site has been a nonoperating asset. We have, of course, evaluated a range of potential future users. You mentioned a couple of them. But this transaction, as we have now announced this morning, emerged for us as the most attractive opportunity to create value from the site while, of course, also reducing further obligations in the future, as well as complexity. We view this deal here primarily from a LyondellBasell point of view as a real estate and a capital allocation decision rather than a change in our corporate strategy. So the transaction allows us, of course, to realize value from a noncore asset while maintaining focus on our existing strategic priorities. Remember what we have flagged in the past, I mean when we said we are shutting down the refinery. The refinery had, of course, substantial investments that needed to take place and we rather prefer, I mean, to do investments in our core assets, especially here O&P and as, of course, also in I&D. So the sale is consistent with our disciplined approach to portfolio management as well as capital allocation, and therefore, we will continue to drive value from our core businesses and the existing growth priorities.

Operator: Our next question comes from the line of Duffy Fischer with Goldman Sachs.

Patrick Fischer: Just a question on feedstocks, in particular, ethane in North America. It's kind of traded up fairly meaningfully off the methane floor recently. What's your sense for kind of the supply-demand balance in ethane? What do you think has changed, let's say, in the last half year? And do you think it's structural that it will continue to trade a little bit higher than methane? And is there a chance that it trades up towards the propane ceiling in your view?

Kimberly Foley: So thank you for your question. This is Kim. Let me just talk a little bit about ethane and NGLs as it relates to what we're seeing in the second quarter, third quarter and most importantly, how it's going into the fourth quarter. At the onset of the conflict, we didn't see a lot of increase. But second quarter to third quarter, we did see ethane increase 14%, and it continues to rise due to strong domestic demand supported by fewer turnarounds and higher North American operating rates, a steady flow of ethane exports and preparations for as we all know, the new capacity that will start up here on the Gulf Coast shortly. The broader NGL complex has also strengthened in the third quarter due to the LPG supply that's not getting out through the Strait of Hormuz. For example, butanes, to your question, they've increased over 7% quarter-on-quarter, respectively, reflecting the stronger export demand, the shift into the gasoline pool and these tighter inventories. So as we think about feedstocks, we really think about them, as your question implies, to the fourth quarter because ethane exports are going to continue to increase as there's more VLECs coming online and the demand for ethane in China strengthens. Today, ethane is sitting at about $0.30 a gallon, which is 24% higher than the third quarter average. In the short term, we think ethylene margins will compress as most of the U.S. NGLs, whether that's ethane, butane, propane are continuing to become more expensive. That said, there is some optimism. There are 2 new fractionators that are going to be brought online in the fourth quarter, which should support the incremental ethane supply needed. So we believe that North America will remain structurally advantaged, that ethane price will moderate back down and it will benefit from the integration and the feedstock flexibility that we have.

Operator: Our next question comes from the line of Patrick Cunningham with Citi.

Patrick Cunningham: Just in terms of outlook on polyethylene, you have the additional October, November increases on the table. I guess what gives you confidence in getting these price increases through? And then maybe just in terms of inventories, both at the producer level and the downstream level, do you see them as elevated? Do you see any heightened risk of destocking into year-end?

Peter Z. Vanacker: Well, Patrick, good question, of course. Let me say that if you look at -- and I think Kim said it in the prepared remarks, demand is extremely good. It's very good. I mean, in the month of October, both domestically as well as in export, so with that, I hand over to Kim to give you a little bit more background.

Kimberly Foley: Thank you, Peter. Let me start by saying global inventories remain below pre-conflict levels. Demand is strong in cost advantaged regions like North America, and it's obviously softening in high-cost regions like Europe. And I think the other thing that's important to remember is logistics are constrained and quite expensive. With all the price volatility, customers basically across the entire value chain have basically been operating with very, very lean inventories. Supply is also challenged in different regions of the world due to feedstock availability, some of what we just talked about or affordability, and trade flows continue to change. For example, today, China is importing polyethylene again versus the approach they took in the second quarter where they were exporting. The other key point about China is price is increasing. Earlier in the conflict, their crude levels and their finished product inventory levels enabled them to dampen or lessen the price volatility. They don't have those levels anymore today, so they too must pass on the higher feedstock pricing into the downstream markets. So yes, we believe demand is stronger than anticipated by many because of the demand deferral that happened over the summer when consumers felt that the conflict was over and they were waiting for additional price decreases. As Peter said, September PE sales are up 7% month-on-month and 12% versus September of '25. For LYB, it's our strongest sales month and October is looking like it might meet or beat September. Additionally, if you look at ACC data, it would tell you year-on-year, quarter-on-quarter and month-on-month days on hand is down. And lastly, with the higher feedstocks and the freight rates that I've already alluded to other regions of the world just can't meet export demand right now, so we see a combination of healthy end market demand, strong export activity, low inventories and this ongoing logistics constraint to continue to support the current market conditions. And as you said, LYB, like others have price increases in the market, but ultimately, that price will remain very dynamic and very responsive to the feedstock costs, demand durability, supply chain constraints and inventory levels.

Operator: Our next question comes from the line of Chris Parkinson with Wolfe Research.

Christopher Parkinson: I just want to dive into that a little bit more, just given where export dynamics were during the beginning of this year and given all the moving pieces on a sequential basis over the last few quarters, it seems like things have evolved fairly constructively, and it's going to take time for the market to normalize or reverse. I'd love to hear your thoughts on how you think that's going to generally occur, where you think -- where you ultimately believe things are going to fall into place for the first half of '27 and perhaps longer term just in terms of relative spreads by region?

Peter Z. Vanacker: Well, Chris, let me take -- I mean first try on your question without giving, of course, any guidance. Well, as usual, I mean if I go back a little bit when the conflict started, we've been saying consistently that we don't expect that this is going to be something that is going to last for months, not even quarters, but it will take substantially more time until market, supply and demand, logistics, everything turns out again, as it is -- as it was in the past. Having said that, of course, in the meantime, there has been also capacities that have suffered, I mean, from the conflicts that not immediately are expected to come online as well. So if you look at all the dynamics, then I don't believe that on January 1, we're going to just fall off a cliff, so to say, and the market is going to be completely different. On the contrary, just like we said in the past, I mean, this is going to take quarters. This is not going to take months in order to have, again, a situation as it was in beginning of 2026. Kim, anything you want to add?

Kimberly Foley: No, I would just say, I mean, look at some of the things that we've already said today to think about the duration of the impacts. We talked about LPGs. We didn't see that spike in price at the onset of the conflict, but we're seeing it now. We just talked about China had an inventory cushion to help soften the blow of the disruption in the beginning, now it's 6 months later and you see the price impacts flowing through there. So it will take time for all of this to unwind as well.

Operator: Our next question comes from the line of John McNulty with BMO Capital Markets.

John McNulty: Peter, it was highlighted, you've got your liquidity up to $7.7 billion, you've got cash on hand at $3.2 billion, and I think before kind of the windfall fourth quarter that you normally get and the Houston refinery sale. So your balance sheet is in a much better position and your leverage levels than we've seen in quite some time. I guess, how do you think about deploying that going forward? Do you loosen things up a little bit, just given that there may be assets available out there right now? Do you still keep them tight because while things may last a while, there's still maybe a negative direction over time? I guess, how are you thinking about capital deployment at this point?

Peter Z. Vanacker: Let me make a comment, John, and I appreciate that you asked this question because with the question you recognized all the hard work that our teams actually have been doing. And you clearly see that liquidity management, cash conversion is part of our DNA. It's a muscle that we have developed in the organization. It's part of how the businesses are running their business, not just looking at EBITDA, but also looking at the cash that they are generating and the cash conversion actually. So you may expect to see us continue on that, of course, because it's part of our standard operating procedures in the company demonstrated by very high cash conversions as we have demonstrated consistently since 2022. So with that, Agustin?

Agustin Izquierdo: Sure. I'll just add that on that cash balance and strength of the liquidity, you're absolutely right, we've been very diligent and disciplined. But also remember that here in Q1, we'll have the maturity of $900 million that we'll repay to continue with our deleveraging efforts also Q1 is the quarter where traditionally we consume most of our working capital. We have tax payments, insurance payments, compensation, et cetera. So we will continue to be very prudent and diligent and as you've heard also from the questions before, the uncertainty remains quite high, so nothing really will change in our capital allocation strategy.

Operator: Our next question comes from the line of Abigail Eberts with Wells Fargo.

Abigail Eberts: Just given the commentary on ethane and ethylene prices, your crackers are running at about 90% capacity this quarter. What are your expectations for rates as you look to the fourth quarter?

Kimberly Foley: On the crackers 90, across O&P, we've guided to 85%.

Peter Z. Vanacker: In the Americas.

Kimberly Foley: In the Americas, sorry.

Operator: Our next question comes from the line of Josh Spector with UBS.

Joshua Spector: I wanted to just ask about freight rates in general, just considering a lot of your exports out of the U.S. Gulf Coast, in that how much of the freight rate do you guys pass through directly to customers? How much do you need to get? Basically, is that something we need to watch as either a cost item or something of an opportunity from a spread perspective?

Kimberly Foley: Josh, it's Kim. I would say -- I'll try to make it simple. When you think about LYB's export, most of it is sold at the port, and I think most of our competitors are also doing the same. The challenge for others is that we're a backhaul, so the others are paying higher rates from different regions of the world to go to some of the same export destinations as we are, and they have to include that in their price.

Operator: Our next question comes from the line of Vincent Andrews with Morgan Stanley.

Vincent Andrews: I wanted to ask on, I guess, on APS as well as your broader polypropylene portfolio with the automobile exposure, the shift of China to putting a quota on Chinese imports of automobiles, is that going to be positive to you in any way? Or has that sort of change in trade flows in the past than a negative and now will that reverse back? Or will that have no impact on you at all?

Peter Z. Vanacker: Well, Vincent, I'm going to give that question to Torkel. I'm very pleased that the question is being asked on APS because the APS team has done a fantastic job so far in transforming the way how we do business, being much closer to our customers and that at a substantially lower cost than it was in the past. And you see that, of course, being translated on -- year after year after year increasing EBITDA and EBITDA margins despite an automotive industry that is quite challenging still up to today.

Torkel Rhenman: Yes. Thank you very much for the question. As you know with that question, automotive is a very important part of the APS portfolio, and our footprint being global, we have a strong presence in China as well, so we actually participate in business over there, even though our share with the Chinese OEMs have been lower than it has been with the Western OEMs, but that's been gradually changing as our strategy has been to really focus on the growing brand. So I actually don't see that it has had much of an impact on it. I would say, rather that the overall softness in automotive demand and durable goods have been a headwind for us. And I don't anticipate that much changing. But as you have seen both on the earnings growth last year of over 50% and this year, year-to-date of over 30%, I think we're building muscles in APS to basically continue to increase our profitability even in a challenging market, so that's been our focus really through the self-help, the customer centricity, everything we're doing on asset optimization, productivity, lean and really building a strong business.

Peter Z. Vanacker: And EV cars is a positive as well, yes, because it demands more complex formulations, compounds, and you're well positioned in China as well with the locations that we have there.

Torkel Rhenman: No, exactly. And through the innovation, we see actually the work that we're doing to enable more plastics in a vehicle, to lightweight the vehicles, particularly important for electrification that we actually have more plastics participation in a vehicle for every year, that's -- our innovation is progressing in the market.

Operator: Our next question comes from the line off Jeff Zekauskas with JPMorgan.

Jeffrey Zekauskas: For the last 9 years, China has been importing about 1 million tons of polyethylene a month, and this year, they're averaging, I don't know, 750, so they're down 30%. It's picked up a little bit. Do you think, Kim, that we're going back to importing 1 million tons a month in 2027 or have conditions changed? And for Peter, in terms of use of cash flows, when you talk to the Board, does the Board seem more interested in increasing the dividend or buying back shares with excess cash flow, if you can tell?

Peter Z. Vanacker: Jeff, good to see you or at least hear you online. So you said Kim for the first question, so I'm going to hand over to Kim.

Kimberly Foley: So Jeff, I think that the rate of imports that we're seeing in '26 into China is very volatile depending on what inventory they had and just the different things that have occurred throughout the year, as I mentioned earlier, whether they were depleting inventories in order to try to minimize the inflationary impact of cost increases or whether they've just been trying to capture different price spikes when they were exporting into the regional markets that they could export to. They've also got quite a bit of capacity as we all know, coming online in '27, '28, so I think from a planning perspective, we should think in the 750 to 1 million kind of range, but the real thing around the market is really supply and demand and what kind of growth are we going to have in plastics. We continue to see strong growth in a lot of the areas that we mentioned in our prepared remarks, whether that's infrastructure, wire and cable, health care, packaging, et cetera. So I think it's fair to assume that it won't be the last 9 years but it won't be as lean as it was in the second quarter.

Peter Z. Vanacker: So to your second question, Jeff, of course, a very good question, but I want to elaborate a little bit rather than just the question around, I mean, dividends, and outline a little bit more on what are all the actions and how does it all fit together, and how is that eventually translating in a structurally higher through-cycle earnings, more cash generation and so on because that's directly linked, of course, to our -- what do we do with the cash to the capital allocation question. So as you know we've taken actions to improve our long-term earnings power, cash generation, the resilience as well. It consisted out of upgrading the portfolio, the latest evidence being the sale of the assets of the Houston refinery with reduced exposure to structurally disadvantaged assets, the work that we have done in Europe, we're not done yet. We're still discussing with union representatives on Brindisi. We've improved cost competitiveness, strengthened also operational performance. I mean partly through the cash improvement plan, partly to the value enhancement program. If you look, for example, and we mentioned that in the prepared remarks, in terms of head count, that's now compared to the -- to last year, it's now 18% lower. But if you would, for example, look to fixed costs, our run rate is about, in total, 10% lower than if you compare it to the previous years, and that's the run rate that we are talking about. So you see that all these activities were very tangible and then, of course, leading to a better EBITDA and also leading as a consequence to a better cash generation. Of course, I mean, in the value enhancement program, we gave a couple of examples during the call whereby the PO/TBA facility, the new facility in Channelview, through our value enhancement program, we've been able to increase our capacity to 110% of design. And if you look at current forecast for 2026 and you annualize, I mean, the current actuals for that unit, it means a $65 million in additional value. So here, again, tangible results coming out of the VEP. Morris, the example was given by Kim as well, tangible results, $20 million in value, so it's starting to come now all the hard work during the last 4 years. You see all these elements are starting to come together to ensure that the cash machine, so to say, that we have built up, continue to generate not just better EBITDAs, but also based upon a very good cash conversion, better cash generation. Now all of that is helping us to offset inflation. I mean the vast majority, if I would, for example, look at the value enhancement program, the way I look at it is about 2/3 is offsetting inflation and about 1/3 is sticking of what we are doing, and that is just the value enhancement program. So now I lead them into capital allocation and pretty much, with the previous question, the answer has been given by Agustin, so to say, nothing has changed, I mean, in how we look at capital allocation. And let's be sure. I mean, also at the time, when Michael was around as CFO, we've been very diligent in making sure that we had sufficient cash on the bank. So we had about $3.4 billion every year since 2022 at the end of the year on the bank. And that continues to be something that we are aspiring. We're not there yet because I said it's a $900 million bond that we want to pay back at the beginning of next year. Agustin?

Agustin Izquierdo: Investment grade, very important, making sure net leverage comes down, maintenance on our assets to run them safe and reliably, dividend growth and eventually buybacks to offset dilution and that will be our philosophy.

Operator: Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Vanacker for final comments.

Peter Z. Vanacker: Okay. Great. Thank you again for all the thoughts and questions. The events over the past months have transformed the global landscape with the economic and logistical impacts of this conflict likely to persist many quarters beyond the eventual end of the disruption. While volatility and uncertainty remain part of the current environment, our focus continues to be on the actions we can control and through disciplined capital allocation, active portfolio management and a relentless focus on operational excellence, we're building a stronger and more resilient LYB. Our employees demonstrated this impressively by delivering 18% EBITDA margin during the quarter. Actually, O&P-Am was 20% and I&D was 27%. It clearly shows the margin potential of the renewed LYB portfolio and lean organization setup, and you can be confident that LYB will remain focused on our strategic priorities and long-term value creation in this dynamic environment as we are developing further opportunities to create shareholder value. We hope you all have a great weekend, stay well and stay safe. Thank you.

Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.