LyondellBasell: A Petrochemical Bottom with Built-to-Last Strength

The petrochemical sector has been a rollercoaster in 2025, but LyondellBasell (LYB) is primed to turn the corner. With its Q2 earnings announcement looming on August 1, investors have a chance to see how this global chemical giant is navigating margin pressures—and why now could be a rare entry point. Let's break down why this cyclical trough is temporary, and why LYB's structural advantages make it a buy for the long haul.

The Case for a Cyclical Bottom: Balance Sheet and Cost Discipline

LyondellBasell's financial foundation is rock-solid. The company ended Q1 with $6.5 billion in available liquidity, a fortress-like buffer against volatility. Its $500 million Cash Improvement Plan, launched in early 2025, is already bearing fruit. This initiative targets operational efficiency, disciplined capital allocation, and cost reductions—key levers to stabilize margins during a downturn.

While Q1 EBITDA dipped to $655 million (excluding one-time items), the company is laser-focused on what's within its control. For example:
- Lower U.S. feedstock costs: Natural gas and ethane prices have moderated, easing pressure on polyethylene and polypropylene margins.
- Strategic asset moves: Closing underperforming assets like the Dutch PO joint venture and refining operations has streamlined operations, reducing overhead.
- Long-term feedstock advantages: Securing cost-advantaged ethane supplies in the U.S. and Saudi Arabia's low-cost acetylene feedstocks give LYB an edge over peers reliant on volatile oil-linked inputs.

Structural Strength: Operational Leverage and Strategic Bets

The company's operational playbook is designed for resilience:
1. Capacity utilization: Q2 operating rates of 85% in North American olefins and 75% in Europe reflect disciplined production aligned with demand. Lower European rates are intentional, part of a strategy to avoid overproduction in a market still recovering from capacity rationalization.
2. Seasonal tailwinds: Summer demand for packaging (think food and healthcare) is boosting polyethylene sales, while gasoline crack spreads hit summer highs, lifting oxyfuels margins.
3. Growth catalysts: Finalizing a U.S. propylene expansion and advancing Saudi Arabia's Jazan Industrial City project will lock in low-cost feedstock advantages for years.

Undervalued Relative to Peers: A Buying Opportunity

LyondellBasell trades at a significant discount to its peers. The stock's median analyst price target of $70 is 22% above current levels, and institutional buying signals confidence: BlackRock increased its stake by 11.4% in Q1. Compare this to Westlake Chemical (WLK), which trades at a 30% premium despite weaker geographic diversification.

Secular Demand Drivers: The Petrochemical Megatrend

This isn't just a cyclical recovery—it's a structural growth story. The world needs petrochemicals for:
- Sustainability: LYB's focus on circular polymers (e.g., recycled plastics) and low-carbon fuels aligns with global ESG mandates.
- Packaging demand: Rising populations and e-commerce are driving growth in food and healthcare packaging.
- Energy transition: Lightweight plastics for EVs and renewable infrastructure are critical.

Risks? Yes, But Manageable

• Oil-gas price ratio: A persistent oil premium over gas could strain margins, but U.S. ethane prices are near decade lows.
• Macroeconomic headwinds: A recession could curb demand, but LYB's focus on essentials (packaging, healthcare) mitigates this risk.

Investment Thesis: Buy the Dip, Hold for the Turn

The Q2 earnings call on August 1 will be the acid test. If margins rebound as expected—driven by lower feedstock costs, disciplined ops, and seasonal demand—the stock could surge. Even if results are muted, LYB's balance sheet and strategic moves make it a buy at current levels.

Action Item: Use the earnings announcement as a catalyst. If shares dip below $55 ahead of the report, go all-in. The long-term secular tailwinds and LYB's structural advantages mean this is a rare chance to buy a $70+ stock at a discount.

In a volatile market, LyondellBasell is the kind of company that rewards patience. The bottom is here—now's the time to dig in.