LyondellBasell's Q3 2025 Earnings Call: Contradictions Emerge on Polyethylene Market Outlook, Dividend Strategy, and CapEx

Date of Call: October 31, 2025

Financials Results

• EPS: $1.01 per share (reported; no YOY comparison provided)

Guidance:

• Q4: O&P Americas targeting ~80% utilization; O&P Europe/Asia/Intl targeting ~60%; I&D assets weighted-average ~75%.
• Expect typical year-end seasonal softness; management intentionally front-loaded turnarounds/idle time in Q4 to reduce 2026 downtime.
• 2026 CapEx reduced to $1.2B; sustaining CapEx prioritized; some growth projects remain selectable (Hyperzone, PO/TBA, MoReTec).
• Cash improvement plan on track: $600M incremental cash by end-2025 and at least $1.1B by end-2026.
• 2025 full-year effective tax rate updated to -13%.

Business Commentary:

* Cash Conversion and Improvement: - LyondellBasell achieved a high cash conversion of 135% in Q3, with $1.01 billion per share in earnings and $983 million from operating activities. - The improvement was driven by the company's cash improvement plan, which is expected to increase cash flow by at least $1.1 billion by the end of 2026.

• Polyethylene Demand Recovery:
• Polyethylene demand showed signs of recovery, with year-to-date North American demand up by 2.5% relative to 2024 and European volumes up approximately 3% compared to the same period last year.

• This recovery is driven by consumer packaging and durable goods demand, supported by lower interest rates and government spending on infrastructure.

• Capacity Rationalization and Supply-demand Balance:

• Global ethylene capacity closures announced and anticipated from 2020 to 2028 total more than 21 million tonnes, representing roughly 10% of global supply.

• The announced closures and anti-involution measures in China are expected to partially offset the overhang from new capacity additions and improve supply-demand balances.

• Dividend and Financial Strategy:

• LyondellBasell continued to pay dividends, returning $443 million to shareholders in Q3, while maintaining a strong balance sheet with a cash balance of $1.8 billion.
• The company is focused on maintaining investment-grade credit and aligns capital allocation with market conditions, balancing the need for cash generation with strategic investments and acquisitions.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted 'very high cash conversion of 135% in the third quarter' and said the cash-improvement plan is 'on track to deliver our $600 million target by year-end' while cautioning 'these are not yet green shoots for our financial results.'

Q&A:

• Question from Patrick Cunningham (Citigroup): On polyethylene, given new capacity additions (notably in China) and trade/tariff uncertainty, how likely is a supply/demand inflection improving prices/margins next year?
  Response: Management: Demand is resilient and announced closures (~21 Mt ethylene) plus uneconomic Chinese capacity running at technical minimum should support a tightening and potential margin improvement in 2026.

• Question from David Begleiter (Deutsche Bank): Why are Chinese plants still running (cheap feedstock, government support, or other) and how does your JV compare?
  Response: Management: Many Chinese plants run at technical minimum largely to safeguard employment; anti-involution measures and sharply lower licensing activity point to substantial future closures despite some short-term support.

• Question from Matthew Blair (Tudor, Pickering, Holt): How secure is the dividend given free cash flow likely won't cover it and would funds be better used on the balance sheet or CapEx?
  Response: Management: They intend to maintain the dividend, citing a strong starting cash cushion (~$3.4B), an on-track cash-improvement plan, and a priority on preserving investment-grade rating while still funding safety/sustaining CapEx.

• Question from Jeffrey Zekauskas (JPMorgan): With 2026 CapEx at $1.2B (below D&A), are growth projects still in the budget and will payables change materially in Q4?
  Response: Management: Growth options remain selectable (Hyperzone enhancements, PO/TBA, MoReTec-1/2) and Agustin expects Q4 payables to be ~40–50 lower with an anticipated working-capital release near $1B.

• Question from John Ezekiel Roberts (Mizuho): When do catalyst sales peak and when will sales drop off relative to new plant startups?
  Response: Management: Catalyst sales follow asset run-rates rather than a discrete peak—sales rise as operating rates or new start-ups increase; LYB has expanded catalyst capacity to supply a recovery.

• Question from Frank Mitsch (Fermium Research): Will you continue paying the dividend and besides the ~$110M turnaround headwind, any other material Q4 puts/takes vs Q3?
  Response: Management: They will continue the dividend; Q4 will be weighed down by deliberate additional turnarounds/idle time to reduce 2026 downtimes, offset partially by MTBE strength that may moderate as capacity returns.

• Question from Salvator Tiano (BofA Securities): How much of the closure chart already occurred since 2020 and what are current operating rates—how material are incremental closures from today?
  Response: Management: ~9.5 Mt of closures/announcements have occurred so far versus ~21 Mt expected; low-cost assets run high while noncompetitive assets run near technical minimum—more announcements and domino effects are possible.

• Question from Turner Hinrichs (Morgan Stanley): Thoughts on the bridge to 2026 for I&D given PO closures, acetyls turnarounds, competitor MTBE restarts and other headwinds?
  Response: Management (Aaron): Optimistic—PO rationalizations (≈10% global capacity offline) improve market share, acetyls turnaround will add reliability/capacity, and PO/TBA can run >benchmark providing capex-free upside into 2026.

Contradiction Point 1

Polyethylene Market Outlook

It reflects differing perspectives on the timing and extent of recovery in the polyethylene market, impacting strategic planning and investor expectations.

How would you assess the likelihood of an inflection point in polyethylene supply/demand, prices, and margins next year, considering expected capacity increases and trade flow uncertainties? - Patrick Cunningham (Citigroup Inc., Research Division)

2025Q3: We believe that the spike in additional capacity in China is balanced by expected closures, with about 21 million tonnes of ethylene capacity globally likely to be removed. - Peter Z. Vanacker(CEO & Executive Director)

What sequential lift should we expect for O&P Americas based on current visibility, considering operating leverage? Is there support for additional price increases? - Patrick Cunningham (Citigroup Inc.)

2025Q2: We are encouraged that our customers are increasing their takeaway capacity and the market is more focused on the fundamentals. - Kimberly A. Foley(Executive Vice President)

Contradiction Point 2

Dividend Strategy and Financial Stability

It involves differences in emphasis on dividend payments and financial stability, which are crucial for shareholder value and credit ratings.

Given strong cash conversion this year, how do you plan to allocate capital between dividend strategy and areas like strengthening the balance sheet or maintenance CapEx? - Matthew Blair (Tudor, Pickering, Holt & Co. Securities, LLC, Research Division)

2025Q3: We are on track with our cash improvement plan, focusing on shareholder returns while ensuring financial stability. - Peter Z. Vanacker(CEO & Executive Director)

Why hasn't LyondellBasell reduced dividends amid the downturn, and how is dividend safety maintained? - Frank Mitsch (Fermium Research, LLC)

2025Q2: We will pay the Q3 dividend of $1.37 per share, consistent with Q2. Our focus is on maintaining the dividend while ensuring our investment-grade rating. - Peter Z. E. Vanacker(CEO)

Contradiction Point 3

Polyethylene Demand and Supply Dynamics

It reflects differing perspectives on the demand and supply dynamics of the polyethylene market, which directly affects pricing strategies and market positioning.

How likely is a supply-demand or pricing/margin inflection point for polyethylene next year, considering expected capacity increases and trade flow uncertainties? - Patrick Cunningham (Citigroup Inc., Research Division)

2025Q3: The spike in additional capacity in China is balanced by expected closures, with about 21 million tonnes of ethylene capacity globally likely to be removed. Polyethylene demand remains robust due to factors like consumer packaging essentials and demand drivers from infrastructure spending. - Peter Z. Vanacker(CEO & Executive Director)

What is your outlook for the Chinese polyethylene industry's profitability given lower crude prices? Does reduced licensing sales indicate fewer new polyethylene capacity projects? Is recent revenue growth consistent with seven ethylene crackers under construction in China? How will the industry navigate trade tensions? - Steve Byrne (Bank of America)

2025Q1: As you know, China demand remains weak, and we see that even if there is an increase in investment-driven stimulus initiatives, they are not yet focused on supporting direct consumption and spending. The PE polyethylene trade deficits in China still stands at 30%, 35%, and even after new capacity is provided, it will not be fully realized. - Peter Vanacker(CEO)

Contradiction Point 4

Capital Expenditure and Strategic Investments

It involves differing statements on capital expenditure strategy, which impacts the company's financial planning and growth initiatives.

With next year's CapEx below depreciation, are there remaining growth projects in the capital budget? Will accounts payable differ in Q4 from Q3? - Jeffrey Zekauskas (JPMorgan Chase & Co, Research Division)

2025Q3: We have growth opportunities with low-cost positions and ongoing investments in technology. We plan to leverage our Hyperzone and tecnologia capabilities as market conditions improve. Agustin highlighted that payables are expected to be lower in Q4 due to reduced operating rates. - Peter Z. Vanacker(CEO & Executive Director)

Can you provide guidance on future capital spending, specifically breaking down 2025 and 2026 capital outlays for major product projects and the associated flexibility? - Chris Perrella (UBS)

2025Q1: Our CapEx has been disciplined, with reductions in the last three years. We lowered our 2025 CapEx guidance to $1.8 billion from an initial $2.2 billion. We are prioritizing our capital spending on Flex-2, MoReTec-1, and MoReTec-2 engineering, while remaining flexible and attentive to market conditions. - Agustin Izquierdo(CFO)