On Dec 16, we issued an updated research report on Netherlands-based chemical giant, LyondellBasell Industries LYB.
LyondellBasell’s adjusted earnings for third-quarter 2015 topped the Zacks Consensus Estimate while sales missed. Revenues plummeted year over year, affected by lower prices of the company’s products. LyondellBasell, in its third-quarter call, noted that it sees typical seasonality to unfavorably impact the earnings of its oxyfuels, polyolefins and refining businesses in the fourth quarter. The company also envisions stable industry demand and operating rates next year.
LyondellBasell continues to gain from favorable North American natural gas environment and is executing its expansion projects to leverage the U.S. natural gas liquids (NGLs) advantage. The company remains on track with its multi-plant ethylene expansion programs across Channelview, La Porte and Corpus Christi facilities in Texas which benefit from shale gas production.
LyondellBasell has already completed an 800-million pound per year expansion at its La Porte site and a 250-million pounds per year expansion at the Channelview facility. The addition of 800 million pounds of capacity at the Corpus Christi plant is expected to complete by second-quarter 2016. The company is also expected to commence further expansion at Channelview in 2017 which would add ethylene capacity of up to 550 million pounds a year.
Moreover, LyondellBasell recently said that it is advancing plans to construct a world scale plant on the U.S. Gulf Coast for producing propylene oxide (PO) and tertiary butyl alcohol (TBA), leveraging the shale gas boom in the region. The new PO/TBA facility, considered to be the largest of its kind, will be built in the Houston area.
LyondellBasell also continues to pursue its strategy of growth by expanding its competitive position in lucrative markets. As part of this strategy, the company has acquired India-based polypropylene compounds maker – SJS Plastiblends Pvt. Ltd. The acquisition expands LyondellBasell's foothold in India and further reinforce its position in the country’s growing automotive plastics market. LyondellBasell has also agreed to purchase the polypropylene compounding assets of India-based Zylog Plastalloys Pvt. Ltd., which will allow it to double its automotive customer base in India.
However, LyondellBasell faces volatility in raw material and energy costs that account for a major portion of its operating costs. Lower oil prices may hurt its U.S. ethylene margins in 2015, thereby affecting its profitability.
Moreover, LyondellBasell’s operations are subject to maintenance outages. Maintenance turnarounds across a number of plants affected results in the third quarter. Turnaround related to Corpus Christi expansion and maintenance outages across certain plants are expected to impact results in fourth-quarter 2015.
LyondellBasell is also exposed to macroeconomic uncertainties and volatility across end-use markets it serves. In addition, the company faces pricing pressure as it operates in highly competitive markets.
LyondellBasell is a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked companies in the chemical space include Innospec Inc. IOSP, Celanese Corporation CE and Akzo Nobel N.V. AKZOY, all holding a Zacks Rank #1 (Strong Buy).
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