LyondellBasell Industries N.V. (LYB) Q2 2013 Earnings Report, Transcript and Summary

Hello, and welcome to the LyondellBasell teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions] I'd now like to turn the conference over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Thank you, Sherry. Well, hello, and welcome to LyondellBasell Second Quarter 2013 Teleconference. And I'm joined today by Jim Gallogly, our CEO; Karyn Ovelmen, our CFO; and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions. And before we begin the business discussion, I'd like to point out that a slide presentation accompanies today's call and is available on your website, www.lyondellbasell.com. I'd also like you to note that statements made in this call relating to matters that are not historical facts are forward-looking statements, and these forward-looking statements are based upon assumptions of management, which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. Actual results could differ materially from those forward-looking statements. For more detailed information about the factors that could cause our actual results to differ materially, please refer to the cautionary statements in the presentation slides and our financial reports, which are available at www.lyondellbasell.com/investorrelations. Reconciliations of non-GAAP financial measures to GAAP financial measures, together with any other applicable disclosures, including the earnings release, are currently available on our website at www.lyondellbasell.com. Now finally, I'd like to point out that a recording of this call will be available by telephone beginning at 2 p.m. Eastern Time today until 11 p.m. Eastern Time on August 26 by calling (866) 460-9739 in the United States and (203) 369-1347 outside the United States, and the passcode for both numbers is 2323. Now during today's call, we'll focus on second quarter 2013 performance, the current environment and the near-term outlook. With that being said, now I'd like to turn the call over to Jim.

Thank you for joining our earnings call. As Doug mentioned, a set of presentation slides accompanies this call and is available on our website. Let's take a look at Slide #4 and review a few financial highlights. The second quarter continued the trends of the first quarter but with results that were slightly stronger. We generated $1.65 billion of EBITDA. This led to record income from continuing operations of $923 million and record diluted earnings per share of $1.60. North American ethylene margins and operations continued their strength. Overall results essentially replicated outstanding first quarter results. We again saw our U.S. crackers operate at or above nameplate capacity. In Europe, results also exceeded our expectations. Olefin plants operated at increased rates, raw material costs declined and we benefited from a favorable raw material mix. In addition to record earnings, the quarter was highlighted by further advancing our cash deployment strategy. During the quarter, we raised our dividend by 25% and initiated our share repurchase program. If you turn to Slide #5, you will see our year-to-date safety results. Overall, our safety statistics continued to be among the best in the industry, but that's not good enough. We seek safety perfection, goal 0, no one hurt. Our record is flat with last year, and we expect continuous improvement. Needless to say, we're not happy with the trend and are redoubling our safety focus. I'd now like to turn the call over to Karyn to discuss our financial performance. Karyn?

Thanks, Jim. Please turn to Slide #6, which shows our second quarter EBITDA by segment. The quarter generally reflected the trends and conditions that prevailed throughout 2012 and last quarter. O&P-Americas generated record EBITDA of $951 million. The combination of continued strong ethylene margins and production drove these results. O&P-EAI EBITDA was $295 million, reflecting a second consecutive strong quarter. Several factors contributed to this performance, including favorable raw material cost variability, competitors' downtime and increased LPG cracking at our ethylene plants. The Intermediates & Derivatives segment generated EBITDA of $338 million. Scheduled maintenance turnarounds at several PO plants caused a decline in results, which was partially offset by stronger oxyfuel results. Refining segment EBITDA was a disappointing $20 million. Declining light to heavy crude differentials, coupled with increased RIN costs, were largely responsible for the results. On the right side of the slide, we have plotted segment EBITDA for the last 12 months. Across the period, we have benefited from strong and growing O&P-Americas ethylene margins and generally strong Intermediates & Derivatives results. Our O&P-EAI results have experienced some volatility, benefiting during 2013 from favorable timing factors and other items that I just highlighted. Refining has been quite challenging, but we have taken action to broaden our operating window and better position us as the crude oil delivery infrastructure further develops. Now let's turn to Slide #7 and see how we deployed the cash. Second quarter operations generated $1.2 billion cash, exclusive of working capital changes. A portion of our anticipated inventory reductions materialized in the quarter but were offset by timing impacts and accounts receivables and payables. Capital spending has been consistent with plan at approximately $390 million. During the quarter, we increased our dividend to $0.50 per share and paid the interim dividend at this level. We also repurchased approximately 5.4 million shares, reducing our outstanding shares to approximately 570 million at the end of the quarter. In total, during the quarter, we committed approximately $650 million to our dividends and share repurchases. We also made cash tax payments of approximately $640 million. Our cash balances increased by approximately $355 million. On the right side of the slide, you see similar metrics for the last 12 months. I want to highlight a few items. First, combined operations in working capital generated $5.4 billion. From this cash flow, we invested $1.4 billion in our capital program and returned $2.8 billion to shareholders through dividends and share repurchases while increasing the cash balance by $1.3 billion. On Slide #8, we provide further detail of working capital and metrics that we track. Before I turn the call back to Jim, I want to mention that during July, we issued 10- and 30-year bonds totaling $1.5 billion in principal. The bonds secure an average coupon of 4.6%. These bonds were the first that we have issued in investment-grade space. We're very pleased with issuance both in terms of the support to investors and the rates that we received. Now I'll turn the call back to Jim.

Thanks, Karyn. Let's discuss segment performance, beginning on Slide #9, with Olefins & Polyolefins-Americas. Second quarter EBITDA was $951 million, a slight increase over the first quarter and record performance for this segment. Versus the first quarter, olefin results declined by approximately $30 million. The decline was attributed to a $0.02 per pound lower ethylene price and an increase of a similar magnitude in the cost of ethylene production metric, the latter being influenced by lower coproduct prices. The margin decline was partially offset by increased ethylene sales volumes. Our ethylene plant reliability continue to be a highlight. For the fourth consecutive quarter, ethylene production exceeded nameplate capacity. Our Americas manufacturing team, led by Karen Swindler, continues to outperform the industry. Hats off to our Olefins plant managers, Courtney, Randy, Tim, Brian, Chris and their teams. I've never seen this type of performance in my long tenure in this business. Congratulations to them. Our raw material mix also established a new record as 90% of our ethylene was produced from NGLs. Approximately 70% of the production was from ethane, while propane accounted for 14%. The balance was butane, which became a very competitive feedstock. Increased polyolefin profits more than offset the ethylene decline. Combined polyolefin EBITDA increased by approximately $70 million, slightly more than half from polyethylene. Spreads for polyethylene and polypropylene increased by approximately $0.03 to $0.04 per pound. Polyethylene sales volumes were unchanged, while polypropylene sales increased by 13%. Joint venture equity income was $8 million. No dividends were received. Business conditions in July have been fairly consistent with June. Planned industry downtime will be less than during the second quarter, which is having some impact on spot ethylene prices. During the quarter, we have a planned turnaround at our Clinton site, a 1.1 billion pound per year ethylene, polyethylene facility. Let's turn to Slide #10 and review our performance in the Olefins & Polyolefins-Europe, Asia and International segment. Second quarter EBITDA was $295 million, an improvement of $70 million versus the first quarter. Joint venture equity income was $31 million, and we received dividends of $29 million. Olefin results improved by approximately $50 million. Several factors contributed to the improvement. First, our Olefins plant operating rates averaged greater than 90%, and our ethylene volumes increased by approximately 9%. These rates were differential to the industry as we were able to take advantage of scheduled and unscheduled downtime at competitors' facilities. Second, we continue to benefit from naphtha raw material cost volatility and the timing of polyolefin price changes. Finally, our feedstock mix benefited from processing the substantial percentage of liquefied petroleum gas, or LPG. Approximately 37% of our European ethylene production was sourced from propane and butane at production costs less than naphtha costs. Versus naphtha cracking, we estimate this benefited results by approximately $45 million. It is common for us to process LPGs during the summer months, but the volume and benefit received exceeded historic levels. During the quarter, we completed the 155 million-pound butadiene expansion project. The project was generally on schedule and on budget. Our polyolefin results were relatively unchanged. Volumes increased by approximately 10% but margins remained modest. Combined polypropylene compounds and polybutene-1 EBITDA improved by approximately $30 million. Declining propylene prices led to improved margins. While second quarter results were strong, this was partially related to industry pricing conventions and significant industry maintenance. Underlying economic fundamentals within Europe remain weak. We should not assume that the relatively strong first half performance will continue into the third quarter. Within this environment, we continue to focus on costs and efficient management of our feed mix. The strength of our second quarter reflects improvement in these areas. Now let's turn to Slide #11 for a discussion of our Intermediates & Derivatives segment. Second quarter EBITDA was $338 million, a $35 million decline versus the prior quarter. We estimate that scheduled maintenance at several propylene oxide facilities impacted results by approximately $30 million. Including turnaround impacts, propylene oxide and derivative results declined by approximately $50 million. The balance was primarily attributed to lower butanediol margins and seasonally lower propylene glycol sales in the aircraft deicing. Results for other chemicals in the segment were relatively unchanged. We benefited from increased acetyl and ethylene glycol volumes. C4 chemical volumes declined as a result of scheduled maintenance at both our facilities and customer facilities. Exclusive of turnaround impacts, styrene results were relatively unchanged. Oxyfuel results improved by approximately $15 million. Increased sales volumes accounted for the majority of the improvement. Margins were relatively unchanged as weak gasoline prices offset the benefit derived from lower butane costs. Thus far, in the third quarter, we have benefited from the absence of our prior quarter maintenance work. Low butane costs continues to support oxyfuel margins. We do not have any significant planned maintenance in the third quarter in our I&D segment. Let's move to Slide #12 for a discussion of the Refining segment. Second quarter EBITDA was $20 million, essentially unchanged from the first quarter. Refinery ran well during the quarter, with crude throughput just shy of the 268,000 barrel per day capacity. The modifications that we made during the first quarter to broaden the operating window of the refinery met our goals. However, market conditions were very difficult. Pipeline infrastructure still needed to efficiently move crude in the U.S. and Canada, and RIN cost increased. During the second quarter, the Maya 2-1-1 benchmark spread averaged approximately $18.49 per barrel, almost $3 per barrel below the first quarter. This decline reflected both the weakness in the gasoline market and an unfavorable heavy light spread. Low byproduct values continue to pressure results. During the quarter, combined Canadian and light crude oil represented slightly more than 15% of our crude slate. While Canadian crudes were economically advantaged, supply remains limited. Weak gasoline markets limited the benefit of processing light crudes. Increased costs of RINs contributed to the unfavorable results. Versus the first quarter, our cost of RINs essentially doubled to approximately $50 million. Approximately 70% of the increase is attributed to increased volume, while the balance was caused by a 17% price increase. In the past, the export market provided some relief from this cost pressure. However, during the second quarter, the gasoline export market was very competitive. The resulting weak export prices essentially eliminated this opportunity. Distillate exports continue to present value for us. Thus far, during the third quarter, we have seen similar pressures within the market. There has been recent improvement in gasoline spreads. But in general, the market is expected to weaken after the peak driving season ends. RIN costs have increased until the last day or two. The heavy light spread has expanded as heavy crude suppliers attempt to be more competitive. We will remain flexible as the Gulf Coast markets transition, and we will pursue both purchase and sale opportunities as they develop. I want to mention that we will change the reporting basis for our Refining spreads beginning next quarter. In the future, we will report the distillate component of the Maya 2-1-1 spread based on ultra-low sulfur diesel rather than No. 2 Heating Oil. Changes in NYMEX trading and the physical market necessitate this change. This does not impact our operations. If you have any questions regarding this future reporting change, Marian and Doug will be happy to help you. Let's move to Slide #13 for a quick summary. The second quarter continued with strong results. Diluted earnings per share achieved a second consecutive quarterly record. Olefins continue to be the main driver of these results, and O&P-Americas achieved record EBITDA. Performance in the EAI segment was strong. While some of this was due to timing differences between cost and price mechanisms, our actions were critical to the success as we both significantly increased NGL cracking at our olefin plants and increased operating rates. We can't count on European industry margins to continue at the second quarter level, but we expect to continue to take advantage of opportunities as they present themselves. Intermediates & Derivatives benefited from strong oxyfuel results. Our turnarounds and competitor capacity expansions put some pressure on this segment, but the underlying strength of propylene oxide and other assets continued during the quarter. Refining has been a difficult area. I'm confident that we have taken the right actions, and we anticipate improvement over time as pipeline infrastructure brings additional advantage crudes to the Gulf Coast. We're also hopeful that structural imbalances within the renewable fuel standards will be corrected by our government as they increase their understanding of how current regulations are distorting markets. Through the early weeks of the third quarter, the fundamentals across our businesses have been relatively unchanged, and our assets have operated well. This supports near-term earnings. Looking longer term, our projects continue to proceed on schedule, and we recently received a permit for a channel view expansion. We currently have the methanol plant restart, as well as the La Porte and channel view ethylene expansions under construction. Our project max butadiene expansion and low-density polyethylene restart at Wesseling, Germany are now complete. We're making excellent progress growing our company. Thank you for your interest in LyondellBasell. We're now pleased to take questions, Sherry.

[Operator Instructions] Our first question comes from Jeff Zekauskas with JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: In your Intermediates & Derivatives analysis, you called out competitive pressures on butanediol margins. Order of magnitude, how much EBITDA did you lose from that competitive pressure and what's the outlook for butanediol margins going forward?

I think the number, Jeff, is around $20 million, and the market was extremely strong. In the past, there's been competitive pressures. And so I think we're seeing a more normal course for now until that extra capacity is used up. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. And then secondly, butadiene prices have really moved lower both in the United States and in the offshore market. Can you sort of quantify how that might affect you in the third quarter?

Yes, the BD market has contracted some. That was particularly true in Europe, and now what we're seeing -- the export arbitrage was open to the United States. We've seen some cargoes move in this direction. And as a result of that, we'll see the margins contract some. I'm happy to tell you that in the expansion project that we had at Wesseling, we put in forward pricing. We wanted to ensure that, that project had a very nice return. And so we're going to see nice margins from that expansion despite the overall reduction and industry pricing in BD.

Our next question in queue comes from Robert Koort with Goldman Sachs.

Jim, I was wondering if you could give us your latest assessment on the state of the propane market and sort of what you see going forward. It seems like maybe we got through the first 6 months of this year without any real upward momentum even as the export facilities opened, but I suspect that it could change going forward. It's more open, but maybe there's enough NGL fractionation coming that it's awash. How do you see it playing out?

Yes, at this point in time, the inventories of propane are coming in a little bit within somewhat historic levels. Pricing is still good for us in the crack, and so we are continuing to bring it in to our olefin numbers. Butane has been a nice surprise, been very long in the summer, and that's come into the crack as well. And I think that's helping hold propane where it's at. There's going to be a need for more propane export before you see propane come in a lot. So I think we're okay for right now. As you know, my longer-term view is that propane will trade more in line with crude oil type metrics on heating value basis, given that you can put it on a boat and transport it. And so I've not been as enthusiastic about PDH units as some of our competitors.

If I might follow up, could you give us a sense what you would see -- if we went to a wonderful world where it might grow at 3% or 4% a year and Europe pulls out of its recession, what is sort of an upside scenario you could paint for EBITDA from Olefins & Polyolefins in EAI?

Well, you heard that we had increased our LPG cracking to 37% in Europe. During this time of year, we do that, but it was much better than is typical. We had some nice earnings there, and we're able to take advantage of it. Let me give you kind of an interesting fact. At Berre now, remember, we shut the refinery down, which used to be a feed prep unit for that cracker. And over the last days, we're only cracking about 20%, 25% naphtha in that unit, a lot more condensates, quite a bit of propane, some butane. So we'll see how it develops over time. But we have a lot of communication between our U.S. assets and our European assets in how to get the best out of our furnaces. So I don't want to quantify that number today, but we're working it very, very hard. We saw about $45 million in this last quarter from it, but we're working hard to make that number bigger.

Our next question will come from David Begleiter with Deutsche Bank.

Jim, maybe if you could speak also on the ethane market, how supply will come in rest of the year and what that means for ethane prices and even a differential versus your Conway, Kansas pricing metrics?

Yes, right now, ethane pricing remains very, very favorable to us. We've been kind of at that reject kind of pricing. Today, it's $0.255, something in that range. We feel very good about it going forward. And of course, when we take our Iowa facility down, that's going to put some more pressure on Conway. That will help us a bit at Morris, and we'll see that full dynamic play out. That turnaround may be $50 million, $60 million in the quarter impact to us, but we feel very good about ethane pricing right now. And if you look at inventories, they're still at historic highs. So quite a bit, 200,000, 250,000 barrel per day type of rejection, so we're in good shape.

And Jim, just on your RIN cost for the back half of the year, do you have an estimate?

Well, I did a couple of days ago, but I'm starting to rethink that estimate. It might be worthwhile for me to give you a little bit of a flavor for where that's been. But first, let me tell you that in the last couple of days, those prices have come way down. Yesterday, RIN prices hit $0.91 for a little bit, and they're trading around $1 right now. So that's a lot lower than that $1.40 or so, or $1.50 occasionally that we've been seeing. But let me give you a sense for how that's been working. I thought that topic would come up. In the first quarter of '12, it was about $0.15; second quarter, $0.17; third quarter, $0.18; fourth quarter, $0.18. And the impact last year, $30 million, plus or minus. When you look at the first quarter of this year, $0.78 on average, $25 million impact. Second quarter is $0.91 and a $47 million impact. So if you took that and annualize it, you can get numbers in the $200 million range. But as I said, things have started to come in. I'm hoping that our Congress is seeing that the market is so distorted that the ability to blend that extra ethanol into the system doesn't exist, and it's hurting consumers at the pump. There's a good reason to fix it now and save everybody a bit of money and stop this market distortion. It's also forcing refineries to move product overseas, which is -- in a peak driving season with gasoline prices going up, isn't the right thing for our country. So I'm hoping people pay attention, make some adjustments and we see less of it.

Our next question will come from Vincent Andrews with Morgan Stanley.

Jim, even sort of x-ing out some of those favorabilities that you noted in Europe, it still seems like there's been some cost structure improvement there, maybe some execution improvement from the new team over there. Can you talk a little bit about -- and I know that's obviously been something you've been working on. Can you talk a little bit about sort of how we should be thinking about that level of improvement and maybe quantify it a bit if you can?

Yes, well, we have been trying to improve that operation. While we had strong results in Europe, I'll tell you, we also left some money on the table. We could have done better. You heard my comments about safety. Some people say I'm never satisfied, and I think that's probably true. We're always seeking perfection in our operations. We're getting it from our Olefins team in the U.S. We left some money on the table in Europe, could have done a bit better there. But it's been good, and there's various reasons. One, we're improving our crack. I mentioned more LPG cracking. We've been taking costs out. We previously said a couple of hundred million dollars. We're seeing that show up now. Remember, that as we reduce headcount and all, it takes a year or 2 for that to show up because of severance programs in Europe and how that operates versus the United States. So the payouts are a little longer. But it's action that still needs to be taken to reduce the cost structure. We announced that polyethylene facility closing in Wesseling. We reached agreement with the works council, several hundred people coming off the payroll there. We have a major program in R&D that's underway in Europe, a little bit in the United States, but primarily in Europe. And we're taking a lot of costs out there. To give a sense for that, within our Frankfurt R&D facility, it will be about half the people; and in Italy, it's 25% or so. So we're really tuning up our operation to make sure that we get full value for everything we do. And you're seeing it show up in the bottom line. Now the other thing I want to mention about Europe is we have a lot of stable businesses within the portfolio. Obviously, the "I" stands for international. We have Middle East assets. We have some joint ventures that contribute. Our polybutene-1, our compounded business have nice stable type earnings. And so kind of half of the EAI numbers are very stable, and we've performed well there. So we're going to keep working costs and reliability in Europe, and more to come on that, Vincent.

Just as a follow-up, the pace of share repurchases in the quarter, obviously, you didn't have a full quarter to buy stock back. How should we be thinking about that over the next couple of quarters?

Yes, the majority of that -- really all that was really done in the latter part of the quarter in June. But going forward, really no change in terms of our commitment to returning the cash strictly to shareholders, more frequently, varied amounts. We have no other meaningful accretive alternatives. We will authorize for 10% of the shares, and then the Management Board Supervisory Board provided approval for execution of that over 12 months. But as far as the specifics on the mechanics or the tactics, so to speak, on the execution, we intend to disclose any of that buyback activity in hindsight in connection with our future earnings calls or our quarterly reporting. So as we disclosed today in terms of what we executed on the second quarter, we'll continue to do that as we go forward.

I might add that in the last 12 months, we returned $2.8 billion to shareholders through dividends and share repurchases and also increased our cash balance $1.3 billion. So we're very committed to both generating and returning cash.

Our next question will come from P.J. Juvekar with Citi.

Jim, if you can talk about your lower MTBE results and why was the profitability down year-over-year, and then maybe compare MTBE profitability in U.S. versus European plants.

Yes, well, remember, we had some turnaround activity stuff going on, and we had just an incredibly strong 2012 due to some market conditions. They're strong at Poland and South America on MTBE for a period of time and a few other things going on. So we think that business is performing very well. We've got a butane advantage. Gasoline prices weren't as strong as we had hoped in the second quarter. But right now, they're a little better. We sell ETBE in Europe, and some of those margins are very nice. It's just a good business overall, and we're the industry leader in oxyfuels in the world. So what you're seeing is good solid performance out of that business and pretty proud of it.

And then secondly, just on balance sheet. Karyn, you raised some debt recently as an investment-grade company. Is that something you're likely to continue in the future in terms of taking on debt, given that your balance sheet is still underlevered, and would the main use be stock buyback?

Yes, we just recently reached that investment-grade milestone, so it was important for us in terms of getting those benchmarks out there. So we're very, very happy with the tenure and the rates reserve on both a 10-year and a 30-year benchmark. As we've discussed in the past, we understand that there still continued to be some opportunity and flexibility in that balance sheet. As we continue to season in this investment-grade space, we continue to work with the rating agencies, we'll continue to look to see how we can be very opportunistic and optimize that balance sheet. But no specific targets in that regard, but we do understand we have some flexibility there.

Our next question comes from Chris Nocella with RBC Capital.

Just one more in Europe. Did cracking more LPGs this quarter require much capital investment or you're just basically taking advantage of some of the market opportunities there? And how do you see the opportunities to maybe use imported LPGs from the U.S. for these assets a little bit longer term?

Yes, Chris, that took no new capital at all. It's just how we ran our furnaces and optimized the back-end of our crackers, so there's no investment period. And we see more opportunity to do that, so we'll continue to press on that. One of the things that's happened is we've taken more South Texas condensates into our system here in the Gulf Coast. That's freed up some of the condensates that we used to import, for instance, from the Middle East and made those available in Europe. And so we're rerouting some of those feedstocks into our crackers there at margins that are better than NAFTA type pricing. So we'll continue to do that, try to improve that crack, increase the competitiveness of those assets and work it really hard.

Okay. And just on your cash usage and return to shareholders. If ethylene assets became available, where would that fit on your list of priorities for capital allocation?

Well, everything depends on price. Really, I'd be surprised if it came available, one, if it's the things that I'm aware of, it's probably not the quality of assets we typically chase; and two, if it's small enough, somebody else may bid up that price. And so we're still totally about value. We see a real benefit in buying more of ourselves through share repurchases because we like our earnings profile, our cash profile and the quality of the assets that we have.

Our next question comes from Frank Mitsch with Wells Fargo Securities.

Just to follow up on that, not necessarily going after existing assets. But what would be the prospects of Lyondell building a new facility in conjunction with a major customer that's out there? What would be your thoughts about doing something like that?

Well, right now, we've announced 1.8 billion pounds of added capacity here in the Gulf Coast, which is almost equivalent to a world-scale cracker. We've got concrete being poured, steel in the ground and those assets coming up. And we feel we'll beat everybody to the punchline and de-risked these investments. We're watching all these announcements. And also right now -- we said we might do a condo cracker. But right now, we're working really hard to get those projects we have announced to the fruition stage, so feel pretty good about our portfolio right now. And as we said, we're investing more in ourselves. That's another way to acquire more assets is to buy our shares.

Terrific, terrific. And on the I&D side, you mentioned stronger acetyl volumes, which is a little bit surprising. What's the outlook for that business?

One of the things that's probably gone unnoticed is where we would talk about our reliability all the time and our olefins chain, we're a lot stronger operator in our acetyls business as well. We've teamed up those assets, learned how to run them better, put a little money into maintenance. And we're seeing the positive results. And of course, that's an extra bite at the cheap natural gas price apple. So that's a good strong business, we like it.

Our next question will come from Hassan Ahmed with Alembic Global.

Again, I wanted to revisit Europe. Obviously, good volumes over there in the quarter. I just wanted to sort of hear your views about the sustainability of this volume growth that you've seen. I mean, you obviously talked a bit about taking advantage of some turnarounds in the industry. But was there some restocking activity as well as naphtha prices started inching up?

Yes, Hassan, there'll always be a little bit of restocking that goes on when naphtha prices start to rise like we saw. At the moment, those naphtha prices are sitting in the kind of $870 range, so they've tapered off a little bit from their highs. But it's also a better time seasonally for people to buy. Certain of the types of polyethylenes have been pretty strong. Some of that is competitor-related, some of it is just market-related seasonality. But it's been okay. The good news is our team is really capturing the opportunities as they present themselves. There've been pretty quick on their feet. And when the opportunities exist, they strike, and that's adding up. These kind of earnings that we're seeing, well, I call them strong compared to what they've been in history, certainly not anywhere near the peak. These are trough-type returns still in Europe and a lot of running room as markets get tighter over the coming years.

Fair enough. Now a follow-up, if I may, on just some of these new builds that have been announced. We obviously get updates from some of the companies that have announced in terms of the state of affairs of these projects. But obviously, not much clarity on the MTO and CTO side of things. So what are your views about all this sort of new capacity sort of, say, that's been announced in China?

Yes, there are some of those plants going to be built. The capital is really, really high. But then once you get those assets running, their operating costs are competitive. A lot of that's Central China, different market space. And remember that you get kind of a half-and-half mix between ethylene and propylene. And so you can't just translate all that capacity as extra ethylene into ethylene derivative type capacity. I think that's something that everybody needs to watch. I think there's a lot of announcements and not everything announced is going to be built. If you look at the timing of the permits and all, I've seen some of our competitors start to run into some challenges on their permits, maybe going to slow them down a little. We'll see how that all develops. But we just got our Channelview permit, and so couple of our big projects are marching along. And we're very pleased to see that.

Our next question will come from Don Carson with Susquehanna Financial.

Yes, Jim, just a couple of questions on the near-term outlook for Olefins Americas and you've seen a nice -- you've got a nice benefit from widening polyolefin margins in the second quarter. But I've been noticing that with weakness in the real, the export demand to Latin America seems a little softer. I'm just wondering -- and then as we get these restarts, do you see these positive spreads coming down over the balance of the year? How sustainable are they? And just wondering, during the quarter, given your strong onstream performance, were you able to take advantage of the nice spot ethylene sales opportunities in the U.S.?

Yes, Don, the spot prices that come in a little bit, you'll see on a daily basis. They'll bounce $0.01, $0.02, $0.03. They certainly come in from where they were when there was so much turnaround work going on. But they're still pretty strong, especially when you compare them to the contracts, so a good solid market. South America is a little lighter than it was. But having said that, we're only exporting 13% of our volumes. And that's going Mexico, South America, almost nothing to Asia from our U.S. polyolefins operations. And we're seeing very strong demand in certain of the flavors, like high-density is super short. Brazil has got some expansion going on, but it's not particularly relevant to us. I think things are holding up fine. Ethane prices are still cheap, and we're running full bore.

And a follow-up on the refinery. What is it you're looking for in terms of RIN relief? Are you looking for rollback of the ethanol mandate back to, say, 2012 levels? Obviously, the blend wall only gets worse as we go forward into '14 and '15. And I guess, realistically, going into a midterm election and the power of the farm lobbies, is it realistic to expect any relief on RINs?

I know the industry is asking for complete relief and let the markets solve themselves and let's get government out of the middle of things. We only run one refinery. We're a chemical company that has a high-quality refining asset. We'd like to see all this short-term market distortion be eliminated. We're not going to get into retail with our one refinery to solve that problem. But we would like to see normalcy. If we could get a realistic target for ethanol in the blend, refiners would still blend it. There'd still be business conducted, but it's all artificial at this point in time. And it's driving up the price for the consumer, and there's really no point in that. It needs to be fixed. How it's ultimately fixed, we'll have a voice, but we're one refinery in a much larger system. But again, I mentioned there's too much exporting going on. That's being driven by misguided regulation.

Our next question will come from Nils Wallin with CLSA. Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division: There's been a lot of discussion obviously about Eagle Ford and Permian condensate production and how much that's ramping up. Just was hoping if you would refresh us on how much you think that could help some of your operations, as well as if all this lighter hydrocarbon may affect your Houston refinery, and then if there's any interest you might have in actually building a condensate splitter.

Well, it's already been positive to us, particularly at Channelview and also at Corpus. There has been advantage condensates coming our way. I think that number is going to increase, but we're already kind of maxing out our systems. So I don't expect there to be more volume. It'd just be a question of will the prices continue to come in for us as we expect. In terms of a condensate splitter, we're always trying to think of ways to improvise and make a little extra money. You saw that in the fractionation project that we're sponsoring down at Corpus. There's a possibility that we could do a few things in a condensate splitter or down in that operation with some of the existing hardware that we have. We're studying it. We'll see if it makes sense. But we're going to be very opportunistic in all of this.

Nils, can you repeat your question on the Refining? Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division: Oh, right. I was just wondering if the mix in Eagle Ford, because it's such a light hydrocarbon, if it would affect any of the Houston refining or your asset in particular?

Yes, I think that would be pretty modest to us. We don't see it right now a lot. But as I said, gasoline prices were lower. Some of that ends up in the pool over time. But I don't think it's going to have a significant material impact. And now we're very interested in the light-heavy dip, and that started to open up a little bit.

Our next question will come from Kevin McCarthy with Bank of America Merrill Lynch.

Jim, 2 questions on Refining. I guess over the near term, do you have a view on how much of the inflation in RIN cost, if any, is being passed along through the chain to the consumer? And then longer term, would you care to share your latest thoughts on the role of the refinery in the portfolio as you weigh the benefits of integration versus the various pros and cons of potentially electing to separate it at some point?

Yes, on the amount of RIN cost being passed on to the consumer, I've seen a variety of commentaries on that, and I'll give you my most simple explanation of it. When gasoline prices are rising and gasoline is a little tight, we're going to be able to pass on a lot more of it. When pricing is weak, when gasoline is long, we're going to have to digest it. And I think first, second quarter, until more recently when gas prices -- gasoline cracks has started to open, I think we were absorbing a lot of the RIN cost. You saw it in our reduced earnings. At this point in time, I think some of it is getting passed through to the consumer, and so it's a supply-demand typical kind of thing that you see. In one way that maybe -- one thing I should mention, and I've alluded to it already, it's also being passed on to the consumer in that gasoline is being exported so that we don't have the RIN issue and if that were an issue to greater supply in the United States. So there's a lot -- that's why you see such a disparity of comments on that particular question. In terms of the role of the refinery going forward, we've invested in that asset. We're not going to put a lot of new capital into it. I think we've got a good kit on the ground right now. We're running it much better than it's ever been run. We're working costs very, very hard on the asset as you would expect. But it's not a good time to sell a refinery. That asset will have more value over time. It's a good asset. We do have some synergies between the refinery and Channelview, move some products back and forth. But we'll see over time what we do with the asset. But right now, it fits in our portfolio. We're doing a good job with it, all things considered.

Fair enough. And then as a follow-up, Jim, you had mentioned back at your Investor Day in March, you were contemplating a new 1 billion pound polyethylene resin line, I think it was for circa 2016 or so. Any update on that? Is that looking any more or less likely at this juncture?

Well, we're still studying it. What we're doing is looking at our ethylene balances. We have third parties coming to us and asking us for volumes out into the future. We're looking at the pricing that they would buy that for as against what we would be able to upgrade it in terms of polyethylene, and so we're both working those deals. At the same time, we're moving along with some preliminary engineering. The thing about that line that I'd like to mention, if we built it, it's likely to be our latest new technology that we've never offered before. And we think they could open up some very, very nice licensing opportunities for us. We found ways to reduce the capital cost and still have the great product mix that LyondellBasell is famous for.

Our next question comes from Duffy Fischer with Barclays.

I guess, the line of question I'd like to drive is around Asia and PO currently. So one of your competitors was talking about a softening in the market for PO. They had opened up an HPPO plant in Thailand not too long ago. Some of it could just be their new guy on the block. But how do you see the next 6 months to a year playing out for PO in Asia?

Yes, well, there's been some competitive pressures in Asia in part because of that new capacity. I think you may see certain competitors backing down a little bit because of their cost position. Sometimes they can have cheap capital and high operating costs, and they won't beat a competitor like us in the window. Our PO/TBA plant is industry-leading in terms of cost. Now I'd point out that our POSM plant that we have in partnership in China has been running very well since start-up in 2010. It came up nicely. We're moving the volumes. So there is some pressure. But even with that pressure, PO is still a very solid business with very nice returns. And it's a question of great or really good. And I think it's more really good than great right now, but it will be -- it's just one of those products that fewer competitors and certain technologies are advanced, and we find a way to make good money on it.

Fair enough. And you had mentioned in your commentary around the potential coal to olefins crackers in China, the difference in the skew between ethylene and propylene. When we look longer term, does PO get put in the crosshairs as they end up with a lot more polypropylene molecules potentially over the next 4 to 5 to 6 years there as an outlet for those molecules?

Well, I think you've got to look at the geographies. And first, a lot of that will not find its way to the coast. And if it's anything, more polypropylene probably would be helpful for us as a propylene oxide producer. So a lot of that propylene will go into polypropylene, too, Duffy, so I don't think it's going to hurt us much in polypropylene oxide. There's just not that many people with the right technologies that can be competitive in PO.

Our next question will come from Mike Ritzenthaler with Piper Jaffray.

You had mentioned the RIN costs, and I just wanted to follow up on one other aspect to that. Escalating from 1Q yet profitability in the Refining business was flat, so it seemed that perhaps the fundamentals improved even if it was modest. Is that fair or is it the pass-through phenomenon that you had discussed? And then as a follow-up to that, on the refinery business, coming out of the turnaround in 1Q, there had been some re-plumbing to do, some lighter feeds. And could you just discuss kind of going forward how those lighter feeds could improve the profitability here in the second half?

Yes, in terms of the pass-through of the RINs, first, let me describe the first quarter was a turnaround quarter for us. We had a lot of capacity down during that point in time, had one of our crude units down, and so it's an abnormal quarter and abnormal earnings. The volumes have come up nicely in the second quarter, but Maya 2-1-1 is down $3. So that's a pretty significant impact. So with that 2-1-1 down and the RINS higher, you see kind of quarter-to-quarter pretty flat. So one is turnaround, one is falling margins and RINs. Going forward, we'll see if the last couple of days are an indication of what's going to go on in RINs. I really don't know. A couple of days doesn't make a trend, but it's certainly somewhat positive news to see this. The light-heavy difs have opened up a little bit. There's a gasoline crack that we didn't see. So there's a few positives in all of that, but we just have to see how it plays out. I didn't answer all of your questions. I think there was a second one that I didn't get to.

Yes, it was about the lightening up on the feedstock slate and the refinery and...

Yes, we are able to bring some WTI down, dips in pipeline capacity. But the differential between WTI and Brent, it's totally collapsed, and so that margin wasn't there. And then with the pour of gasoline crack through much of the second quarter, we decided to crack heavier and went away from some of those lighter crudes for a period of time. You saw us do a little more Canadian but -- and right now, we're try to move those Canadian barrels down on our capacity to the extent we can get them, because they're still price advantaged.

Our next question comes from John Roberts with UBS.

You talked about in Europe, in the crackers running the lights during the summer here. Could you comment on last winter, the fourth quarter and the first quarter, what your RIN -- were you able to run any lights a year ago? And I'm asking for a comparison, what do you expect this winter in the fourth quarter, first quarter in Europe in terms of LPGs and probably want to characterize your light feedstock?

Yes, last year, we weren't running very much in it. We've moved a little condensates in and then some propane, butane occasionally. But it's come up a fair amount this year. And part of that, especially at Berre, we used to be cracking VGO there out of the refinery. And now a lot of condensates, a lot of light dense, I said we're only doing like 20%, 25% naphtha today. Now I expect this to continue to try to lighten our crack and bring in some of those advantage feeds. We have things like hydrowax at Wesseling, Germany. That's always been competitive. We get a nice stream at our Münchsmünster cracker as well. That's very competitive. But we're going to keep trying to lighten that up and use some of those long condensates around the world to try to improve our profitability and competitiveness in Europe. And we're seeing early signs that we're making progress there.

But you're in the mid-30% sort of now in the summer you were talking in terms of lights in your cracker feedstock. As you get into the fourth quarter and first quarter, the winter months, will that drop down into the single digits or teens or...

Well, maybe 20-ish percent. We'll just have to see. But that also depends on availability. If people are right and a lot of propane starts to get exported, that number is going to be higher. I kind of think there'd be more propane exported out of the United States, and there are some projects in the Middle East that are bringing on some of the NGLs. So if that's available at the right price, we'll run it.

Our last question will come from Laurence Alexander with Jefferies.

This is Rob Walker on for Laurence. I guess just one question. What drove the strength that you guys saw on the polypropylene compounds business and is it sustainable?

The polypropylene compounded business is a very, very stable profitable business for us because it's totally technology driven. Most people don't think of compounding polypropylene as high-end business. But remember, we're selling primarily into high-end autos. If you want a bumper with no waves and perfect color and all of that, you come to us. And this goes way, way back in time, a beautiful technology position. Some of the auto industry is doing very well, particularly in the United States. Some the high-end European car manufacturers, while they're off year-to-year, they're still in a nice place. And we try to provide them a lot of value. So the last little bit, this last quarter, we had some propylene price declines, which helped contribute. But if you look from quarter-to-quarter, quarter-to-quarter, nice stable earnings, just a little uptick this quarter because of some propylene price movements. Okay. Well, let me make a couple of closing comments. First, we're proud of the record earnings from continuing operations, record O&P-Americas EBITDA. That business continues to contribute very strong, in part, driven by 4 quarters in a row of better than nameplate capacity. That just doesn't happen in our business. And our people in manufacturing are really delivering. We had solid results in Europe. We're taking cost down, doing more LPG cracking, working that very hard. I&D had a very respectable quarter. We had some turnaround activity. Take that away, it's -- I think you'd see it's as expected. Refining, tough industry at the moment, more to come on RINS. We'll try to crack more Canadian crude oil over time, and we expect that business to improve as time goes forward. Very strong cash generation, supporting both our dividend and share repurchase programs, and that's a hallmark of the company that we've become. But I want to emphasize the growth projects for just a moment. Our project max shows that we can get projects done on time and on budget. That was not this company's history. This is the first one that -- of any order of magnitude, that we've had as a new LyondellBasell. And we brought it in as expected. I think that says something about the new company. We've got permits for the Channelview and La Porte expansions, concrete being poured, steel coming out of the ground. We're going to get those projects up and put them on the bottom line sooner than you expect. Methanol restart later this year, that will be a nice earnings boost. We've got 500-plus people out there working very, very hard to bring that project home. So this company's get a very bright future. We appreciate your interest, and we'll continue to reward our shareholders. Thank you.

That concludes today's conference. Thank you for your participation. All lines will now be disconnected.