Lyondellbasell Industries Stock

Hello, and welcome to LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for replay purposes. [Operator Instructions]

I would now like to turn the conference over to Mr. David Dennison, Head of Investor Relations. Sir, you may now begin.

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 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 August 31 by calling (877) 660-6853 in the United States and (201) 612-7415 outside of the United States. The access code for both numbers is 13746218.

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 Lade, our EVP of Intermediates and Derivatives and Torkel Redman, our EVP of Advanced Polymer Solutions.

With that being said, I would now like to turn the call over to Peter.

Thank you, David, and thank you all for joining today's call as we discuss our second quarter results. The global disruption in the petrochemical markets from the conflict in the Middle East impacted production, feedstock availability, logistics and trade flows across the industry. It also led to substantially improved earnings performance for LYB in the second quarter.

The LYB team delivered an impressive EBITDA margin of 23%, which clearly demonstrates the power of our value enhancement program and cash improvement plan actions when market conditions are favorable. We continue to believe that market normalization will be a long process extending beyond this year. This is already being demonstrated by the continued volatility of the conflict in the Middle East. Throughout this dynamic period, we continue to successfully execute our strategy and advance the transformation of LYB while diligently implementing our cash improvement plan.

During the quarter, we completed the divestiture of 4 European assets and combined with the intended closure of our Brindisi site for further reshaping our portfolio toward more advantaged assets. These strategic actions are 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 safety performance with Slide 3. Safety remains foundational to how we operate. Our year-to-date total recordable incident rate of 0.1% is among best in our sector and reflects the commitment of our employees and contractors. Importantly, this performance continues the improvement we have achieved over the last several years and is a direct reflection of our disciplined operating culture and unwavered focus on conducting every task safely and reliably at all of our sites.

Now turning to Slide 4. The conflict in the Middle East has created an unusually large disruption to bulk petrochemical markets, impacting operations, feedstock availability, logistics and trade flows. The scale and duration of the supply loss is unprecedented, and we believe that recovery time will be measured in quarters, not months. Once this rate does open and stays open, we will see some improvement in supply. However, we estimate approximately 6 million tons of polyethylene capacity or around 20% to 25% of Middle East supply sustained damage from the conflict and will not restart until at least 2027.

Additionally, we expect delays to some plant capacity growth projects. The conflict has resulted in a shift in buying behavior amid elevated pricing and volatility. We saw a large increase in Asian freight rates, which essentially closed the arbitrage from Asia to Europe and Central America. -- increasing demand for U.S. and European material.

In China, we saw an unusual shift in trade flows. Despite lower operating rates, Chinese producers reduced imports and increased exports, primarily to Southeast Asia to take advantage of higher export prices and the supply shortfall in that region. As a result, we have seen Chinese polyethylene inventories declined by roughly 30% versus pre-conflict levels as local operating rates remain in the mid-70% range.

The market expects that China may soon have to increase imports again to replenish inventories that have been drawn down. We provide support for prices. With inventory buffer still limited across the industry markets remain vulnerable to additional volatility should we see further setbacks in the Middle East or other supply disruptions emerge. We expect inventories to gradually rebuild as supply chains normalize and purchasing patterns return to more typical levels, though pricing is likely to remain above pre-conflict levels.

Importantly, we continue to see relatively resilient underlying demand. We have not observed broad demand destruction across key end markets with packaging remaining stable and continuing to represent the majority of our polyethylene demand. Health care and infrastructure applications show the growth supported by areas such as pipe, wire and cable and data center-related investments.

Housing and automotive demand remain at subdued levels, but are not a new headwind. We expect consumption to return to its pre-conflict trajectory over the next year. As a result, we believe gradual normalization will be driven primarily by supply recovery and inventory rebuilding rather than a meaningful change in underlying pre-conflict demands.

Now let's turn to Slide 5. Portfolio transformation is a key enabler of our strategy and is helping reshape LYB into a more advantaged and focused company. We have taken deliberate steps to improve portfolio quality and better position the company for long-term value creation. We completed the divestiture of 4 O&P assets in May, and intend to close our Brindisi side by the end of 2026. Importantly, we remain confident in the strength of our remaining European footprints.

In O&P, we continue to make 2 crackers with integrated polyolefin at our Wesseling site in Germany with a Portugal increasingly focused on higher value, less commoditized applications. Construction of our Maritech 1 facility at Wesseling is also progressing well and will benefit from direct integration with the crackers, supporting our circular and low-carbon solution strategy.

In I&D, we retained our 2 PO/TBA sites in Botlek and FOS, which produce propylene oxide derivatives and oxyfuels from a first quartile global cost position. Our catalyst production facilities and innovation centers in Ferrara and Frankfurt continue to support our technology leadership and differentiated product portfolio. Overall, our remaining European asset base is well positioned and closely aligned with our long-term strategy. These assets are critical to both our grow and upgrade to core strategy, and our ambition to build a profitable circular and low-carbon solutions business.

At our Capital Markets Day in 2023, we laid out criteria for an LYB core business. That included leading position, growing end markets, attractive returns above the cost of capital, access to advantaged feedstocks and a strategic focus on circular and low-carbon solutions. We continue to shape the portfolio with that framework in mind.

Over the last 3 years, we have executed a series of significant portfolio actions, including seizing refining operations, the divestiture of our EO&D business, acquisition of a 35% stake in NATPET, Saudi Arabia, with the purpose of expanding capacity shutdown of our Maasvlakte POSM sites, exiting the Australian polyolefins assets, the sale of 4 European O&P assets, the planned closure of Brindisi as well as the asset footprint and product portfolio transformation in APS.

We now have a greater concentration of our portfolio connected to cost advantaged feedstock, including 80% of our global ethylene capacity. This will enable us to achieve higher average margins through the cycle has already demonstrated during the second quarter and to focus capital on the areas where we see the greatest opportunity to create long-term value.

Let's now turn to Slide 6 as we discuss our financial performance. During the second quarter, earnings were $4.30 per diluted share with EBITDA of $2.1 billion which more than tripled sequentially, driven by a significant improvement in margins during the quarter. Cash and liquidity remained robust with balances of $2.6 billion and $7.1 billion, respectively, at quarter end.

I will now hand over to Agustin to discuss our financial performance in more detail.

Thank you, Peter, and good morning, everyone. Let me begin with Slide 7 as we outline our cash generation. Over the past 12 months, LyondellBasell converted EBITDA into cash at a rate of 80% and which aligns with our long-term target. This performance reflects our disciplined approach to optimizing working capital while capturing favorable market opportunities. As a result, higher prices and operating rates drove an intentional build of working capital in the second quarter.

As Peter mentioned, in the second quarter, our cash balance was $2.6 billion, and our available liquidity remains robust at $7.1 billion. Now let's turn to Slide 8 and review the details of our second quarter capital allocation.

During the quarter, we generated $752 million of cash from operating activities. This performance reflects our continued focus on strengthening financial flexibility to capture higher prices while improving cash generation through the quarter. Capital allocation remained balanced as we funded $270 million of capital investments and returned $224 million to shareholders through dividends in the second quarter.

Despite the highly dynamic market environment, our capital allocation priorities remain unchanged. We are committed to our investment-grade balance sheet as the foundation of our disciplined capital allocation framework. We continue to maintain our 2026 CapEx plan of $1.2 billion and expect sustaining CapEx to decrease by approximately $100 million following the divestiture of 4 European assets. While we have many attractive growth opportunities across the portfolio, we will remain disciplined in how and when we deploy capital by prioritizing high return low-cost investments that strengthen our competitive position while preserving the flexibility to advance larger growth projects once we see sustained improvement in market conditions.

We continue to make progress on our cash improvement plan and are on target to achieve $500 million of incremental cash flow by the end of 2026. driven primarily by fixed cost reductions and lower capital expenditures. We have reduced headcount by approximately 3,400 employees or 17% of the workforce since the beginning of last year driven by portfolio changes and streamlining of our organization. These actions are enhancing financial flexibility while positioning LYB to create value across the cycle.

Look ahead, our near-term focus continues to be investing in safe and reliable operations, executing our cash improvement plan and maintaining our investment-grade balance sheet.

Now let's turn to Slide 9, and I'll provide a brief overview of our segment results. During the second quarter, our business portfolio generated $2.1 billion of EBITDA. We delivered strong profitability across all segments, reflecting stronger margins and continued focus on operational execution.

With that, I will turn the call over to Kim.

Thank you, Agustin. Let's turn to Slide 10 to discuss the performance of the Olefins and Polyolefins Americas segment. During the second quarter, O&P-America EBITDA was $1.3 billion, approximately 4x higher than the same quarter last year. In polyethylene, integrated margins expanded substantially. This was primarily a result of a $0.30 per pound increase in polyethylene contract prices in April. The largest increase on record driven by the global supply disruptions from the conflict in the Middle East.

June contract prices settled $0.15 per pound lower, but for the year, polyethylene pricing remained shorter than 2025. Integrated polyethylene margins further benefited from higher coproduct pricing. North America demand for polyethylene remained strong in the quarter, with domestic sales volumes up approximately 3.5% and marking the highest domestic sales quarter since the first quarter 2022.

Polypropylene demand also grew for the quarter, helped by a reduction in imports with the spreads to propylene increasing by $0.07 per pound beginning in April. Our second quarter operating rates for the segment was approximately 90% with our crackers operating at approximately 95% during the quarter. This strong reliability and operating performance allowed us to maximize production and capture favorable market conditions. The investments and operating improvements delivered through our value enhancement program over the last 3 years continue to support higher productivity, improved reliability and strong asset performance across the portfolio.

Looking into the third quarter, we anticipate resilient demand in segments such as packaging, health care and infrastructure. We are closely monitoring developments in the Middle East and the potential impact to polyolefins pricing from crude oil and supply chain disruptions. As a result of these dynamic market conditions and limited global inventory buffer, we have announced a $0.10 per pound price increase for polyethylene in August.

We plan to operate our assets in line with market demand and conduct planned maintenance activities at our Clinton and Lake Charles facilities. The outage at Clinton began its turnaround in July and is expected to last approximately 70 days while the Lake Charles outage will begin in the second half of the third quarter and extend into the fourth quarter.

As a result, the third quarter operating rates across the segment are projected to be approximately 85% of nameplate capacity.

With that, let's turn to Slide 11 as we review the results of the Olefins and Polyolefins Europe, Asia and International segment. During the second quarter, the segment generated EBITDA of $331 million, a $337 million increase over the first quarter. These results also reflect a gain on the sale of the European emissions credits of approximately $50 million. It is the strongest quarterly result of the segment since 2021. Additions improved significantly during the quarter as supply chain disruptions stemming from the conflict in the Middle East reduced product availability and supported both Olefins and polymer margin expansion.

We capture the improved margins, we increased operating rates to approximately 75% for the quarter, with our olefins crackers operating at approximately 85% utilization. Our Middle East joint ventures continued to operate safely through the period, but at times were limited by feedstock impacting operating rates. As Peter previously mentioned, we completed the divestiture of 4 European assets during the quarter, marking an important milestone in our portfolio transformation. These actions further strengthen the competitiveness of our portfolio, while improving our resilience through the cycle.

Looking ahead into the third quarter, demand is expected to soften due to the typical summer seasonality. While geopolitical uncertainty may continue to contribute to market volatility, we remain focused on disciplined commercial and operational execution. Additionally, we continue to monitor the Rhine water levels in the region as they remain low and are proactively managing operating rates as needed. We continue to adapt production plans and minimize disruptions to our customers.

As we align production with market demand we expect to operate the segment at approximately 70% utilization during the third quarter. Though prolonged low Rhine water levels could further impact operating rates. With a more focused and competitive asset base, we are better positioned to navigate market volatility while capturing value.

And with that, I will turn the call over to Aaron.

Thank you, Kim. Please turn to Slide 12 as we look at the Intermediates & Derivatives segment. During the second quarter, segment EBITDA sequentially increased to $386 million, driven by stronger margins across several businesses supported by improving market conditions despite unplanned downtime at our Bayport PO/TBA asset in Houston. Global supply tightness from the conflict in the Middle East drove margin expansion in most of our businesses.

Oxyfuels further benefited from strong seasonal demand and near record level refinery gasoline crack spreads. Methanol gained from lower Gulf Coast natural gas prices in the quarter. These favorable conditions were partially offset by unplanned downtime at our Bayport PO/TBA asset. The outage had an estimated EBITDA impact of approximately $250 million during the quarter. As a result, overall I&D operating rates were impacted and ran at approximately 65% utilization.

I'm pleased to report that our team safely restarted the Bayport asset and ramped to full rates in June. The successful restart reflects the dedication of our operation and maintenance teams and positions us to capture improved market opportunities moving forward. Looking ahead to the third quarter, we expect Oxyfuels and PO&D volumes to improve following the restart of the Bayport asset. Oxyfuels margins should benefit from seasonal demand strength and ongoing elevated crack spreads.

In PO&D, we continue to see soft but stable demand for durables, while our market share gains and margin improvements from industry rationalizations should continue to support future earnings. Across the segment, we are targeting approximately 85% operating rates during the third quarter as we align production with market demand while maximizing the value of our integrated portfolio.

On Slide 13, I'd like to spend a moment on our Oxyfuels business and why we continue to view it as a differentiated advantage within the portfolio. Oxyfuels are a clean burn high octane gasoline blend stock. They are used to increase the octane level in gasoline and to help meet increasing fuel quality standards in global markets. Our proprietary PO/TBA technology allows us to produce oxyfuels, including MTBE and ETBE produced with bioethanol as well as a range of high-value C4 chemical products. Unlike traditional gasoline components produced from crude oil, oxyfuels are manufactured using butane and methanol, creating a structural feedstock advantage, particularly in the United States, we make roughly 75% of our oxyfuels.

This positioning is further enhanced by our integrated production of methanol derived from low-cost natural gas. There are 4 primary drivers of oxyfuel profitability. Butane and methanol feed costs relative to crude oil, gasoline crack spreads and octane values or blend premiums. Together, these factors determine the economics of supplying oxyfuels into the gasoline pool.

During the second quarter, market conditions were exceptionally favorable as higher crude oil prices supported attractive feedstock differentials. As we have previously disclosed, a $1 per barrel change in crude oil has approximately $20 million of annualized earnings impact to Oxyfuels with butane to Brent spread being the primary driver.

Adding to that rule of thumb, gasoline crack spreads are near record levels as the conflict in the Middle East and refinery disruptions stemming from the Ukraine war, which have idled approximately 40% of Russian refining capacity have tightened global supplies of refined products. The chart on the right highlights how each of the key profitability drivers improved materially from February to the second quarter levels, creating 1 of the strongest oxyfuel margin environments we have seen in recent years. Importantly, with Bayport PO/TBA back in operation, we are able to capture the full benefits of our integrated value chain.

With that, I will turn the call over to Torkel.

Thank you, Aaron. Please turn to Slide 14 as we review results for the Advanced Polymer Solutions segment. Second quarter EBITDA was $78 million. APS margins improved through disciplined pricing actions and cost optimization. Automotive demand remained stable despite geopolitical uncertainty, while our customer focus continued to generate tangible results through new business wins across the portfolio.

Looking ahead, we expect seasonal demand to moderate across automotive and other end markets, including the typical third quarter downtown at automotive OEMs. We also expect higher raw material costs related to global supply disruptions to persist. Nonetheless, we remain focused on disciplined pricing execution and cost management to mitigate these impacts where possible. Despite these near-term market dynamics, we continue to transform APS into a more customer-centric and resilient business.

Our focus on customer centricity, cost optimization and portfolio improvement continues to strengthen our earnings profile. With these changes, we have seen EBITDA for the first half of 2026 increased by over 50% compared to the same period last year. We remain confident that the actions we are taking will continue to improve competitiveness, profitability and transform the APS business over the long term. With that, I will return the call to Peter.

Thank you, Torkel. Please turn to Slide 15, and I will discuss the results for the Technology segment. Second quarter EBITDA of $74 million was relatively in line with our prior guidance. Profitability improved over the quarter driven by licensing revenue milestones and improved catalyst demand. Revenue increased as a greater number of higher-value contracts reached significant milestones, while catalyst sales benefited from strong demand during the quarter.

Looking ahead, we expect catalyst demand to normalize following the high number of shipments during the first half of the year. In addition, new licensing opportunities or almost nonexistent amid substantially slower global polyolefins capacity growth towards the end of this decade. As a result, we estimate that third quarter technology EBITDA will moderate from second quarter levels while remaining more in line with typical run rate results.

Let me share our views on our key regional and product markets on Slide 16. The conflict in the Middle East will continue to shape the near-term outlook for our products. As we mentioned earlier, the scale and duration of this supply disruption is unprecedented. Inventories have been depleted particularly in China, which is the global buffer in the case we have further setbacks in the Middle East or other unforeseen supply disruptions, such as weather events.

We're best positioned in North America with our cost-advantaged assets and where we saw sequential improvement in demand in both polyethylene and polypropylene in the second quarter. We anticipate demand to remain resilient into the third quarter. While we did see prices come off to April peak, we're still well above pre-conflict levels. Both Europe and Asia are entering a typically weaker seasonal demand periods.

Additionally, in naphtha prices could pressure margins in those regions. From an end markets perspective, we see a differentiated demand environment. Packaging and other consumable applications remain resilient, supported by food, health care and stable everyday consumer demand.

Infrastructure-related demand also remains a bright spot, while building and construction is stable but subdued as any housing recovery remains late. Automotive is softer, reflecting affordability and broader macroeconomic pressures.

On fuels, we are experiencing a consistently strong U.S. driving season despite higher gasoline prices. We expect gasoline cracks to remain elevated through the summer while crude price fluctuates with the conflict in the Middle East.

The overall takeaway is that constrained global operating rates, lean buffers, further risk of setbacks in the Middle East and resilient consumable demand should support elevated margins. through the third quarter with any eventual market recovery taking quarters, not months to resolve.

As we conclude today's call, I would like to acknowledge that throughout the second 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 Instructions]

Our first question comes from the line of David Begleiter with Deutsche Bank.

Peter, on polyethylene, the consultants are calling for a $0.10 decline in July. I suspect you disagree with that forecast and maybe you can tell us why you dispute that forecast.

David, good question, of course, on me to start the call with. As I mentioned in the prepared remarks, the backdrop remains, of course, exceptionally dynamic -- we look forward to a peaceful resolution to the conflict, but the timing of that remains, of course, difficult to predict.

Let me point out that clearly, normalization isn't a straight line. As you know, we've seen the conflict cool down, it back up again a few times over the past months, and prices have reacted in response. The last few weeks we've seen increasing prices for crude oil, feedstocks, polymers as the conflict seems to be ongoing. And the traffic through the Strait of Hormuz is still far below pre-conflict levels. with the conflict spreading to other areas such as also the Red Sea.

So let me point out, as you know, that our global cost advantage asset base and the commercial expertise, as was demonstrated in our second quarter results, enable us to generate attractive margins in a range of different scenarios.

Now to your specific question around the pricing outlook, let me hand over to Kim.

Thank you, Peter. I think as it relates to July, as you know how this works, the consultants puts out their forecast and they do create a sentiment. Peter's comments, we've seen a lot of movement in the month of July. We've seen export pricing increase. We've seen export volumes increase, not only in the U.S., we've seen it all around the world.

So I think as we think about the outlook and this potential escalation or reescalation we see higher crude, we see higher demand. We do not see China exporting, which is what they had done in the second quarter. Typically, they have stronger demand or seasonal demand in the third quarter we see them important I think the other thing that you have to think about from a global supply perspective are things that could constrain global supply -- you've got a Rhine water level in Europe now, and you are still in hurricane season in the U.S. Gulf Coast.

So I hear them, but I also think there's a lot of factors that say that there's the potential for price settlement to be flat and potentially move up throughout the quarter.

Our next question is from the line of Vincent Andrews with Morgan Stanley.

Wondering if you could talk a little bit about the feedstock mix. It looked like both in the U.S. and in EMEA AI, there was some flexibility on the feedstock mix to capture what I believe were attractive co-product values. So if you could maybe talk about that and what you think is going to happen in the third quarter to date and where the best coproduct opportunities are, that would be great.

Yes. Thank you, Vincent, for your question. Before I hand over to Kim to talk about more specifics. You know that we have flexible crackers. And of course, we have also done all our work in terms of the consolidation in Europe. So Europe is mainly focused now on our Wesseling operations in O&P, but we continue to optimize our feedstock mix based upon the flexibility that we have in our crackers. Now with that, Kim.

Yes. I'll just make -- add a little bit more color. Particularly in Channelview and investing where they were naphtha crackers and we've added some flexibility to them. As you have a rising crude environment, you have the increase in your carbon value, whether that's propylene, butadiene or other fuel components. So that's where you're seeing the co-product credits and the rising crude environment.

Next question is from the line of Patrick Cunningham with Citi.

I wanted to dig into a little bit more on supply disruption. I think the ability for China to sell out of inventory and some of the buyer behavior were bigger factors than we had previously anticipated. And now we're starting to see some reescalation strengthen the export markets. Do you expect any higher prices could potentially be met with higher operating rates in China in relatively short order? Or do you see additional constraints on crude and feedstock inventory and their ability to produce. I guess what I'm driving at is, is there a risk that there may be additional production, demand destruction and perhaps they don't have to import as much in the second half?

Yes. Thank you, Patrick. Good question, of course, around China. I mean if you would ask the question differently, I mean, what surprised us the most during the second quarter. It is definitely, I mean, China because China did not just endure the conflict, it actually did structurally adapt in ways that surprised, I mean, even the most conservative forecasters, external consultants players in the entry because what they were effectively doing is decoupling the chemical production from Middle Eastern oil volatility -- just starting inventory in China of crude, refined energy products and petrochemicals were likely higher than what everybody would have anticipated before the conflict. -- the China -- the CTO production, so coal to olefins increased more than everybody anticipated despite the fact that CTO technology is the upper end of the cash cost curve.

But coal costs were, of course, unaffected by the conflict and it offset some reduction in naphtha crackers. Everybody on the call knows that China is traditionally a net importer of polyethylene. But it has shown in the second quarter a greater-than-expected ability to increase exports and reduce its apparent, I mean consumption we believe that, that is temporary, then everybody would have anticipated. But also, just like Kim already said, -- it led to 3 consecutive months of China inventory drawdowns and materially lower inventories versus the pre-conflict levels.

So yes, the market adapted faster than the physical system recovered. We do believe that, that cannot be something that is going to continue. Kim pointed it out. I mean, China, and we see already indications of that is coming back, I meant to the market. That means they start importing again. We didn't see a lot of the exports coming out of China in the second quarter in the global value chain, but it was mainly geared I mean, to Southeast Asia which could have a side effect, and you see some indications of that as well already, especially in South Korea. It increases, I mean, the pressure on naphtha-based production to actually accelerate the consolidation. Kim, anything you want to add?

No, I think you covered it. I think that's good.

Our next question is from the line of Jeff Zekauskas with JPMorgan.

Can you update us on the status of Mauritech. It is the initial facility complete? Or do you expect it to be complete this year and selling product? And can you update us on your acetyl assets in the United States? How are they functioning in acetic acid and VAM?

Thank you, Jeff. Good question. Let me cover the first 1 on MoReTec 1. And Aaron will cover your specific assets question. So MoReTec 1continue to be progressing as planned, and that is the investments in Wesseling. Start-up is expected towards the end of 2027. And has set as scheduled as planned, we're progressing quite well. The commercial team has done a fantastic job. So quite a big part of that capacity. Actually, the vast majority of that capacity is already being presold through agreements with brand owners. The regulation, as you know, is advancing very positively in Europe as well.

So with plastic and plastic waste regulation as well as a mass balancing regulation the so-called SUPD, -- so we're very confident about our strategy because new markets are being created. The value that we are able to capture is actually higher than what we have anticipated and communicated in March 2023 in our Capital Markets Day. When I shift gears, I mean to the United States, with MoReTec 2 investments, as you know, in the context of the cash improvement plan, but even more so because we saw that regulation was not as advanced as in Europe. -- we have delayed the project to build the second MoReTec 2 units. Aaron on acetyls..

Yes. Thanks, Peter. And thanks for the question, Jeff. On acetyls, we continue to experience reliability issues in our syngas unit which is affecting our -- both of our acid production and our VAM production at our La Porte site. Remember this, though, as part of our acetyls business, methanol is included and at La Porte, we are running beyond benchmark rates right now in our methanol business, which, as I mentioned in some of my planned remarks, benefited us tremendously in the second quarter as we saw pricing peak in April.

And while prices have come off their peak levels in methanol, they still remain elevated certainly from the beginning of this year. As we look ahead to the third quarter, we do hope to get both acid and VAM back to full rates and the teams are working diligently to do so.

So let me then also summarize this. If you look at our excellent results that we had in the second quarter, and I will keep on repeating, I mean, a 23% EBITDA margin, which fantastic work that our teams have done. But we didn't have the full benefits out of our production units, investments. And we didn't, of course, have the benefits in PO/TBA because everybody knows that we had this fire incident in Bayport, which had a drastic impact on our second quarter results.

So it shows also the potential that we have in our business portfolio after all the work that we have done on portfolio rationalization, value enhancement program and cash improvement plan because Q2 was except in terms of EBITDA, but it was not perfect.

The next question is from the line of Josh Spector with UBS.

I just wanted to follow up on the Americas Olefins margin improvement specifically. I think looks at the spreads movements, we thought EBITDA up, call it, like $600 million-ish, plus or minus. You did a few hundred million better than that. I'm just wondering if you could help decompose that between what you'd attribute that to in terms of cost savings versus co-products and trying to think about what's structural in there versus temporary?

Well, Josh, there was definitely, I mean, an element, and you can see a bit of that in the SG&A. You saw clearly that our SG&A is coming down -- and these are the results that are coming out of our cash improvement plan. Let me maybe also take the chance, I mean, to point out that with the latest phase in streamlining our organization, we are talking about a 30 -- so 30% of reduction in management, not just in the executive committee, but in the entire management structure. And that was possible because we have done this portfolio changes.

We have delegated authority deeper in the organization based upon our value enhancement program. So that entire streamlining, we've done quite a lot of training during the last 3 years in executive development programs. So that actually -- that delegation of authority would that our management knows what it actually means and how to take up more responsibility and work together along the value chains work together inside of the company along processes -- so that part, I mean, you only see a part of that in SG&A because, of course, another big part is actually in our total fixed costs.

Yes. And Peter, I would just reiterate. Our volumes were up, ethylene price was up, propylene price was up, ethane was down, natural gas was down. It was a very perfect alignment.

And actually 36% EBITDA margin in O&P Americas, excluding identified items, Fantastic work in.

The next question is from the line of Kevin McCarthy with Vertical Research Partners.

I appreciate the detail you offered on Slide 4 regarding polyethylene asset damage and other constraints due to the Middle East conflict. Welcome any comments that you have on other pieces of the portfolio, whether it's the propylene chain or other assets that have been dislocated by the conflict. Perhaps tough to quantify off the cup, but certainly would welcome how you're thinking about that at this juncture.

Excellent question. This is Kim. I'll try to give you a quick answer on that one. As we think of the the polypropylene markets, we think of the LPG that comes out of the Middle East that goes to Asia, I'll just say Asia generically, whether that's China or North or Southeast Asia. And what we saw at the beginning, I think you'll remember in last quarter, we were probably even more bullish about the amount of capacity impacted but what we have seen is we have seen the U.S. imports or exports of LPGs into the region temper that impact.

So we've seen operating rates in North and Southeast Asia, excluding China, at about 50% versus we probably thought a quarter ago that it would be more like 0 or $25 million. So there is an impact there. And the longer the Strait stays closed, the U.S. can only partially close that gap. I hope that answers your question.

Let me add, I mean, on polypropylene as well. Here, what 1 needs to take into consideration is, again, also that portfolio management that we have undertaken because especially, I mean, in Europe, with the sale that we concluded successfully in the second quarter. That means that also here, not just in polyethylene, but also in polypropylene, we have moved up let's say, or moved down actually in the cash cost curve.

So our portfolio in polypropylene is more in the low-cost delivered area. In addition to that, of course, we have our NATPET joint venture in Yanbu, which has, during the conflict, very steady, very high performance, continued to run and continues to run as we speak. We continue to work on the expansion of that project. So we remain committed because we do believe that helps us in either further advancing our lowest cost delivered portfolio in polypropylene. But let me also ask Aaron, I mean to add some color in his business units.

Yes. From an I&D perspective, I'd maybe point to 2 specific areas. Methanol being the first, you heard my commentary just with the pricing peaking really in the second quarter. 20% of global methanol capacity is served out of the Middle East with 50% of that volume coming from Iran. So obviously, that is a significant impact. And while there's plenty of disruption, we don't know exactly how long it's going to take to get that capacity back online.

Most of that Iranian capacity goes into China for a variety of different products, methanol to olefins or even MTBE. So we've seen that disruption. I also mentioned in my planned remarks, with Ukraine targeting Russian refining capacity, over 40% of Russian refining capacity is now off-line and we're not seeing exports of distillate out of Russia. They're the largest exporter of diesel today. And so that's impacting refinery rates and runs globally.

And we pointed it out on Slide #4, we do not see that demand is getting weaker. So packaging demand continues to remain strong. Certain areas, health care, infrastructure data centers, very strong demand. And the areas where we have weak demand, it hasn't actually weakened even further. So here, I'm talking about housing and automotive, for example.

The next question is from the line of Frank Mitsch with Fermium Research.

Aaron, I wanted to come back to the $250 million negative impact in 2Q from the Bayport outage. I'm assuming that's at the elevated oxyfuel margins that were in the second quarter. So I'm just trying to figure out couple of things in terms of a jumping off point as we start thinking about the third quarter in I&D. I mean if you just add that $250 million to the -- what you reported, you're around $630-ish million of EBITDA in the third quarter. Now obviously, there's movement in pricing, et cetera, although it sounded like you might be a little bit more optimistic on the side.

So how should we be thinking about, a, the jumping off point for the third quarter and some of the puts and takes relative to the second in I&D?

Sure. Thanks, Frank, and I appreciate the question. Maybe a couple of things just to start. As Bayport PO/TBA was down, we ramped up Channelview POSM rates to help satisfy some of the PO demand that we were -- that was being displaced as a result of the outage. Keep in mind that POSM is a second quartile asset on the cost curve. So we displaced a first asset with a second quartile asset.

So as Bayport has come back online, we reduced the rates of our POSM unit, and we are now running Bayport PO/TBA full. So that -- the TBA margins are far greater than the styrene margins. We'll see that impact in the third quarter. You can't just simply take the $250 million and add it to the second quarter for a variety of different reasons. It's tough to predict where Crude oil prices are going to go for the balance of this quarter where gas cracks are going to go for the balance of this quarter. We will, however, see improved volumes, specifically in the derivative chain from PO perspective, as well as with MTBE.

And I would like to add on that, Frank, as well, a fantastic work. You remember, I mean, when we invested in Channelview in this holy grail of PO/TBA facilities, our so-called MKU units. That ran at 112% Aaron.

Yes, in Channelview, we were able to push rates. So I've mentioned in the past, we've demonstrated 108% of benchmark rates in Channelview. We've actually tested those rates and demonstrated that we can run now 112%. So that's CapEx-free capacity creep.

Our next question is from the line of Matthew DeYoe with Bank of America.

I have two. One, why does you only take operating rates to 90% in 2Q? Why not more -- and as you ramp down from 2Q to 3Q, what's the headwind to EBITDA just from operating rates? And then I could the comments on China that has burned through like 30% of its inventories. Can you give us an idea how you got to this number and your confidence in it. But candidly, I kind of would have thought it would have been more than 30%, but also, you probably can't functionally go to 0 either. So just some framework is helpful.

Okay. This is Kim. So let's start with the 30% Chinese operating rate first. or inventory pool, sorry. The inventory we get that is published is from the 2 biggest SOEs in the region and we get that inventory every 2 weeks in arrears. So when we captured that snapshot, it was about a week ago, and it was a draw of about 30%.

And remember, that's coming off the high that they had coming out of Chinese New Year's. As it relates to operating rates, are you asking me about second quarter or third quarter? Could you clarify and you're talking about, correct, the Americas?

Maybe it's hard to run the whole fleet flat out. But you just talked about Channelview running above 100, et cetera. So why weren't the rates better in the second quarter? And -- or why didn't you run them better? And as you move from 2Q, 3Q, there's a planned rate reduction. I'm just kind of wondering what the headwind is incrementally from 2Q to 3Q, just given lower operating rates.

Yes, right. So the quarter-on-quarter sequential decrease is the Clinton turnaround, which is a 70-day outage, which would include an olefins unit and a cracker, which as you heard from ourselves and from our competitors, that some of the increase in inventory in the second quarter in the U.S. system was just that. We were building inventory to support our customers' needs during these third quarter turnarounds.

Crackers ran, I mean, in Q2 at full capacity. So in open, so we were running at 95%, if I remember well, of cracker capacity.

Cracker capacity, yes.

So the 90% is not the cracker capacity.

Yes. Correct.

Last question is from the line of John Roberts with Mizuho.

I believe one of your large competitors in Europe on their call talked about all the increased industry M&A and their interest in bolt-on acquisitions. As your balance sheet improves here, is that something Lyondell might be interested in as well?

John, thank you. Good question. That allows me also to lead to Agustin so that Agustin can talk about our capital allocation strategy.

Sure, John. Thank you very much for your question. Yes, really, our capital allocation strategy remains unchanged. Investment grade continues to be paramount and then we'll obviously focus on maintenance CapEx to run safely and reliable our dividends as well continues to be an important piece of it, then any growth CapEx. And at the end, we would look very opportunistically, there's anything on the M&A front.

But priority for now is to rebuild the balance sheet, improve our credit metrics and fortify -- so I said our position as we go here through the cycle, we've had a nice deleveraging for this quarter, and we'll keep strengthening our balance sheet as we go through the year. Remember, we navigated very well, I mean, through this down cycle, net by having $3.4 billion in cash, yes, on the bank -- so you can take that number as what we are actually aspiring building up again.

Thank you. I'll now turn it back to Mr. Vanacker for closing comments.

Thank you again for all your thoughts for questions. The events over the past months have transformed the global landscape with the economic and logistical impact of this conflict persisting 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. through disciplined capital allocation, active portfolio management and relentless focus on operational excellence, we're building a strong and more resilient LYB.

Our LYB team demonstrated this impressively by delivering 23% EBITDA margin during the quarter clearly shows that the margin potential of the renewed LYB portfolio and lean organization set up, all our actions through our portfolio measures or a value enhancement program and our cash improvement plan results in a stronger operating leverage. You can be confident will remain focused on our strategic priorities and long-term value creation in this dynamic environment.

We thank you for your questions, your interest, continued support of our company hope that you have a great and safe weekend. Stay well. Thank you.

Ladies and gentlemen, you may now disconnect at this time. Thank you for your participation.

Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions]

I would now like to turn the call over to Mr. David Kinney, Head of Investor Relations. Sir, you may begin.

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 first 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 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 May 31 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746217.

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.

Thank you all for joining today's call as we discuss our first quarter results. And thank you, Dave. As some of you know, Dave Kinney is retiring after a decade leading Investor Relations and nearly 35 years with the company. I am sure you will all join me in congratulating Dave for his significant contributions to the company and wishing him well in retirement.

Succeeding Dave is David Dennison, who brings nearly 30 years of industry experience to the role across planning, commercial and strategic functions, including most recently in the circular and low-carbon solutions business. I am confident you will find David to be another great partner as our new Head of Investor Relations.

Before we turn to our performance, I want to acknowledge the human impact of the tragic ongoing situation in the Middle East. The suffering and trauma of war is catastrophic for all involved, and our thoughts are with those affected. Our first priority is the continued safety of our people, and we have already executed on protocols to protect our employees and contractors in the region.

This situation in the Middle East has materially disrupted global energy and petrochemical markets. We expect the impacts will extend beyond the end of the year with much of the world's petrochemical capacity constraints are shutdown.

LYB's U.S. and European production capacity is a critical resource for filling the global gap in supply for our essential products. Supported by our operational excellence and the work from our value enhancement program, we are increasing production to meet this demand. At the same time, we remain focused on executing our strategy. Our portfolio transformation has reached another significant milestone with the sale of 4 European assets. While increased cash generation and profitability will improve our credit metrics, we are maintaining our discipline on capital expenditures, and we are undertaking deliberate actions to further streamline our fixed costs and underpin our ability to generate attractive value during both cyclical highs and lows.

With that being said, let's take a moment to review LYB's safety performance with Slide 3. Safety remains foundational to how we operate. Our year-to-date total recordable incident rate of 0.13 is among the best in our sector and reflects the commitment of our employees and contractors.

Turning to Slide 4. The Middle East conflict and its unprecedented effects on energy prices and global logistics has shifted the paradigm for petrochemicals. At the high end of the cost curve, naphtha-based producers in China and Southeast Asia have faced sharply higher costs driven by the compound impact of higher crude prices, the loss of sanctioned crude discounts and weak co-product values.

In addition, pre-conflict, approximately half of Asia's imported crude came from the Middle East. The war has impacted security of supply for Asian crude and petrochemical feedstocks, leading to lower production and a substantial reduction of exports from the region.

At the low end of the cost curve, U.S. ethane economics have improved, strengthening the cost advantage of LYB's U.S. Gulf Coast assets with low-cost raw materials and increased production to serve increased global demand.

In Europe, higher prices are now offsetting higher energy and feedstock costs as imports from the Middle East and China decline. And while this chart focuses on ethylene, we find similar dynamics in play across nearly all LYB products.

Clearly, we are operating in a dynamic environment where dramatic changes are possible within short time periods. Our global operational and marketing network has already yielded valuable insights, which have enabled us to rapidly adapt to the changing environment. These insights inform our position that the impacts from the war will be long-lasting. We believe the geopolitical risk premium for crude oil will persist even after a resolution to the current conflict and discounts for sanctioned crudes are unlikely to return. Both of these impacts should durably steepen the global cost curve relative to prewar conditions.

Across feedstocks and petrochemicals, physical damage from the war and accelerated shutdowns will require time and resources to repair. And some older, smaller and less economical plants under evaluation for potential rationalization may not restart at all. This could provide a lasting benefit to supply and demand balances. Of course, we are mindful of the potential for second order impacts like demand distraction for discretionary spending, especially if oil prices remain at recent highs. But we remain confident that our cost-advantaged asset base and deliberate execution will enable LYB to continue to generate value through the cycle.

Now let's turn to Slide 5 as we discuss the tangible steps we are taking to execute on our strategy to build a more resilient LYB. Over the past 3 years, we have executed on significant portfolio transformation. This included seizing refining operations, closing our Dutch PO joint venture, divesting our EO&D business and the ongoing transformation of our APS portfolio. And as we announced this morning, we reached another significant milestone in our portfolio transformation by completing the sale of 4 European assets. This transaction sharpens the focus of our capital allocation towards strategic assets that advance long-term value creation for LYB.

We extend our gratitude to our friends and colleagues that helped accomplish this transaction. We are particularly thankful for those who are transferring to the new organization for their contributions, professionalism and resilience throughout the process. As they transition to a stand-alone business, we wish them and the new company success in the next chapter ahead.

We continue to benefit from our team's vigorous work on the cash improvement plan. We are making progress towards our target of $500 million of incremental cash flow this year, which will bring the cumulative total since 2025 to $1.3 billion. We remain focused on disciplined management of trade working capital, which despite higher volumes and prices was $450 million lower on March 31 than the year prior.

We are also continuing to streamline the organization, including our executive committee. The effects will flow through the organization over the coming months to create further efficiencies. First quarter fixed costs across the company are already $150 million lower than first quarter of 2025, including closure costs. And since the end of 2024, we have reduced head count by approximately 3,000 positions or 15% through the combination of fixed cost reductions and portfolio management, including the sale of our European assets announced earlier this morning. Our initiatives are yielding results and more improvements is underway.

Even with our sharp focus on capital discipline, we remain poised to realize future value creation. We're operating our Channelview PO/TBA plant above benchmark rates and modest investments in Hyperzone reliability and acetyls debottlenecks will deliver incremental value.

Construction on MoReTec-1 continues as planned and is expected to ramp up towards the end of 2027. Together, we expect these future growth projects will increase our EBITDA by approximately $400 million. In addition, VEP continues to drive down our costs and increase our reliability and productivity.

Now let's turn to Slide 6 as we discuss our financial performance. During the first quarter, earnings were $0.49 per diluted share with EBITDA of $615 million. EBITDA improved by nearly 50%, supported by both typical seasonal trends and a significant improvement in market conditions during March. Cash and liquidity remained robust with balances of $2.6 billion and $7.3 billion, respectively, at quarter end.

I will now hand over to Agustin to discuss our financial performance in more detail. Agustin?

Thank you, Peter, and good morning, everyone. Let me begin with Slide 7 as we outline our cash generation. Over the past 12 months, LyondellBasell converted EBITDA into cash at a rate of 111%, well above our long-term target of 80%. This performance reflects our laser focus on optimizing working capital and benefited from the timing of tax payments.

In the second quarter, we expect higher prices and operating rates will result in an intentional build of working capital to capture market opportunities. As Peter mentioned, in the first quarter, our cash balance was $2.6 billion, and our available liquidity remains robust at $7.3 billion.

Now let's turn to Slide 8 and review the details of our first quarter capital allocation. We consumed $269 million of cash in operating activities. This was expected and consistent with normal patterns for the first quarter. It also reflects the very low inventory levels we accomplished at the end of 2025 and our intentions to profitably capture higher prices and increased demand from the market in 2026.

During the quarter, we funded $269 million of capital investment. We took proactive steps during the first quarter to protect our investment-grade balance sheet. Our Board approved a 50% reduction in our quarterly dividend to rebalance our capital allocation and improve financial flexibility. As a result, we returned $224 million to shareholders through dividends in the first quarter. With the change in outlook for 2026, we currently expect both our effective and cash tax rates for the year will range between 15% to 20%.

Despite the highly fluid macro environment, our capital allocation priorities remain consistent. We are committed to our investment-grade balance sheet as the foundation of our disciplined capital allocation framework. With the sale of 4 European assets, we have reached a milestone in our portfolio transformation. And while we have several attractive projects ready for investment, we will only move forward when the balance sheet and outlook is more secure.

Regardless of the more favorable outlook for 2026, our near-term focus will remain on continuing to invest in safe and reliable operations, to execute our cash improvement plan, to strengthen our investment-grade balance sheet and repay the 2026 and 2027 debt maturities we prefunded in 2025.

Now let's turn to Slide 9, and I'll provide a brief overview of our segment results. Our business portfolio generated $615 million of EBITDA during the first quarter. Profitability improved across most businesses, led by stronger polyolefin margins and volumes, partially offset by reduced technology licensing activity.

With that, I will turn the call over to Kim.

Thank you, Agustin. Let's turn to Slide 10 to discuss the performance of Olefins and Polyolefins Americas segment. During the first quarter, O&P Americas EBITDA was $327 million, double the prior quarter. In polyethylene, integrated margins improved due to favorable feedstock costs and successful contract price increases for polyethylene in both January and March. In March, export prices for polyethylene significantly increased as global production was impacted by the Middle East conflict. These benefits were partially offset by the impacts of winter storm Fern and the higher gas prices earlier in the quarter.

Our first quarter operating rate for the segment was approximately 85%, with our crackers running at approximately 95%. During the first quarter, North American polyethylene sales for the industry increased by 6.5% year-over-year, while inventories fell by 7.6%. March domestic and overall sales volumes for North American polyethylene industry were the strongest since 2020.

In the second quarter, we expect higher margins and volumes, given the global supply tightness. Our order books are strong with April orders for polyethylene 20% above prewar averages. We have announced substantial price increases to capture this momentum, including a cumulative $0.50 per pound in polyethylene across April and May in addition to the gains realized in the first quarter, and $0.10 per pound polypropylene spread increases in both months. With ongoing supply constraints, North America is positioned to move from net importer to net exporter to meet stable global demand for polypropylene.

We are focused on maximizing operating rates to meet the gap in global supply and expect 90% utilization of our nameplate capacity across the segment during the second quarter. The hard work and our value enhancement program and cash improvement plan is starting to add value through higher productivity and reliability at lower costs.

Moving on to Slide 11. Earlier, Peter showed the dramatic impact of the ongoing war in Iran on the ethylene cost curve. And here, we outlined the direct and indirect effects of the war on the production of ethylene, polyethylene and polypropylene. In the Middle East, production has faced 3 principal challenges during the conflict. First, some plants have been hit directly, immediately impacting production with time to repair and restart unclear. Secondly, feedstock availability has been challenged, impacting plant operating rates or ability to operate at all. And thirdly, for plants where the normal route to market included passage through the Strait of Hormuz prior to the conflict, these plants have faced logistical bottlenecks resulting in the increased cost and time to market and in some cases, reduced operating rates.

Production in Asia has been primarily impacted by reduced feedstock availability. In China, which sources as much as 50% of its crude and substantial share of its naphtha from the Middle East, we hear the government has instructed refiners to prioritize limited feedstock availability towards the production of transportation fuels instead of chemicals. Ethylene cracker operating rates have steadily declined over the course of the conflict.

Overall, this has meant that more than 20% of the global capacity for ethylene, polyethylene and polypropylene is currently impacted by the ongoing conflict as shown in the red bars on the chart. This dwarfs the expected capacity additions this year and takes each of these markets from oversupply to tight. These production impacts have led to higher prices to incentivize additional production from regions with stable supply, principally North America and Europe. LYB's portfolio is optimally positioned to take advantage of these commercial opportunities with 90% of our PE capacity and 70% of our PP capacity within North America and Europe.

Lastly, I wanted to highlight that although the outlook is more positive than we expected earlier in the year, we remain mindful of the second order effects of higher prices. A structurally short market is usually resolved through demand destruction, which we see no evidence of currently or higher production. History has shown packaging demand remains robust in such scenarios. Demand for durable goods has already been consistently at a low level since 2022, and prices are still well below peak levels in 2021.

We remain watchful and will adapt to how the market develops. We are confident that our actions to grow and upgrade the core, which has driven significant portfolio transformation will continue to generate value in a range of macroeconomic scenarios.

With that, let's turn to Slide 12 as we review the results of the Olefins and Polyolefins Europe, Asia and International segment. We reduced our first quarter EBITDA loss to $6 million, driven by higher volumes, improved reliability and lower fixed costs. While higher raw material prices pressured cracker margins during the first quarter, product pricing began to catch up during March and higher volumes and improved utilization rates are improving our fixed cost coverage.

Our Middle East joint ventures operated largely as planned during the quarter. While the region represents a relatively small portion of our global capacity, these cost advantage assets remain an important part of our portfolio over the long term. After the end of the quarter, LYB reached an important milestone in our portfolio transformation with the completion of the sale of 4 European assets. We are now better positioned with increased resilience and greater flexibility to capture market upside by leveraging a greater proportion of low-cost capacity.

Looking ahead to the second quarter, polymer margins are improving as our team passes through higher costs for energy and raw materials. Feedstock costs are likely to remain dynamic as the market adapts to the ongoing conflict. We are seeing improved regional demand in Europe due to lower imports from the Middle East and China. We are increasing our operating rates to approximately 80% across the segment during the second quarter.

And with that, I'll turn the call over to Aaron.

Thank you, Kim. Please turn to Slide 13 as we look at the Intermediates and Derivatives segment. In the first quarter, segment EBITDA sequentially increased to $224 million, driven by stronger volumes supported by improving market conditions, partially offset by unplanned downtime at our La Porte and Bayport facilities in Houston. Margins strengthened in propylene oxide with improved [ adders ] and increased demand for glycols into deicers.

In oxyfuels, results declined during the quarter to reflect typically low winter seasonal demand and margins. Margin pressures for oxyfuels were compounded by higher butane costs in Europe with improving oxyfuels prices amid Middle East tensions, providing only a partial offset towards the end of the quarter. Unplanned downtime at our Bayport PO/TBA asset beginning in March reduced EBITDA by approximately $40 million in the quarter.

Crude oil remains the single largest variable affecting oxyfuel margins. As a rule of thumb, a $1 change in crude oil prices translates to roughly a $20 million annualized impact on oxyfuel earnings, assuming full production and all other factors remain constant. Historically, oxyfuels margins in the U.S. and Europe have been comparable. However, this year, we are seeing a divergence. In the U.S., butane and methanol prices have increased far less than crude. In Europe, butane prices are near record highs relative to crude, compressing margins. Additionally, the outage at our Bayport PO/TBA facility has temporarily limited our ability to fully capture the favorable U.S. market environment.

In acetyls, we saw improved seasonal demand as we moved through the quarter. However, this improvement was more than offset by unplanned downtime due to a delayed restart of the La Porte acetyls assets following the winter storm Fern. Despite this, the methanol business continued to run throughout the quarter, providing a stable earnings contribution that underscores our benefits from integration across the I&D portfolio.

Overall, underlying demand trends and market fundamentals continue to improve, positioning the segment for favorable performance during the second quarter. In oxyfuels, we expect meaningful margin improvement in the second quarter from stronger seasonal demand and reduced supply from the Middle East and China. The Bayport PO/TBA asset is expected to restart toward the end of the second quarter with an estimated earnings impact of approximately $25 million per week while down. Taken together, these elements position us well for improved oxyfuels margins in the coming quarters.

In acetyls, volumes and margins are expected to improve following the La Porte asset restart, supported by seasonal demand recovery and tight global supply. Across the segment, we are targeting approximately 75% operating rates during the second quarter.

I will now turn the call over to Torkel.

Thank you, Aaron. Please turn to Slide 14 as we review results for the Advanced Polymer Solutions segment. First quarter EBITDA was $58 million. APS volumes increased across most business driven by typical seasonal demand. Our customer focus continues to deliver tangible results contributing to volume momentum. Margins declined given pricing raw material costs following the start of the Middle East conflict.

Looking ahead, we expect soft near-term demand in automotive and other durable goods markets. We expect higher costs for raw materials, energy and logistics to persist and we are proactively passing these higher costs along our value chain. Nonetheless, we expect contractual limits on pricing velocity will pressure margins over the near term.

Despite the changes in macro environment, we continue to transform our APS segment to a customer-centric growth business. Our focus on customer centricity, cost, productivity and portfolio changes over the past couple of years has contributed to the continued earnings improvement as seen by the 55% increase in EBITDA in 2025 and now a 26% improvement year-over-year for the first quarter. We are confident the work we are doing will profitably transform the APS business and enable us to achieve our long-term goals.

With that, I will return the call to Peter.

Thank you, Torkel. Please turn to Slide 15, and I will discuss the results for the Technology segment. First quarter EBITDA of $18 million was lower than our prior guidance due to declining licensing activity with slower global polyolefins capacity growth and lower catalyst sales volumes following shipping constraints associated with the Middle East war. We expect improved results in the second quarter as revenue from timing of shipments are recognized and licensing revenue milestones increase. As a result, we estimate that the second quarter Technology segment results will be only slightly lower than our fourth quarter 2025 results.

Let me share our views on our key regional and product markets on Slide 16. Ongoing supply disruptions across multiple value chains are tightening availability and supporting improved pricing and margins. These dynamics are favoring regions with stable access to energy, raw materials and logistics where LYB and other producers are being called on to fill the gap in global supply.

In North America, pricing initiatives are supported by improving seasonal demand, increased emphasis on security of supply and rapidly rising export prices with margins reinforced by the U.S. cost advantage.

In Europe, higher costs are being offset by higher product prices, supported by increased demand for local production as imports from the Middle East and Asia decline. With fewer imports entering the region, profitability is improving.

In Asia, feedstock disruptions continue to constrain supply, forcing lower operating rates. While capacity additions in China persist, prolonged shutdowns and technical issues with restarts could accelerate capacity rationalization across the region.

Within packaging markets, demand remains resilient supported by essential needs for food, health care and nondurable consumer goods. Demand in building and construction remains muted amid broader macro uncertainty. Inflationary pressures from the war are likely to delay potential benefits from lower interest rates and the inevitable recovery in durable goods demand.

In automotive, global production is expected to decline slightly year-over-year with additional risk tied to the ongoing Middle East war only offset by modest growth in South Asia and South America. Finally, in oxyfuels geopolitical volatility is driving price and margin upside in the U.S.

As we conclude today's call, I would like to acknowledge that throughout the first quarter, our team continued to make smart decisions to successfully navigate a rapidly changing environment. We maximize the commercial opportunities with disciplined agility and a clear vision to position LYB as the leader in our industry and deliver lasting value for all our stakeholders.

Now with that, we're pleased to take your questions.

[Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank.

Peter, the consultants have a pretty sharp erosion of polyethylene price increases in the back half of the year. I suspect you differ to that forecast. Can you talk to you why you think they are probably being too bearish on PE prices in the back half of the year?

Thank you, David. Good question to start with. I think 4 weeks ago, nobody expected or predicted that we would get a $0.30 per pound price increase for polyethylene and a $0.07 per pound spread increase for polypropylene, just I continue to be a bit skeptical, I mean, about those outlooks.

Anyhow, if you look at our view and we said it in the prepared remarks, we see that this disruption is not to be measured in quarters. It's probably going to be multiple quarters, definitely not months. It's a very large shock that we are experiencing. It's very global. It's driven by both asset impacts and logistics. And you know these things normalize very slowly. Preference, as we hear, will be given, first of all, if you talk about the supply disruptions to crude oil. Then after that, fertilizers, I mean, for foods, and how fast will that actually move I mean to petrochemicals remain to be seen.

So our view that we continue to have is that there will be a sustained geopolitical risk premium that will continue to steepen the cost curve. And even after a resolution, the market may retain a higher risk premium for crude. Steeper global cost curve can persist also versus the pre-war conditions. As you know, physical damage is not something that can be recovered very quickly. So from that perspective as well, I mean, restart timing is uncertain. Rerouting logistics, as I talked about, I mean, the common view that we currently have in the market is until that rerouting logistics will be somehow stable, it's probably going to be more like, I don't know, 9 months, 12 months. And then in addition to that, if you have all these outages, these outages can become permanent. They can eventually also accelerate, I mean, the rationalization.

So with regards into more specific polyethylene pricing, let me hand over to Kim.

So Peter, thanks for kind of sharing the view of the impacts of the shock effect. I think the other thing to remind everybody is we've got -- we, yesterday, got confirmation on the $0.30 in April. We've got $0.20 out there in May. If you think about history and you look back at kind of peak pricing in 2021, the pricing there was still $0.10 to $0.15 per pound higher. So we -- in 2021, those pricing -- that pricing could clearly go through the economies. I think it can, again, as we go forward. And without any correction to the supply-demand imbalance, I'm not sure why pricing would go down, as Peter alluded to in his opening remarks. So I politely disagree with the consultants.

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

Maybe just on I&D, I guess, if you could walk through any of the structural changes you've seen from a cost curve and supply and demand standpoint given the conflict? And then just related, if the conflict persists and the Bayport turnaround does wrap up, where would you anticipate operating rates and margins to trend in the back half?

Yes. Thank you for the question. I would start by saying, generally, we have pricing power across the board and almost all of our products. We've seen, as examples, in methanol pricing, it's doubled in the last 3 months from $300 a ton to $600 a ton, really across all regions. And you take that through the acetyls chain. We've seen acid pricing up 50% over that same time frame. We've seen VAM pricing up 100% over that same time frame. So as I said, we've got pricing power really across the board from an acetyls perspective.

Cost curve in acetyls, relatively flat in both acid and VAM. But when you look at our methanol cost curve, U.S. natural gas pricing is the lowest across all regions right now. So obviously, we're advantaged in that spot.

When I shift over to the PO business, both of our technologies, we actually just ran the cost curve last month. Both of our technologies, PO/TBA and PO/SM are in the first quartile of the cost curve. So it obviously puts us in an advantaged position. As you heard in my planned remarks, we currently plan to run our capacities at 75% utilization in the second quarter. A lot of that is due to the unplanned downtime in Bayport. As that site gets back up and running towards the end of the quarter, we do expect to run closer to 95% to 100% full rates.

And I think one may say, I've been there, I mean, at Bayport about 10 days ago. And what I witnessed is all hands on deck, people are working very diligently, different work streams so that we get the site back up and running latest by the end of Q2. Is that right, Aaron?

That's correct. Yes.

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

Two questions maybe on O&P Americas. So if the situation in the Middle East persists, it seems like we're consuming more molecules every day than we're producing today. What happens if we have to try to price polyethylene to destroy demand? I don't think we've ever done that. How high do you think that needs to go to balance supply/demand?

And then the twenty-one is, other than the starting point was lower for polypropylene versus polyethylene, how are you seeing those 2 chains play out relative to each other? Is one benefiting from this more than the other?

Duffy, good question. And before I answer the question, I mean on O&P-AM and how high does the polyethylene price actually have to go before you see demand destruction. Let me remind everybody, I mean, that the vast majority of polyethylene is going into consumables. A lot of that, as you know, is going into packaging. So if you go in a market environment, just like we have seen, I mean, in the pandemic and during the financial crisis in 2008, 2009, behavior of people changes. So people don't go as much to restaurants but they consume at home, which means more packaging. That's one element. So not necessarily because one goes into a recession, that leads I mean to destruction of demand for polyethylene.

Secondly, it continues to be, I mean, the lowest cost alternative and most efficient alternative compared, I mean, to other materials if you want to package or if you want to produce piping, et cetera. And let's not forget, these other alternatives also get more expensive in the current market environment.

So with that, Kim?

Yes. I'd just make a couple of other comments. We've had at least 3 years, maybe 4 years of, I'd say, tempered durable demand. And so you've got pent-up demand for durables, you saw these pricing levels pull-through for polyethylene for sure in 2021. And then when you talked about -- you asked the question about polypropylene. Polypropylene price today is $0.60-ish, call it, lower than it was in 2021. So you have a lot of pricing power there, and we are well positioned to capitalize on that.

From a polypropylene perspective, between the Middle East production and then think of the LPG that feeds some of the PDH units in the Asia region, probably 70-plus percent of that market is impacted right now. So I think the sleeping giant will be polypropylene as this continues to progress.

And talking to a lot of my friends, I mean, in Europe, I see already that their behavior is starting to change. So instead of taking a weekend trip somewhere or taking a long holiday, I see that they are thinking about, oh, so we don't refurbish, so we don't stay at home, take a shorter holiday locally, a couple of day trips. We've seen that behavior in 2021 as well as we came out of the pandemic. So quite a lot of moving elements that we have here that I think one should consider.

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

The export price of polyethylene is maybe $1,640 a ton, and the price of polyethylene in Asia is maybe $1,285 a ton, so at least from our point of view. So maybe Asia is lower by $350 a ton. Why is that? And naphtha values in Asia have really jumped from about $600 a ton to $1,100 a ton. But we really haven't seen that kind of raw material inflation echoed or covered in polyethylene prices. Can you give us an idea of what's going on?

Jeff, I'll take that question. I think there's a couple of different components to that. From a China perspective, they have a much bigger built-in pricing buffer than a lot of the other regions. They had significant crude inventories coming into prewar. You've heard anything from 4 months to 6 months. So let's just generically call it 5. You also have different buying behaviors and you have different inventory positions throughout. So let's walk through some of that.

Many of the sites are integrated refineries that are processing the crude, naphtha to naphtha crackers to polyethylene. So that inventory today, 2 months into this war is still crude that was bought at a discount to $60 pre war.

Then you've got coal to olefins production, which sets the floor for the pricing in China. Coal price hasn't changed significantly throughout this, similar to kind of North American ethane. So you've got the floor being set by the lowest cost production, which is CTO. You've got relatively low-priced crude flowing through those crackers. And then you've got inventory that they had in the system. When this -- when the war first broke out, you saw their pricing increase. And then recently, you've seen their pricing hold or decrease as they're depleting the inventory that they have on hand selling it to other parts of Southeast Asia. So their buffer, the way they operate their system is slightly different than the rest of the world, but they are not exporting to regions that we are competing with in North America or in Europe.

And maybe enhancing a little bit from a more conceptual point of view, Jeff, in especially what we are all waiting for on the outcome of the anti-involution measures. We continue to see the focus on replacement of old assets instead of newly developed projects. You saw the results in Q1 of our technology business. This is the lowest since, what, 15 years that we have seen in terms of demand for licenses.

We've also seen that some priorities are changing. So even projects that already have been approved by the NDRC for the previous 5-year plan, priorities are changing and targets for the replacement of the old assets is 2028, 2029. That's what we hear, I mean, underground, which, as a consequence, of course, could also mean reducing availability of cash for new projects, which again explains why we don't see a lot of demand, I mean, for new licenses.

So it has definitely not disappeared because at those price levels in China, you see that the operations are running in crackers and polyethylene at lowest technical capacity. And you see that players that are not integrated eventually have idles, have shut down their capacities. So that's the picture on polyethylene.

On polypropylene, it's even more stringent because a lot of PDH, PP plants, it's about 50%, Kim, of the capacity.

Correct.

Yes, that is currently not operating.

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

And first of all, congratulations to Dave Kinney on a great run, best wishes in your retirement.

If I could ask you, Peter, on EAI, you're bringing operating rates up, which I assume means you're expecting profits. And then you've sold the assets and that's going to improve the cost structure. So what level of profitability, and you give us a wide range, would you expect for the second quarter as you see markets improve, your production levels come up, maybe you're selling out of some inventory as well? So how should we be thinking about EAI in 2Q and maybe 3Q to the extent you can comment that far.

Yes. Thanks, Vincent. And of course, also thanks for your congratulations, I mean, to Dave. It has been quite a run in my 4 years working with him together.

So on EAI, I mean, let me first, I mean focus here then on Europe. Everybody saw that we closed during the night, so early morning, Houston time on Velogy, the sale of our 4 assets. If I put that a bit in context as well with regards, I mean, to the contribution that, that part of the business portfolio has made to the overall LYB, well, you know pretty much the numbers, it was small or even negative in 2025 and even in Q1.

The focus, of course, for us strategically has been that we really have the right portfolio moving forward, the portfolio in Europe that helps, let's say, on increasing our mid-cycle EBITDA margins. I remember once I have shown slide in an earnings call with historic mid-cycle EBITDA margins globally for LYB of around 18%. And then with all the portfolio measures increasing that to 21-plus percent, which is quite attractive.

Now this helps, of course, by doing so because we can pull our CapEx to the assets that really have mid-cycle margins, above mid-cycle margins, much more profitable assets, which, as a consequence, means a reduction in the scope of Velogy for us LyondellBasell of about EUR 110 million per year in CapEx. And what we have said in the past as well, a reduction in fixed costs directly related to that scope of about EUR 400 million per year.

And if margins -- what we wish, of course, also to the new owner of the business, if margins continue to go up in Europe, we have -- remember the potential of an earnout of about -- of EUR 100 million as well. Of course, we still will have a very interesting but more differentiated portfolio of products in Europe with an Italian capacity, which is a bit more than 1 million tons, 1.5 million tons of polyethylene capacity and a bit more, I mean, on polypropylene capacity.

And into that rule of concept, we also have the investments in Saudi Arabia, the West Coast in our polypropylene joint venture, where we continue to work on the second phase to expand and double the capacity of that joint venture. So moving forward, with a different portfolio, we should be able, over time, including that, of course, our MoReTec investments, we should be able, over time, to again have very attractive mid-cycle margins in Europe and not having a business approach whereby margins are being diluted.

Maybe just to make a couple of quick comments. Europe typically sees 25% import on the polymer side. With the problem with the Strait of Hormuz, they're not seeing that. So the supply/demand is very tight, continues to give you pricing power on the polymer side.

The wildcard, as everybody has alluded to, is the price of feedstocks. So for example, some people have asked us precall, why we're only operating 80% in Europe, because we want to make sure the decisions that we make in Europe are based on sound integrated margin pull-through. In some cases, we also face the same challenge that others do about the monomer availability at an affordable price point to run through some of our smaller assets that are not integrated at the moment.

So we continue to see positive momentum. And just as a rule of thumb, $100 per ton increase on an annualized basis is about $280 million.

Our next question comes from the line of John Roberts with Mizuho Securities.

In the APS segment, how long do you think it will take to get your pricing to get spreads back with the underlying polyolefin cost increases that are being passed through there? And will the tightness in the polyolefins market at all tightened the engineered plastics industry as well?

For the noncontracted business, we have aggressively moved. And we see actually a pretty good acceptance of the price increases because the whole market is moving up. So it's really the contracted and some of those are monthly and some of them are quarterly. And it's mostly the quarterly part where there is a delay.

What we see in our segment is actually market demand is surprisingly strong. And we see some movement in particular, packaging and durable goods where demand is strong in the Western world, the Americas region and Europe. From what we see is that basically, our customer demand is strong because there's less import of finished goods coming in from Asia as well as from plastic films, packaging films that's helping our customers with actually pretty strong demand. And we'll see how long that's left, but that's a positive sign in terms of the market for our business.

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

I'd echo my congratulations to Mr. Kinney, very much appreciate your partnership over the years and best of luck to you. My question relates to O&P Americas. If we look back at history, that business earned quarterly EBITDA between $1.5 billion and $1.6 billion at the last peak in the middle quarters of 2021.

And so my question would be, is that sort of level in your mind realistic or unrealistic in today's environment if the conflict were to persist? Maybe you could compare and contrast what you're seeing today versus what you saw back then.

Let me start with a couple of comments on your very good question, Kevin, and then hand over also to Kim to give you a little bit more details on this.

Well, Kim already said, I mean, that we have new settlements of $0.30 per pound in April after we had $0.10 per pound in March. So if you take that settlements into consideration, then we're still in terms of margins, $0.10, $0.15 per pound in terms of pricing -- sorry, in terms of pricing, we're still $0.10 to $0.15 per pound below what we have seen in 2021. But it's only $0.10 to $0.15 per pound. So that means as a consequence with the price increase announcements that we continue to feel very strong about for the next months, we would get on that level or above that level of 2021.

Now that is just the pricing elements. If you look at it from a margin perspective, then, of course, we know that the margins are going up because ethane is currently much lower than it was at the end of last year, beginning of this year, which, of course, also has to do with the fact, I mean, that there is such a huge demand, I mean, for natural gas. So you see that the spreads actually are going up. So as a consequence, I would say, sure, I mean, nothing is impossible. If you look at what is currently going on and we alluded to the fact that polyethylene is very robust also in inflationary scenarios.

Kim, anything you want to add?

I'll just go back to a couple of the comments that I made earlier to try to connect a few of the dots. I think as it relates to North American polyethylene margins, what we see is -- and CMA's forecast is similar. This is where we do agree with the consultants. The mid-cycle margins will be there in the second quarter. So if you go back and look at 2021 mid-cycle margins for PE, yes, I think we're going to be in a very similar situation.

I also said earlier that in 2021, we had a $0.60 higher price of polypropylene. So I think it really depends how much polypropylene runs up. I don't think it will run up as fast as polyethylene has, but I do think the spreads will continue to increase. So I would look at those 2 components differently when you're trying to look at how we performed in 2021 versus how we might perform in 2026.

Our next question comes from the line of Frank Mitsch with Fermium Research.

And I need to come clean, Mr. Kinney. On the PPG call, I told [ Vince ] on the occasion of his retirement that he was the best IR ever. But to be frank, it was always you. So best wishes, my friend. I'm sure we'll stay in touch.

Aaron, I want to come back on the I&D operating rates for the second quarter. You said 75% given the outages that you have. But you said that you're going to end it at 95% to 100% when you get everything back up and running. So is that sort of the run rate that we should be expecting in the third quarter as you see -- as you can look out into the future? And then also for the first quarter, I think you guys guided to 85% operating rate in I&D. And I was curious as to what that actually came in at given the outages?

Yes. Thanks for the question. And I guess I have to be careful about what I promise in these calls, 95% to 100%. Obviously, anything that we have available to us, we're going to be running full. We still have some limitations at our La Porte site in the acid unit that's limiting us to get to full rates. But obviously, once Bayport is back up and running, we will be running everything that we have at full capacity moving forward. So 95% to 100%, I wouldn't necessarily use that, but we will be running at benchmark rates across the board.

Our next question comes from the line of Mike Sison with Wells Fargo.

Congrats to Dave as well. In terms of polypropylene, you've talked about it a couple of times. Its margins have been not a lot for the last couple of years. Is that business -- or can that product line turn positive? It used to generate a good amount of EBITDA for polypropylene. How do you think that shapes up this year if the pricing outlook sort of hold?

Yes. I mean the possibility, of course, I mean we -- Kim said it. I mean, we have the biggest upside, I mean the sleeping giant. We have the biggest upside on the polypropylene side, and the market dynamic has completely changed.

Normally, I mean, the cash cost curves in polypropylene are very flat, I mean, between the different regions. But of course, now that is changing the dynamic that we are having in the United States where, as you know, we have a lot of our assets. Normally, polypropylene stayed in the markets where it was produced. But now, of course, there is a lot of demand because of the loss of polypropylene to Asian polypropylene producers, a lot of demand, I mean, globally to export polypropylene, which, of course, uplifts some in the market -- the margins, I mean, in the markets. Kim?

No, I would agree with you, Peter. I think we've been operating polypropylene in Europe and in the U.S., call it, 70% to 75% for the last 2 years. So you've got a 20% -- 15% to 20% operating rate improvement opportunity as well as spread. So the longer this goes on, the better.

And I think approximately what...

From a polypropylene perspective.

Yes, I think probably, what, 70% of supply is impacted by the Strait of Hormuz closure.

Directly or indirectly, absolutely. Yes. You've got the ball you need, you lose out the Middle East, plus the LPG feed to the PDH.

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

I just wanted to add a comment about licensing revenue and technology. I mean, I know you've been at a low level for some time here, and you've kind of highlighted there's been little activity in terms of looking at new projects. But your near-term outlook comments is that you expect that to increase. So is that a lag of just some existing kind of maybe discussions coming to fruition? Or are you seeing actually more interest in certain of the product chains about adding more capacity now?

Yes. Thank you, Josh. I mean it is a lag, yes. So it's simply because of some milestones that are being accomplished and therefore, on the licensing, so not the catalyst sales, but on the licensing, Q2 should be better than Q1, as I said in the prepared remarks. But it is definitely not related to having a higher demand.

I said it before, demand is historically at the lowest level. We see projects that already were progressing, let's say, around a couple of milestones that are now, as they call it, I mean, in the reserved status. So they're not moving forward. They are being looked at again. And all that will delay, let's say, the investments from already, let's say, last year, low licensing, the year before, we saw a reduced licensing. So all that will come to fruition in, let's say, 2, 3, 4 years from now. That means that there will not be a lot of investments that will come on stream.

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

Thank you again for all the thoughtful questions. The events of the past 2 months have transformed the global cost curve for petrochemicals and created a massive gap in supply for LYB's essential products.

While we all look forward to peace and the normalization of traffic through the Strait of Hormuz, the economic and logistical impacts of this conflict will persist many quarters beyond the eventual end of the disruption. And of course, at LYB, we're ramping up our cost advantage U.S. capacity to address the global supply gap for both domestic and export customers. In Europe, we're passing through higher costs for energy and raw materials so that local production can once again profitably serve local customer needs. And our global polypropylene capacity, as we alluded to before, the sleeping giant within LYB, is increasingly needed to serve global demand.

You can be confident LYB will remain focused on our strategic priorities and long-term value creation in this dynamic environment. We hope you all have a great weekend. Stay well and stay safe. Thank you.

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

Hi, good afternoon. I'm Jeff Zekauskas. I analyze chemicals for JPMorgan. It's my pleasure this afternoon to introduce the management of Lyondell.

Representing Lyondell is Agustin Izquierdo, who's the Chief Financial Officer. And I think he's only been Chief Financial Officer through events, whether it's Liberation Day, the conflict, the dividend cut. It's just -- he's had an eventful year. He worked at BASF for 10 or 12 years from 2009 to 2022. He has both an Engineering degree and a degree in Actuarial Science. And on top of that, I think he went to the [ UFC ] Business School. So he's a pretty sharp guy.

Accompanying Agustin is Dave Kinney, who's in the audience, who's retiring. And Dave has done a terrific job as the Head IR contact at Lyondell for years and continuing a tradition where Doug Pike, who is the previous IR Head, did a wonderful job. And next to him is the new IR contact, David Dennison. And so we look forward to working with him.

The format will be a fireside chat. And Agustin, would you like to begin with a few slides?

Perfect. Yes. Thank you very much, Jeff, and thank you, everybody, for joining us. I'll go over just a handful of slides that talk about our outlook, obviously, the existing conflict in the Middle East and how we are positioned to take advantage of that situation. And then we'll open up for Q&A.

So as always, with the legal disclaimers, we'll be talking about some forward-looking statements. And of course, any reconciliations to GAAP, you can look in the -- in our website to all the non-GAAP financial measures. And so let's just take a few moments to recap where are we and where we even before February 28, which now seems like a long time ago. So if we just quickly go throughout the regions.

In North America, what we were seeing in Q1, especially demand-wise, right? So January and February were okay months sort of following the normal seasonal demand patterns. And we were getting a few bright spots, as you mentioned on the previous fireside, PMI was looking good for North America, and that's normally a leading indicator. So if you get a few strong PMIs as usually a 6- to 9-month lag that really we have some recovery on the durable side, which is good news for us.

What we've seen now, obviously, since the conflict started, we've seen quite an increase in terms of prices. Prices around PE and PP, of course, have increased. Our oxyfuels pricing has also benefited as it is linked to crude. And it's becoming obvious that North America is an advantaged region in terms of feedstock, and we'll continue to take advantage of that going forward, and we'll touch more on what happens in the other regions.

In terms of Europe, we see -- we saw the pressures that they were seeing from imports from the Middle East and China. Obviously, since the conflict, the feedstock prices have also increased, and we'll also touch on the measures that we're taking. And we're taking just a measured approach in general to operating rates to make sure that we were matching supply and demand. And what we do continue to see is the rationalization in Europe, which has even increased at a faster pace than we had anticipated.

In Asia, no surprises. The continued oversupply that we had seen in the market continues. Now the elevated cost of feedstock is playing an important role. And as you well know, on the polyethylene side, they're on the high end of the cost curve. And with -- after the conflict, what they have done is obviously secured sort of the feedstock for their own supplies. They've cut the exports of gasoline and diesel, which has also been supportive for our MTBE business. And petchems, except for those that are part of integrated complexes are also -- we see operating rates coming down or in some cases, even shutting down.

And Middle East, of course, the war, the conflict is creating quite a bit of disruptions in the Strait of Hormuz. We'll touch about on some of the capacities and how they're affected but the materials obviously become very, very constrained, both on the material that is trapped as well as the feedstock implications that it has for Asia. The operating rates, which we'll also touch on, we haven't seen much change actually in terms of operating rates in the Middle East, but they will start to run out of storage if the supply chain doesn't improve fairly quickly here. And the constraints will also -- even after the conflict is resolved, will take a few months to normalize.

Moving into some of the dynamics that we were looking before sort of during the conflict. At the very -- on the left-hand side, we have the days -- inventory days for PE. And if you recall, we finished the fourth quarter with inventory days around 37 days PE. This is according to the ACC statistics. This is very low levels. We usually balance when we're about 45 days, which was also very supportive for the January price increase that we got the $0.05 per pound. Then as you recall, February was flat. And of course, after the conflict, we have nominations for $0.10 per pound for March as well as April with some producers even having nominations of $0.15 per pound. But what we saw also the February statistics just came down, even though utilization rates increased, the inventory days at ACC level are 37.7 versus 37.1. So it hasn't been a massive increase, which still continues to be supportive. And it just also shows that inventories were quite low. And now with the conflict, it makes it even more sort of dramatic the situation in terms of giving support to the price increase.

The second chart you've seen also in some of our earnings releases, and this is the rationalization that we have seen since 2020. It's roughly the 23 million metric tons of ethylene capacity that are coming out of the system across the world with an acceleration, I would say, particularly in Europe. We've also seen announcements in Japan, in South Korea and the anti-involution measures that have been announced in China. There's still more to come on the net, I would say, from now until 2030, roughly 13 million metric tons, which we'll also talk about this, what's going on in the Middle East right now. We see a lot more sort of capacity coming out of the system that would net those 13 million metric tons.

And on the right-hand side, just the demand that we continue to see on the durable and nondurable side. Demand in the U.S. hasn't really come down, continues to be fairly healthy at around the 2% or 3%, close to 4% here in 2025, and that gives us hope. Eventually, the cycle will have to come back, right, the durables that we bought during COVID, the replacement will have to come after 5 or 6 years. And that's what we're starting to see, which, as I mentioned at the beginning, combined with good PMI numbers that we saw at the beginning of the year was giving us hope even before the conflict started that there could be light at the end of the tunnel for the PE cycle and PP as well.

And so we also wanted to just give you a sense of what are some of the implications and how does this -- the war in the Middle East sort of affect us not only in terms of the margins that you can see here in terms of dollars per ton for increases, but also the material that is affected. So for the PE, we estimate that roughly 30% of the global capacity of PE is affected, either roughly 50% of that is material that is strapped in the Middle East that cannot leave because of the Strait of Hormuz. And then another 50% or 15 million metric tons is related to shortages that you have related to feedstock.

Here, the 57% that you see here on the slide, that's the overall sort of PE that is touched, not necessarily the 30% that I just mentioned. But you can see how leveraging it is in North America, $100 per ton increase is $320 million of EBITDA for us. And if you recall, our operating rates of 85%, which we have listed here, we still have room to increase by 5% to 10%, which is obviously very supportive for us. In Europe, $100 per ton increase, as you can see there, translates a little bit less is $280 million for EBITDA annualized, but our operating rates were much lower. So we have the room to grow by, call it, 15% to 20% more. So there's significant upside.

In Europe, in addition, what you have is, obviously, you don't have the imports now from the Middle East and China coming into Europe. Yes, we have increases in the raw materials in naphtha in particular. And what we have done is, in this particular case, declare a commercial force majeure to make sure that we can talk to our customers and renegotiate terms and conditions and pricing to make sure that our pricing can catch up with the fast increases that we're seeing in terms of raw materials.

Oxyfuels, obviously very leveraging for us, strictly related there to the price of Brent. This is the metric that we've seen in the past, $1 per barrel is $20 million EBITDA for us, very leveraging. We're one of the largest oxyfuels producers, and then we'll also talk a little bit about the vapor situation in a few minutes. But roughly 11% of all the oxyfuels globally passes through the Strait of Hormuz. And it's -- and we have seen already prices in March for the raw material margin being in the $300 per metric ton, which is mid-cycle, it's roughly around $240. So we're already seeing prices above that.

And in the case of polypropylene, which you know is the -- we call it the sleeping giant for LyondellBasell, which we haven't been able to push much spread increase over the past few years, you can see how leveraging this is in terms of $100 per ton. It's roughly $440 million for EBITDA annualized for North America and Europe. And as we see now throughout the world that it's more difficult to ship propane, you see PDH rates across the globe coming down. I think we've seen rates in Asia even in the mid-50s, which is quite low. And obviously, the material from the Middle East is tracked in the region. So this gives an opportunity for North America to actually start exporting polypropylene, and it can be quite leveraging for us. And hopefully, this gives just a good sense and rules of thumb to -- for everybody to get a sense as to the impacts that we can achieve and how leveraging pricing is across our different value chains.

And I believe that's our last slide. So we'll keep the numbers up.

Thank you for that. I haven't seen the slides. Maybe the place to start is what's your expectation for price nominations in polyethylene in March and in April in North America. And how have you come to those numbers?

Sure. So we have $0.10 per pound for March. We started with $0.07. Some of our competitors had $0.08 and then the market sort of came down to the $0.10 per pound. The same for April, we have $0.10 on the table for now. Some of our competitors have even $0.15 per pound on the table. And I think this just came us a little bit of price discovery realization, right? We were talking earlier today during the meetings that during Katrina, I believe that most price increase the industry has pushed was $0.095. So $0.10 per pound is sort of on the high end. But it's there's a basis for achieving it, right? So we said inventories are at almost all-time low at 37 days, 38 days. The inventories that we also see in China are 25% below what they normally are after Lunar New Year. So the inventories are quite tight. And obviously, the 30 million metric tons of ethylene derivatives that are not coming or being exported out of Middle East and China is quite significant.

So it gives a lot of room, I would say, and support for the $0.10 per pound. And we see the order book, we were just looking at it right before coming here. The order book for April for both PE and PP is significantly higher than March and the highest we've had for the past 3 or 4 months. So the $0.10 per pound is not scaring anybody. And still, we see a healthy number of orders in the books.

So I'm trying to remember what your ethylene utilization rates were likely to be in the first quarter. Maybe 80% to 85%?

Correct.

Yes. So as a base case, should your utilization rates go to 90% or 95%? Or are the utilization rates different for polyethylene than they are for ethylene, if you know?

Yes. I mean on the olefin side, you usually run the crackers at higher utilization rates. So those are normally in the mid-90s. So what we normally talk about utilization rates is the blend of ethylene and polyethylene. So what you'll see for Q1, you will see a tick up or closer to the 85 and above because remember, January and February, we didn't run at the higher rates, right? So really, the impact on the effects of the war on utilization rates will be more pronounced during Q2, but you will still see a tick up on utilization rates during Q1, closer to the high 80s.

And where will those pounds go?

We have Europe, Latin America, Africa, we have demand everywhere. I see export prices are also going up quite a bit, right? So there -- the price discovery is much more dynamic. We've seen price increases in the $0.20 per pound, $0.25, even $0.30 per pound and orders keep coming. And as you know, in this market, you need export prices to go up before you can push it in the domestic market. And so that dynamic is quite healthy, and we can also flex a little bit our percentages of domestic versus exports based on that.

So again, I didn't have a chance to produce your slides. When I talk to my contacts in Asia, what they say is even though polyethylene prices are rising $300 a ton, they're not keeping up with raw material cost inflation. That is naphtha values are rising at a faster rate. And the way they explain this is that there's still overcapacity conditions, and they can raise prices, but they can't raise them high enough to offset the raw material cost inflation. So there's a dimension where the raw material inflation, at least for now, seems the more dominant market dynamic rather than shortage of polymer from the Middle East. Do you think that's fair or no?

Well, I think a little bit of both, right? If you think of the case in Europe, for example, it's definitely a raw material pricing story, right? There's availability of feedstock. That's not the issue. It's just prices have gone up quite significantly, maybe naphtha $250 to $300 per metric ton. So that's why we declared the commercial force majeure, right, to make sure that we can catch up with those prices. And we have a number of mechanisms as well to make sure that we are capturing the price and not making -- losing on every sale. We have power surcharges and changing general terms and conditions.

So Europe, absolutely, I would say it's more of a catch-up story in terms of the prices. In Asia, I would say maybe it's 2 things, right? If you're an integrated complex and you have a refinery, you have 4 or 5 months of supply, you'll run for longer and maybe it's not so much a pricing issue if you're a nonintegrated producer and you have to import naphtha, butane and other raw materials, then you're squeezed. And I think those are the plants that will definitely start to rationalize faster and stop producing. But fairly soon, it will be both, the raw material pricing and just product availability.

So in Asia, so much of plastics capacity is back integrated all the way into oil and the prices at which you buy oil now are different because Russia was constrained before Russian oil numbers were constrained. So they have significant raw material inflation that's still to come.

Correct. They'll be much more on the wrong end of the cost curve.

So how do you manage working capital under this -- in this world? Off the top of my head, I think maybe Lyondell had an $850 million working capital benefit last year that you have to contend with. How will cash generation for Lyondell and working capital needs match up this year. If you can forecast that.

Sure. So the level that we finished working capital at the end of 2025 was very low. I mean we released roughly $1 billion or more in the fourth quarter. And for the full year, you're absolutely right, $800 million. We don't -- I mean, that's not repeatable, right? So we are thinking that -- and our forecast is roughly a consumption of, call it, $200 million to $250 million working cap.

Pre-war?

Pre-war, yes. Of course, you must have talked to Peter, but we have a lot of pressures to keep working capital flat or release as much as we can. So I think, yes, we will build working capital. I don't think that it will be significantly above probably the $250 million or $300 million even...

Even with enhanced production.

Yes, we'll work incredibly hard to do that. And then we have the cash improvement plan in general that we have launch just as cash generation goes, the $500 million for 2026, we did the $800 million for 2025. So we increased the size of the program from $1.1 billion to $1.3 billion. And largely, the '26 figures comes largely from CapEx. Of course, we'll consume some working capital, as I just said. We also have fixed cost reductions, at least in the $200 million to $250 million savings. And we have, I think, a good sets of measures that to help us overachieve on the cash improvement plan for 2026. We have good visibility to overachieve the $500 million.

I see that you declared force majeure in some of your operations in Europe. What was the logic behind the declarations of force majeure? And how do you envision your operation?

So the force majeure in Europe is what we call the commercial force majeure. So it's nothing related to our assets. Our assets are running fine. We have feedstock availability, but it was really when we saw the disconnect on the increase on the raw material side, naphtha was going up so fast, and we just couldn't catch up with our customers on the pricing because you negotiated at the beginning of the month and then you have very high prices.

So we declared this commercial force majeure to make sure that we have the ability to renegotiate pricing, renegotiate terms, put these energy surcharges in price and in place and then continue to just increase prices to catch up, right? If you have an increase on naphtha of $300 per ton, you need to improve your pricing at least, call it, $450 or so, right, or more. And without this force majeure, we would be losing with every sale. So it's a protective mechanism to -- as we go through this price discovery as we discussed, to make sure that we are selling at a profit and not losing money.

So does that mean that your operations in Europe in March are challenged?

Correct. I think you'll see some margin squeeze in March as we're trying to catch up, but you will see the benefit then as we go into Q2, right, April, May, June, et cetera. But yes, you shouldn't be surprised that March -- Q1 and March in general will be a squeeze because it was very sudden the increase in raw materials.

You're also selling assets in Europe. How is that transaction affected by? Because there are different working capital needs?

So I think in Europe, the situation is very interesting because now Europe is not receiving material from the Middle East and China, right? So for the local producers, it's actually a good situation. Now if they can adjust the prices on -- according to the raw materials, it's a positive event. So actually, if you're -- the private equity that bought our assets, you should be in a pretty good place, right? Now supply is reduced in Europe. You have good assets and you have the ability to increase prices. So this is one of the events they were looking for.

In terms of upside for Europe, I would say, right? That transaction for us continues to be going on track. It will close in the first half of 2026. But we'll capitalize those assets, EUR 265 million at the moment of closing. There's the working capital that is associated with those assets also transfers to them and with that also all the liabilities. And in the case that this situation does play out and material stops coming, they can increase prices. We also have built in 100 million earn-out as part of the transaction. So we can also benefit from any upside that comes from the region.

So you have assets in the Middle East. What are they doing? Are they continuing to produce at normal rates and inventorying their product? What's the general tenor of the actions in those areas?

Sure. So we have 4 joint ventures in the Middle East, 3 of them are on the east side, so facing the straight and then one on the side of the Red Sea. We have one of them in turnaround. It was a scheduled turnaround that started before the crisis, and they're still in the turnaround. And the rest of the assets are running at normal rates. Actually, I was talking to our team today, but this is a day-by-day situation now because soon they will run out of storage. So even though we're moving product from East to West, but this is a lot of trucking and trying to move it out the product from the Red Sea, but it's -- there's only so much you can do that way for the 2 JVs that are on the east side. So it's likely that we'll end up producing rates soon.

But as of now, and we're not alone here, operating rates haven't come down as much as we thought in the Middle East. So the people are storing product wherever they can and soon they'll run out of storage.

So the joint ventures are building working capital?

Yes.

That's not your issue. So I think NATPET is in Yanbu or close to Yanbu. Is that -- is it easy to get polypropylene tons out of Yanbu either down through the Red Sea or up through the Suez Canal? Is that turning out to be a very profitable volume growing venture? Or are there different challenges that are more invisible to us?

No, so far, we have been able to move product out of Yanbu through the Red Sea and the Suez Canal without any issues. Probably as the conflict continues, we could see potential issues with shipping and containers. But so far, we've been able to move product without problems.

And what about insurance or...

Insurance rates have gone up, obviously, also freight rates, but nothing that is materially disrupting operations from that joint venture.

I see. Lyondell had an outage, and I think it's propylene oxide, maybe connected to your MTBE units in Texas. Can you describe the constraints you may or may not under with that facility?

Correct. So last Friday, there was a fire at our Bayport facility at the flare. And the Bayport facility has -- we have 3 plants for PO/TBA, total capacity of PO of 620 kt. So multiply that times 2 and gives you the TBA equivalent is roughly 40% of our global TBA capacity. And so the flare is a common, if you want to think of it the exhaust system for the site, right? So there are other flares at the site, and we're right now evaluating the extent of the damage. The 3 PO plants are down, and it will take a few weeks to reassess when to bring them down, what's the extent of the damage and effects, but we are down at the Bayport plant.

And so it's difficult at this time to know when that unit will come back up?

Correct. Yes.

And it affects the TBA operations, but not the propylene oxide operation?

But on the -- so we have PO/SM. So PO with styrene monomer at channel view that we could ramp up for propylene oxide. In terms of TBA, our network has the Bayport site, which as I just mentioned, has those 3 plants. Then we have the new asset in channel view, which is 470 kt of PO and roughly 1 million tons of TBA that is running perfectly fine. And then we have the assets that we have in Europe, in Fos, France and then in Botlek in the Netherlands and those are running without issues. So -- but PO, we have the PO/SM sites to dial them up to get more propylene oxide, TBA, we're constrained.

And as CFO, you're going to have, as a base case, all of this cash coming in. What do you plan to do with it? Or how will Lyondell look different after this cash comes in?

So first, let's see how long the conflict lasts. Of course, if it's sustained or not. I think we want to make sure that we have reestablished our minimum cash balances, again, at the $1.5 billion, really, our capital allocation doesn't change much, right, and some of the other metrics that we've put forward. We still want to have leverage at 2.5x through the cycle.

I'm sorry, at 2.5x. And based on an EBITDA -- theoretical EBITDA of [ 1 ].

Net debt to EBITDA. Yes.

Well, in other words, what would the EBITDA be that you want to be 2.5x.

Have to be around 3 or 3.5. Yes, roughly. We continues to be very focused on our cash conversion, continues to do all the -- none of the self-help measures go away even if we have all this money. And what I want to make sure is that we have now a sustainable EBITDA, and we start to go back to this mid-cycle level before we start doing any other big investments or capital deployments. Let's be just vigilant on how we manage through this cycle.

So the real focus will be on debt paydown?

I mean for now, yes, we've prefinanced it. As you know, the maturities that we have at the end of '26 and early '27. We issued the $1.5 billion bonds last year, maturities then until 2030. But just normally, the leverage and credit metrics will improve as EBITDA grows.

So in your -- to go back to your European operations for a moment, that's an area where tons can come in from the Middle East. And so those Mid Eastern tons are not coming into Europe.

Correct.

And I think your utilization rates in Europe are really pretty low. Maybe they're in the mid-70s.

70s, correct.

So is that an opportunity to raise your utilization rates there?

Yes, for sure. I think that Europe is one of the regions that could benefit the most, right? Because you have imports from either the Middle East or China, Asia in general, not coming into the region. As I said, if you can catch up with your pricing to mitigate the raw material and energy increases, then you -- for sure, you can increase your utilization rates by 15%, 20%.

Do you have sufficient raw materials for Europe?

Yes. Correct. Yes, we do. We get it from Algeria, from Mediterranean. So there's no shortage of really raw materials for Europe. It's really catching up to the price, but it's not a raw material or a feedstock.

So you have availability in Europe. The difficulty is that the value of the raw materials is...

Continue to catch up with that.

Whereas you don't have that issue in the United States?

Correct. You see really prices stay pretty good, right, meaning natural gas is not spiking. Ethane is still at the $0.24, $0.25 per gallon. So we haven't seen any dramatic feedstock price increases in the U.S.

Is polypropylene beginning to rise at a faster rate than propylene, if you know. Is polypropylene prices, are they beginning to move a little bit faster than the propylene value increase?

Yes. I mean -- so you know that polypropylene gets priced as a spread, right, over propylene. So we've now put for April a $0.10 per pound spread increase, which we haven't seen in a long time, right? As you know, the polypropylene cost curve is fairly flat around the world. But now with propane being much more expensive and operating rates coming down in Asia and material being trapped in the Middle East, we have really an opportunity even to start exporting out of North America. And it's very, very leveraging for us. I think if you have it there in the numbers, right, the $100 per ton price increase for us, it's $440 million EBITDA potential for LyondellBasell. So it's -- as I said at the beginning, the sleeping giant. But we are seeing, to your point, the spread increase that we try to push is going at a faster rate than the propylene price increase.

What was the previous -- so you're looking for a $0.10 spread now?

Increase.

Increase. And what was the spread before?

I think it's around $0.20.

You have the acetic acid unit. Is that functioning normally yet?

So we had a few -- not fully functional yet. We had a few issues coming out of the winter storm Fern. And we also were doing a turnaround, if you recall at the beginning -- at the end of last year. So it's not running at full rates. It is running, but not at full rates, unfortunately.

So I guess just to sum up, in the first quarter, things aren't great because there's pressure in Europe, maybe you get some price in -- for the last month, for the last couple of weeks but then the world changes for Lyondell...

Correct. I think that -- yes, Q1 will be -- it won't be a blowout quarter, right, because precisely to your point, Q1 -- January and February were sort of following the normal seasonal trends. We have the winter storm and then we'll see March, if we do settle at $0.10 per price. Price increase, obviously, we'll benefit. But really, the most of the tangible benefits come Q2, Q3 and depending on the length of the conflict, right? Yes.

Okay. Thank you very much Agustin for a nice explanation. Thank you very much for your attendance.

I'm very pleased to have Agustin Izquierdo, the CFO of LyondellBasell with us this morning. I'll let you -- you've got a few slides we'll open up, and then we'll kind of just keep it informal and kick it off. With me also is Dan Lungo, our IG credit analyst. If you don't know, Dan, you should. He is a wealth of knowledge. And I think for BofA, specifically, I think the fact that we have both credit and equity on a lot of the stuff offers a lot of value for clients. And so if you haven't met Dan before, please introduce yourself as well. So with that.

Excellent. Thank you very much. Thank you, Matt, Dan and everybody joining here in the room and on the webcast. Very happy to be here. And yes, as we mentioned, I'll go through a few slides. I want to cover, obviously, the recent recalibration of our dividend. We'll also talk a little bit about the financial performance we had in 2025, and then we'll also touch, of course, on the macro and the outlook.

Sure.

As always, there will be forward-looking statements that we'll be doing and please look at the LYB website and all the disclaimers that legal is very happy that we have here embedded.

As for 2025, here some of the financial highlights, I think I would also like to start by mentioning it's not in here, but 2025 was a record low year in terms of recordable incident rate for LyondellBasell. So we're very proud of how we run our operations in a safe manner. You can see also here we have a very strong cash conversion, which is one of the highlights we'll talk about in a little bit. This business has produced a lot of cash even during very difficult times. And we've just been very, very disciplined controlling the controllables being very aware and in tune of where we are in the cycle. And also we've had to take the difficult decision of delaying some of the growth CapEx but also continuing to invest, for example, in VEP, which is our high return, low payback projects and also we've continued with our MoReTec-1 investments for chemical recycling in Germany.

So jumping into cash generation. As I said, our business has generated a tremendous amount of cash, 95% of cash conversion in 2025, which is extremely strong, a very good team effort and especially on the working capital front. We overdelivered on this front. And the team has just been fantastic on the fixed cost side, working capital side, and we generated also $2.3 billion of cash from operations. As we go through 2026 you should expect this cash conversion to come down a little bit also because it's normal that we will have to rebuild some of this working capital as the market comes back, but we will still target the 80% through the cycle cash conversion.

Other highlights during 2025, we also issued $1.5 billion of debt to prefinance the maturities that we will have here at the end of '26 and '27. And that was -- we saw an opening in the credit markets. We took advantage of that. It derisks the company as well because after those maturities in '27, then we don't have any maturities until 2030. So we're proactive in doing that. We closed the year with $3.4 billion in cash and ample liquidity $8.1 billion of liquidity overall.

Now turning into capital allocation. The -- you saw the press release last week where we recalibrated our dividend. We reduced now to $0.69 per share, so roughly a 50% reduction. And this obviously improves the flexibility that we have at LYB. We continue to prioritize our balance sheet. Investment grade continues to be very, very important. And even with the 50% cut, we still offer a very attractive yield to investors. And in our investor base overall, roughly 40% income focused, and the dividend is an important part of the investment thesis for LYB.

One other thing I want to highlight is on the cash improvement plan and going back to controlling the controllables. We have announced a $600 million target for '25, and we over delivered. We reached $800 million. We've -- for '26, we have announced $500 million of cash improvement plan and it's early in the year, but with all the sort of bottoms-up idea and what we have visibility to, I think we're in very good shape to significantly overdeliver on the $500 million, which it just gives further sort of peace of mind and clarity that the cash conversion and generation will continue to be a priority for us.

And let's also talk now a little bit about the outlook and some of the things that give us a bit more hope for the medium term, right? So you see here on the left-hand side, we're highlighting the PE inventories. They were 4 days below the 2025 average, and this is very supportive also for price increases, right? So you saw that we got the $0.05 per pound here in January. We also had a winter storm at the end of January, which helps that inventories are not rebuilt. The now late Lunar New Year in China should also help in terms of further draw of material here as we go into late February, early March, and that is all conducive and supportive of pushing our price increases, especially here in the first half of the year.

The theme of rationalization continues. You saw this -- the second chart already in our earnings release, but 23 million metric tons roughly that have been announced of closures. This is around the world since 2020. Of course, the net is still additions by 2030, particularly in China, but the rate in which 2 things, the rationalizations have happened lately has accelerated quite a bit. And also, we see it from our technology business the number of licenses that we've continued to sell are shrinking rapidly, and that is bad news for technology, but very good news for the supply-demand balance and no more builds, especially coming out of Asia and China.

PMI earlier in the year, had a good pickup. This is a leading indicator, and we were talking about this in prior meetings, Usually, when PMI starts to pick up, you usually have a 6- or 9-month lag, but then you start to see it on the margins and the results. So we're very encouraged by the strength in PMI.

And then lastly, here on the last chart, the durable demand continues to be solid. It hasn't really come down. We're at the bottom of the cycle, but that continues to hold on pretty stable and also just we're still consuming the glove that we had after COVID. So as we come down on that normal cycle, just of replenishment of durables and nondurables, starts to happen, they should be more conducive for this what's now the longest trough. You should start to see some light at the end of the tunnel.

In terms of near-term outlook, Here, you've seen the slide before as well. The seasonal improvement in demand continues, especially for North America. We just talked about the inventory side for polyethylene continues to be very supportive of pushing prices here in the first half of the year. Europe, we're seeing also slight improvements in demand. However, now the high crude prices are offsetting because obviously, the correct naphtha. So it's sort of evening out there on the margins.

Asia, we still continue to see the pressures from the oversupply. And in terms of some of the end industries, packaging has been very, very steady throughout period and should improve also as we come out of this cycle.

Building and construction, new home sales continues to be good. Of course, we need existing home sales also to start picking up muted if rates come down, obviously, that will be quite a boost for the industry, and we would benefit from that.

Automotive, I would say North America, it's okay, hasn't come down, but we continue to do also quite meaningful improvements, especially in our ATEX business, which is 60% exposed to automotive, especially on the margin side.

And then on the -- finally, on the oxyfuel side, we're seeing more than normal seasonality trends. Last year was a bit of a disruption, where basically the driving season was nonexistent, but now we're seeing now that the markets and premiums are coming back as oil prices recover and the industry seems to be acting in a bit more rational way. And I think with that, we can jump to.

I think the dividend cut being probably the most present conversation, particularly now with that out of the way, -- can you talk about cash needs and cash priorities? And Dan obviously has some questions as well around like debt structure and what this looks like as you kind of move forward. So do you want to kind of go with that, Dan? Or...

Yes. I mean any other type of things that you're considering to boost cash in the next 2 years, asset sales or reducing debt through a potential hybrid issuance, any type of -- anything else you're looking at. And for the audience, then the equity side, when I say hybrids, I mean subordinated notes, not convertibles. Convertibles are equity issuances. They get 100% equity credit. Subordinate notes get 50% equity credit at the agencies.

Let's tackle one by one. We continue to control the controllables. So the cash improvement plan, as I said, we overdelivered in '25. We will overdeliver in '26. We have good visibility. In terms of monetizing assets, since Peter started his tenure, he's been very active in terms of portfolio optimization shutting down the refinery. We sold ethylene oxide and derivatives. We're about to close the transaction with AEQUITA for the European assets. We just shut down another PO/SM joint venture we had in the Netherlands. And what we have left are smaller monetization, some joint ventures, so nothing meaningful, probably in the low 3-digit number that we could monetize, and we'll continue to do that. And of course, delaying CapEx, et cetera.

As for instruments, always look at them, they're in the portfolio. They're in our toolkit. But for now, we're not exploring any hybrid issuances, but we'll continue to explore them.

And then just a follow-up, obviously, with the S&P news last week and then follow with the cut the dividend. S&P obviously couldn't front run anything you were doing. They have the negative watch. What do you see the outcome of that review. Hopefully, we get some clarification by tomorrow or next week, but where do you see your ratings ending up there? And then if you could just kind of touch on the other 2 agencies and what you're hearing from them?

So the dialogue with the rating agencies is very, very robust. Every quarter, we're talking to them. I was there in September of last year. We obviously communicated to them right after the Board meeting, and they were happy to hear that we took the decision on the dividend. The industry is going through a long, long cycle. They have obviously taken that into consideration. They've been sort of very supportive and rational in terms of understanding that this is a cycle that it will come out. We are a few rightfully saw, are in credit watch negative and we are sort of making our case that we should stay investment-grade. Investment grade is paramount for our capital allocation and our discipline as to how we run the business. It's critical to stay investment-grade. And we have tools like the dividend where we cut. We will do whatever is within our needs and capacities to continue to fight for that investment-grade. It is important just to operate in terms of liquidity flexibility, payment terms, guarantees. It's very important in our industry to keep it.

As for Moody's and Fitch, we continue to have also very good dialogue with them. I think we explained that we're controlling all the controllables. We're fairly CapEx light in that sense also, we've pushed all the growth CapEx projects. We've optimized even our maintenance CapEx as much as we can. We explained how after the European transaction closes, our maintenance CapEx comes down to roughly $1.1 billion. So we're truly doing everything we can to strengthen the balance sheet and preserve cash.

I wanted to broach a topic that kind of became a bit of a hot button issue on all the earnings calls, which is just artificial intelligence and deployment, right? And particularly, you have a peer announcing some very aggressive cost-cutting actions and admittedly, the details felt a little light, but there clearly a lot going on under the surface there or sure we understand. As we look at like cycle issues in your cost structure, do you see similar opportunities? How is Lyondell assessing its cost structure for the next 5 years? And then as you look at new tools like artificial intelligence, like what's the top-down message and the opportunity set that you're exploring?

In terms of cost structure, we're generally a leaner company than most of our competitors. It's just also the way in which we've brought up much flatter structures and organizations. The portfolio cleanups have helped quite a bit in terms of our cost structure. We have let go roughly 1,300 employees. We're at levels of -- we're 18,000 employees now. So this is also the lowest level since 2018. So we have very painful measures, but we've been proactive in that sense. And there's more to come, right? As we also move -- you'll hear more and more in the coming months of the -- what we call the LYB operating model, which is optimized more the end-to-end processes and move more to call it, a shared service center organization, and that will drive costs further down.

In terms of AI, we've been very sort of diligent and methodical in the case uses. We've done a lot of it in preventive maintenance. We do quite a bit in terms of terming of intelligence and modeling our MTBE, for example. We've deployed it on contract reviews where we can extract a little bit of more pricing also on our feedstocks. I think we've been -- we have small use cases, but I -- we'll continue to do that, but I'm not there yet in announcing a big bang on.

The CFO of one organization just yet?

Not yet.

This is maybe a little technical or maybe not, right? But like the inventory situation for polyethylene in North America was pretty long July. We'd come out of the tariff situation, the big pause in demand, everybody took rates down, then we went back up. Inventory is down. But the American Chemistry Council also like got it, its inventory estimate for the U.S. So when you look at that, like -- how important is that for an indication for you on the market? Are you -- like -- did you, at the time, feel like the market was tighter than what the data was providing or is the data that you go off of? Like I can see it going both ways, but some of the revisions to the inventory through the course of the year were pretty surprising.

Yes. So a little bit of both. We did feel the tightness. And we knew something just because we're obviously operating and we're a meaningful player something wasn't really quite working with the tightness on the inventory levels that we were looking at. ACC has a very good and defined process and they figure out what was the mismatch with one of the producers declaring inventory that maybe was in the warehouse, but already sold, and that's what the meaningful revision came and that sort of validated where we were seeing on the ground and even the operating rates at which most participants were running, which was lower, and we saw it on the export numbers and demand wasn't really slowing down anything different from the seasonality trends that we see. So it just normally what's leading to lower inventory levels than what we would have seen on the statistics.

So we were sort of validated by the revision and the lower numbers with the ACC figures, and that is also what's now helping drive -- now we have the data to make the case also that the price increase does have legs. And CMA pushed it. We agree with it, $0.05 per pound, and we all have increases on the table for February.

February, yes. It's interesting because 4Q, I don't know that I've seen a bigger divergence -- I'm sure there's been like a bigger divergence between you and your primary peer as it relates to like polyolefins profitability and cash flow dynamics. 4Q was pretty stark because your EBITDA was down considerably, but your cash conversion on the year was like mid-90s, right? And conversely, your larger peer took operating rates up, EBITDA up, the cash conversion terribly. And so you're clearly solving for a different thing. But as you look at the market, right, polyethylene price is up in January, polyethylene price is up maybe February, we'll see. But fundamentally, the market is in pretty good standing right now. Part of that is because operating rates are low. How do you hold the line? How do you make the decision that Lyondell will continue to kind of operate at this mid-high 80s range, which you're talking about when -- 2 of at least the public peers on earnings have said they want to run hot, right?

And you have CPChem coming to market later this year. So what's that decision like internally? And if prices go up, do you take your rates up and capture that? Or do you kind of sit there and be a little bit more mindful.

Yes. I think we've been extremely disciplined and very proud of the team on how we've managed our operating rates. And like we've said during earnings will match to, however, we see the demand. So we'll continue to be very disciplined. There's obviously opportunity to be taken, will run higher. But if not, we're not shy of lowering operating rates. We are maximizing cash, and we're also not afraid of value over volume. So we will continue to be very, very disciplined and eventually, it's paying off, as you saw in terms of the cash conversion, profitability, and that's how we'll continue to run in a very, very disciplined way.

And so somebody like CPChem is turning capacity on later in this year. Is it a -- I know most of the stuff kind of typically finds its way into the export market when a new facility ramps. But they have channels and sales and presence domestically as well. So as they look at putting tonnage into the market physically because I know I'm sure they've already been marketing, but physically putting tonnage more, is this something where you take your rates down. If demand doesn't grow enough domestically to absorb what they can ship domestic, do you take rates lower to make room for them? Or is this like -- how do you play that game there?

I think we'll see where they place volumes, right? What they've been very vocal on is all the HDPE volume that will come into the market from that plant is meant to exports. These are the basic grades. We place mainly in the domestic market. We try to have sort of a bit more sophisticated grades. So of course, it creates a ripple effect in the export market and the export prices, but we'll continue to be focused more and more on the domestic side. I think we'll adjust as needed. If we have to lower rates, we'll do it, if we have to ramp up, we'll do it. Just time will tell. We'll adapt. We're very quick and nimble. But yes, I don't -- hard to say right now what...

Yes, I appreciate it. I'm just trying to get inside the mind because I think the general mantra for a lot of the industry is like this is a low-cost operating base you should run full out. And it's a unique stance that you've taken and maybe it's not as unique as think versus the public companies that we've had talk, like it is a point of difference. And to your point, it is benefiting you on the cash side. Your cash conversion was really strong in the fourth quarter. So I get it as it relates to how you're -- what you're trying to solve for.

You have that closures slide. And there's definitely been announcements for sure. A lot of it is ethylene not tied to polyethylene, right? We've seen a lot of ethylene closures into other derivatives. Why do you think it's been slower on the polyethylene side of the equation? Maybe that's not a fair maybe disagree with my comment, but I'm just looking globally at some of these announcements and I've been waiting for more polyethylene specific closures.

I think normally what people announce are the ethylene, the cracker or the producer, not so much the PE, but you see some of these clusters, particularly if you think of Europe, right, when somebody shuts down a cracker. And there were so many other adjacent downstream products, whether PE or other derivatives and the domino pieces start to fall because now, for example, in that chemical cluster you shut down a couple of downstream units and then maybe the industrial gases plant cannot run anymore or the wastewater plant cannot run. So you'll see more and more of this effect on PE. I think we've seen from our numbers, there is also a meaningful closure of PE activity, whether intended or unintended as they say somebody shuts down a cracker. But I agree with you, what gets announced is the ethylene, but we do see it and we see it in the market, significant PE closures.

Okay. So if I think about the headwinds to closing, right? What ultimately are you navigating, right? Because you opted to sell your assets almost kind of effectively pay a little bit to get rid of them. So when we look at the market in Europe and what still feels like a net supply addition, what are we running into as headwinds to close?

You mean on transaction or assets in general?

It was like an industry, like industrial gas contracts are there, environmental remediation, right? Like what -- if you're an operator and you're saying, I can lose $100 million a year or whatever or close, we see some decisions to close. But oftentimes, these assets are just running at a loss, and maybe there's too much co-integration. So if you're talking to us as around like what decisions you have to guide and navigate when you're looking at closing? Like what are the primary hurdles that keep that these plants running maybe at below ideal profitability?

Yes. So obviously, we want to run these plants in a profitable way. That's one. I would say the shutdown costs are also quite significant, especially in Europe. You have labor contracts, remediation, which are quite high. So we do the pros and cons, you're also looking -- right now, the environment seems to be shifting in the right direction, but there is significant cost to decarbonize these assets. So you're looking at significant CapEx investments. If you don't see really the return or the ability to push prices to return that investment you just -- in the future, you might be losing money now and there's not a clear path in which you can turn these assets profitably in the next 5, 10 years.

So we do the pros and cons and took a very painful decision of -- painful and strategic decision of just cleaning the portfolio in Europe. But always comparing versus the alternative, which would be an important one is shut down for sure, and those are significant.

And so as we look at part of what the anti-involution thesis has been is just kind of closing old capacity. The other conversation that I've heard is just China's desire to cap carbon emissions by 2030. If we think about the own evidence you see through your licensing business, right, maybe provide a little bit of context for how long that will take if we started seeing the sales now to resonate. Because from our pipeline, we still see projects in '28, '29. Candidly, I'd love to see those projects not come to market. Maybe they haven't started building those projects yet. So is there some reality where like the licenses we've sold would not show that those capacity would come or that capacity is probably going to come or not, and we don't have more beyond that because of the licenses? Like what path does that provide you?

Yes, I think the visibility that we have on the licenses would tell us that there's no more capacity coming definitely probably after '29 or '30. Because if a license we sell today would be a plan that starts in 2 or 3 years. And we've been selling 15 licenses '23, 8 licenses in '24, a couple 2, 3 licenses in '25, with very little visibility of any licenses that we would sell this year. And the majority were going into China. So that just means they're not building, which is good news for the industry, right? In addition, there's been rationalizing the smaller producers, especially the nonintegrated producers are under quite a bit of pressure whether it's VAT tax or the naphtha consumption tax. So they're putting a lot more strain into those nonintegrated operators. And you have to remember also in the PE world, the cost curve matters quite a bit.

And the oil to gas ratio advantage will continue to be in North America and the Middle East. So even though they have these new additions and nameplate capacity, nameplate capacity wise alone, they would be self-sufficient and exporting and they still import roughly 30% of their needs. So it's a little bit tricky just to go by the additional...

Of course. And operating rates in China are very accordingly. I hear you. And part of that also remains the Russian.

Correct.

So if you try to navigate the crude imports in the low-priced imports of Russian crude. Like when you're looking at the cost curve, how much of a tailwind, maybe on a -- if you were to bring that to a polyethylene or polypropylene price per pound. Like what kind of tailwind is that providing them? Or how much of a headwind is that to the cost curve?

I mean they're still operating at losses. I'm not sure they even cover their variable costs. But if you're getting Russian oil at $60 minus, that's a cap at maybe $10 discount. And I would still argue we're fairly competitive in North America and the Middle East. Otherwise, they would have stopped even the imports of material. So this oil-to-gas ratio advantage won't disappear. Actually, if the war ends, that could be very good news for everybody, right? If the Russian oil sort of flows, they lose this discount, then obviously, reconstruction would be good business and of course, wonderful for Europe.

APS, right? So there were some grand plans for Lyondell as it remains related to being kind of like a polymer formulator. And APS has gone through its own kind of restructuring work and we're coming out on the other side of that. What's the longer-term strategy for this business? Because it's pretty subscale as it relates to the grand scheme of Lyondell. So is this something that like is fine. It has its place. Is it -- ultimately, you're going to have to make a decision is it worth holding on to or growing? I know originally, there were expectations of more acquisitions in there. And I know that maybe that's not where you're going to be right now from a cash perspective. But when we look at like what the APS portion of your profile is over time, what is that going to be?

I would first say that APS is in the middle of the turnaround, and the team has done a great job, right? The EBITDA that they've generated impressive cash conversion of probably 140% or so of cash conversion. The work since the acquisition that has been done is meaningful. I think half the sites that we inherit from A. Schulman have been shut down, and we continue to shed all those assets that were not profitable. The improvements on margin have been incredible, the NPS scores. So all the right things are falling into place. There are a lot of synergies that we get from our just normal O&P business and the sort of being closer to the customer or technology. It also gives us a very good vehicle as we push more into circularity and the close connection to the brand owner. So this is -- we've won pretty good businesses on the circulant side for automotive customers, for example.

So it has a place in its portfolio. It's valuable. But like talking to Peter, every part of the portfolio gets reevaluated constantly. So we'll cross that bridge when we get there. But for now, it's an important part of our equation. And the turnaround is, in fact...

It's a business that you see merits? I mean, like, look, if you think about Westlake, right, they love talking about their PVC compound and pipe business is a very good margin protector up and down. And conceptually APS can be a similar basis if you've got a real high-value business proposition that you're formulating. And so is this something that will grow over time organically or inorganically? Or is it just like...

Yes. The plan that even was announcing in Capital Markets Day for them to reach the $500 million of EBITDA continues in place. Obviously, it won't be at the '27 mark. It's delayed a year, 1.5 years. But that's still the goal to make this business at least a $500 million EBITDA generating business for LYB.

And you touched on the circularity side of things. Can you give us a little bit of an update on MoReTec market for it and how it's evolving?

Sure. So MoReTec-1 continues its investment, and should start here in the first half of '27 is one of the growth projects that we've kept. This is a chemical recycling facility that we have in Germany at our integrated site in Wesseling. And we continue to see very good demand, especially in Europe. The environment is very supportive for recycled plastics. You've heard probably the news a 1.5 weeks ago that SUPD, so the single-use plastic directive was approved in Europe. And that gives us comfort that the environment is there regulatory-wise very supportive of the recycled content of plastic that has to go into the products. And this is also giving support to the margins of our MoReTec-1 product. So it's -- we're very happy with it. It's relatively small, 50 kt. It's a combination of production, but a big pilot plant for us as well. But we're very happy with the commitments that we have with -- from customers and the way it's progressing. So we're happy with our commitments there.

And the policy in Europe is moving around a lot. So yes, I'm sure there's a lot of internal delighted to that getting reassured. But we see a lot of waffling on the carbon tax side of the equation, CBAM, whether it moves forward or not. And this morning, Italy made some comments about the carbon trading system and then putting it on hold. Like how does that impact your business in the way that you think about Europe as a market opportunity and a cost structure and commercially?

Look, I think there was a number of chemical executives meeting in Antwerp last week with the European Commission, and they are all moving in the right direction. They understand the importance of having flexibility in terms of CBAM and ETF. I'm very hopeful that the changes will happen. It will definitely help the European industry, right?

Otherwise, you industrialize very quickly and they wouldn't be able to compete with Middle Eastern or product from China. Maybe TBD. I'm hopeful that they move quickly. But in terms of our sort of circulating product portfolio and the MRT-1, it's -- we're in a great shape, and it wouldn't really affect what those changes.

It is interesting watching that develop for years to now only start to see pushback when it goes in a -- it's a little late. I want to open it up to any questions in the audience. We've got 2 upfront. So Roger?

It's Roger Spitz. So you're selling your assets. I can't pronounce the name in Europe to AEQUITA or whatever called, did you know at the time that they were looking to buy SABIC's European, olefin polyolefin? And how concerned by which I mean you're putting in cash right up ahead. But SABIC is not putting in cash. It's just 2 forever PIK notes, perpetual PIK notes. AEQUITA is putting in $10 million. If you have -- if they -- the SABIC assets are losing a lot of EBITDA. If they -- if this entity goes bankrupt, how many years out do they have to go bankrupt before you are no longer -- they don't -- France doesn't look back to you and SABIC to take care of the closure costs.

Sure. So lots of questions there. By the time we were going through our process, we didn't know that AEQUITA was interested or would be the obviously a winning party on the SABIC assets. if anything, we see that as a positive because now they are a larger player, they have an incentive to make the combination work with the SABIC assets and our assets. They are very sure operator. They have a very good experience in automotive. They want to be a meaningful player in chemicals. The way we structure the transaction and how which we will capitalize these assets, we are making sure that these assets will be viable for the foreseeable future, and that's why we made all the calculations on the numbers to make sure that we were handling an asset that can survive and stand on its own.

They're also taking very good and qualified LYB employees. So they should be able to make it work and then combining it with the SABIC assets, I think they have a have a very, very good shot at being a meaningful player and very nimble without any of the requirements of any sort of public company. And I'm very hopeful for the new combination of AEQUITA with the SABIC and our assets.

I want to ask you, you brought up the circular portfolio. But I think just a Monday, you cut down your commitment, right? It was 2 million of recyclable and circular polymers and now it's 800,000 by 2030. So what drove that? What does it mean about MoReTec-2 or any other platforms? And I think in the past, you've been talking about getting a decent premium for these polymers. Are you still getting a premium? Or how does it compare versus, say, a year ago?

Sure. So the -- you're absolutely right, we revised our sustainability commitments earlier in the week, and this is basically to match the market realities. And you rightfully say we've delayed MoReTec-2. And with that, just normally the amount of tons that we would have generated from that asset are coming later. So we're adjusting to what will be in the market and being more realistic.

In terms of the margins, we continue to see out of MoReTec-1 continue to be just as healthy as we saw on the original plan. Brand owners are still very committed. More than half of that plant is committed already, and we're very happy with the margins and the premiums really haven't moved the imbalance that we've communicated through previous earnings calls and Capital Markets Day of supply and demand in terms of pyrolysis oil and recycled plastics continues to be especially in Europe. It's very, very strong this balance, and that helps margins gives strong support for the margins. So we're very happy with that investment.

I ask a quick 1 on your maintenance schedule. So obviously, very low maintenance schedule in '26. That's why the maintenance CapEx of $800 million going back up to the 1.2 -- $1.1 billion, $1.2 billion. Given the low level of turnarounds this year, should we be concerned in like the '27, '28, '29 period that there could be a year where maintenance CapEx is significantly above that 1 to 2 level that you gave us?

No. I think look, we found a couple of -- a lot of portfolio rationalization. So that also took out a significant amount of CapEx historically. So this $1.1 billion CapEx -- maintenance CapEx going forward has been properly sized with the portfolio that we will have at hand. We're very disciplined and extremely good at managing and optimizing the CapEx. And so for example, we had an issue with our Lake Charles plant at the end of last year. So while we were repairing that piece of equipment, then we took the opportunity to do other maintenance and that allows us to then extend a little bit more the turnaround cycle. I wouldn't expect that this increases. We're incredibly good at running these assets in a safe and reliable way and very good at doing the right maintenance and scoping it correctly, so that we stay within that $1.1 billion maintenance CapEx range.

I think we can end it there.

Perfect. Thank you so much.

Thank you very much.

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

Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our business 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 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 p.m. Eastern Time today until March 2 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746215.

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.

During today's call, we will focus on fourth quarter and full year 2025 results and progress on our strategic initiatives. We will also discuss current market dynamics and our near-term outlook.

With that being said, I would now like to turn the call over to Peter.

Thank you, Dave, and welcome to all of you. We appreciate you joining us today as we discuss our fourth quarter and full year 2025 results. I am proud of our people and how they continue to navigate cycle in 2025, while maintaining focus on our long-term strategy, despite some of the most challenging market conditions I have seen in my career.

The team delivered exceptional results in our cash improvement plan, while keeping safe and reliable operations at the center of everything we do. So with that in mind, let's begin, as we always do with our safety results on Slide 3.

LyondellBasell delivered exceptional safety performance in 2025. Our total recordable incident rate reached a historic low, slightly surpassing even our record-setting performance in 2022, making 2025 the safest year in our company's history. These results are especially meaningful given the significant volume of maintenance and turnaround activity we executed across our sites in 2025 in Europe and U.S.

Despite this elevated activity, our teams demonstrated operational excellence and an unwavering commitment to safety, even under challenging conditions. Safety remains our top priority. This consistent industry-leading safety performance reflects the discipline and care our employees and contractors bring to every aspect of our operations. I want to thank everyone across the organization for their dedication in keeping our colleagues and communities safe.

Now let's turn to Slide 4. As we navigate one-off, if not the longest long term in our industry, LyondellBasell continues to execute on our 3-pillar strategy in a way that creates and protects value even when this means adjusting the timing for implementing our plans. In our first strategic pillar, we continue to grow and upgrade the core. In 2025, we prioritized safe and reliable operations. We advanced our portfolio transformation with material progress on the divestment of 4 European assets which is on track for completion in the second quarter of 2026.

We also moved forward on strengthening our cost advantage position in the Middle East, with a new allocation for cost-advantaged feedstocks in Saudi Arabia. In our second pillar, we're building a profitable circle and low carbon solutions business. Construction on MoReTec-1 is progressing well and is on track for a 2027 startup. We're also advocating for supportive policy frameworks which will enable the successful and profitable transformation of our industry while we executed on low-cost and no-cost energy efficiency initiatives across our sites.

In our third pillar, we're stepping up performance and culture. Our team is laser-focused on value and cash generation. I'm pleased to report that the value enhancement program exceeded our original target and achieved $1.1 billion of recurring annual EBITDA in 2025. This program has been a critical enabler of our cash improvement and cost discipline efforts, helping offset inflation, improve reliability and fund profitable growth.

Building on this momentum, we are extending the value enhancement program and targeting $1.5 billion of recurring annual EBITDA by 2028. Importantly, these recurring earnings are based on mid-cycle margins and operating rates. We expect the benefits of the value enhancement program would become more prominent once volumes and margins recover from this prolonged downturn. Given the current market environment, we have focused our investments on the immediately profitable projects aligned with our long-term commitments, and we are reviewing the timing of achieving certain 2030 sustainability goals.

We have also materially reduced our capital expenditure plans for circular solutions and prioritized markets that provides supportive regulation and resilient proven demand such as Europe. We will update the market on our progress over the coming months, including the April publication of our 2025 sustainability reports. Even as we accelerate select initiatives and adapt the timing of others, our strategic priorities remain intact. Our disciplined execution positions us to capture substantial value once the cycle turns, and we remain confident in our ability to deliver sustainable growth for our stakeholders.

Let's turn to Slide 5 and take a moment to reflect on where LYB and the industry were in the current cycle. 2025 was another exceptionally challenging year with industry margins remaining deeply depressed across all of our core businesses. Industry margins were approximately 45% below historical averages, even worse than the already difficult conditions we saw in 2024.

In North America, polyolefins margins reached their lowest levels in more than a decade. This margin erosion has weighed heavily on LYB and the entire sector. Several factors are pressuring margins. These include global trade disruptions, low demand for durable goods, a lower oil-to-gas ratio, ongoing global capacity additions and in Europe, increased competition from imports and structurally higher energy costs.

Even under these conditions, LyondellBasell continues to generate positive free cash flow at the bottom of the cycle. While the environment remains tough, the market is responding with an increasing rate of capacity rationalization, which is accelerating the rebalancing of supply and demand. Once margins begin to normalize, LYB is well positioned to capture significant upside, supported by our low-cost positions, world-class technologies and a disciplined approach to generating value and cash.

Let's now turn to Slide 6 to discuss our 2025 full year highlights. Despite this backdrop of weak margins, our teams remained disciplined and focused on the actions within our control. We generated $2.3 billion of cash from operations during the year. This performance reflects strong working capital discipline, focused cost management and our ability to operate safely and reliably through a prolonged industry downturn.

Our excellent cash conversion ratio of 95% illustrates the resilience of our operating model and the additional focus provided by the cash improvement plan, even in an environment of compressed spreads. Full year earnings were $1.70 per diluted share and EBITDA totaled $2.5 billion. Throughout the year, we remain focused on maintaining financial flexibility, prioritizing safe and reliable operations and low-cost investments in VEP projects while preserving the ability to pursue selective investments in high-value growth once cash flows improve.

And we will continue to maintain strong capital discipline to ensure we're making the right decisions for the long-term strength of our company and all stakeholders. Now with that, I'll turn it over to Agustin to walk through our 2025 achievements in the cash improvement plan.

Absolutely, Peter, and good morning again, everyone. Let's continue with Slide 7. Our disciplined execution throughout 2025 enabled us to surpass our initial targets for the cash improvement plan. We set a goal to conserve $600 million of cash relative to our 2025 plan, and we exceeded that goal by roughly $200 million to achieve $800 million. This outperformance was driven by a $400 million reduction in working capital relative to our 2025 plan.

We also reduced our global workforce by 7% or approximately 1,350 employees to the lowest levels the company has seen since 2018. Capital spending remained disciplined as we took advantage of opportunities to realign project schedules across the portfolio. While we achieved our capital reduction goals on an accrued basis, cash realization lagged due to the timing of payments.

Our teams executed on these priorities while maintaining focus on safe and reliable operations, reinforcing the culture of value creation we have been building over the past several years. Looking ahead, we expect to deliver an additional $500 million of incremental cash in 2026 relative to 2025 actuals. This increases the cumulative target for our cash improvement plan from $1.1 billion to $1.3 billion through the end of 2026.

We are not considering any potential benefits from our European asset sale in these numbers. This higher target reflects not only the strong progress we delivered in 2025, but also cost efficiencies we expect to achieve in 2026 and the lower capital expenditure plans, which we have already announced. These efforts strengthen our ability to generate cash through the bottom of the cycle while protecting our financial flexibility and liquidity.

Moving on to Slide 8. I will review the details of our capital allocation. Maintaining an investment-grade balance sheet remains foundational to our capital allocation strategy. During 2025, we generated $2.3 billion from operating activities, supported by strong working capital execution, which released over $1 billion in working capital during the fourth quarter alone.

This strong performance enabled us to sustain excellent cash conversion even at the bottom of the cycle. We also took proactive steps to preserve liquidity, including issuing $1.5 billion in bonds to help address 2026 and 2027 maturities. As a result, we ended the year with $3.4 billion of cash and short-term investments and $8.1 billion of available liquidity.

Throughout the year, we prioritized safe and reliable operations while advancing strategic growth projects like MoReTec-1 and low to no-cost projects in the value enhancement program, while appropriately realigning other growth investments in response to current market conditions. As markets recover, we will be ready to advance an attractive portfolio of opportunities, including Flex-2 to balance olefin production, MoReTec-2 to expand our circularity capabilities at the former Houston refinery site and cost advantaged investments in the Middle East.

In addition, the positive impact from completed VEP projects is expected to grow once sector margins and operating rates recover. And we continue to provide cash returns to shareholders, returning $2 billion in the form of dividends and share repurchases during 2025. Our capital allocation strategy aims to preserve flexibility while positioning LyondellBasell to unlock value as industry conditions improve.

On Slide 9, we highlight the cash performance from our business during 2025. One of the strongest indicators of our resilience is our ability to consistently generate cash from operations even at the bottom of the cycle. In 2025, LyondellBasell delivered $2.3 billion of cash from operating activities. Our cash conversion ratio remained exceptionally strong at 95%, well above our long-term target of 80%.

We achieved this level of conversion through strong cost control across all segments, tightly managing receivables and inventories while pacing maintenance where appropriate to help ensure that earnings efficiently translated into cash even with lower operating rates. This consistent cash performance positions us well to fund essential investments in maintenance and advance critical projects while remaining ready to accelerate strategic value creation once margin begins to recover.

Now let's turn to Slide 10 for an overview of our fourth quarter segment results. In total, our business delivered $417 million of EBITDA during the fourth quarter. Across most segments, we saw the typical year-end seasonal pressure on volumes, coupled with elevated costs for feedstocks and energy. Maintenance downtime contributed to lower operating rates in both our U.S. and European operations.

Oxyfuels performance softened sequentially as margins trended downward from unusually strong levels toward the end of the third quarter once industry outages eased and gasoline blend stock premiums normalize to typical winter levels. The fourth quarter included identified items of $61 million net of tax, primarily associated with closure costs for the Dutch joint venture and the APS Specialty Powders business.

Across the portfolio, noncash LIFO inventory valuation charges reduced fourth quarter results. These charges were partially offset by a reduction in bonus compensation accruals that benefited fourth quarter results. The net amount was quarterly impact of $52 million. As a reminder, our fourth quarter LIFO changes reflect movements in inventory valuation over the full year and are not necessarily linked to fourth quarter valuations.

Before we review our segment level results in detail, let me discuss our capital expenditure plans for 2026. As we've previously announced, we are deferring some growth investments until later in the decade, given the difficult operating environment. For 2026, we expect our CapEx will be approximately $1.2 billion.

Our 2026 capital plan includes approximately $400 million for profitable growth and $800 million of sustaining investments. The reduced capital plan prioritizes safe and reliable operations and the ongoing construction of MoReTec-1. We expect our 2026 effective tax rate will be approximately 10% with a cash tax rate approximately 10 percentage points higher than the effective tax rate.

We have provided additional 2026 modeling information in the appendix to this slide deck describing the expected impacts from major maintenance and other useful financial metrics. With that overview, I will turn the call over to Kim.

Thank you, Agustin. Let's move to Slide 11 and discuss the performance of the Olefins and Polyolefins Americas segment. Fourth quarter EBITDA for the segment was $164 million, down from the prior quarter. The sequential decline was primarily driven by higher feedstock costs and lower polyethylene margins as well as planned and unplanned maintenance across several sites.

In olefins, ethylene margins weakened as ethane and natural gas prices increased, coupled with lower ethylene and propylene prices. In polyethylene, planned and unplanned maintenance across several facilities and seasonally lower domestic demand contributed to lower volumes and pressured margins sequentially. Industry inventories fell roughly 3 days or 500 million pounds as customers continue to draw down stocks ahead of year-end.

Polypropylene continues to face challenges with subdued demand and weak margins. During the quarter, we successfully completed the turnaround at our Matagorda polyethylene plant and implemented reliability improvements at our Hyperzone plant. These actions strengthened our asset performance and position us to capture value as demand returns.

Our fourth quarter operating rate for the segment was approximately 75% with our crackers operating at approximately 90%. During the first quarter, we expect tight year-end inventories, reduced supply due to winter storm burn and stronger seasonal demand will all be supportive of our polyethylene price increase initiatives in the market. We expect to operate our O&P Americas assets at an average rate of approximately 85%, in line with demand.

Now let's turn to Slide 12 and review the performance of our Olefins and Polyolefins Europe, Asia and International segment. Fourth quarter EBITDA was a loss of $61 million. Seasonally lower prices and higher levels of planned and unplanned maintenance pressured profitability. In Olefins, volumes were significantly impacted by weaker demand, year-end inventory control measures and maintenance events at several of our sites.

Polyolefins markets in Europe continue to face soft demand driven by increased competition from low-cost imports and ongoing destocking across the value chain. As a result, polyolefin margins remain under significant pressure and volumes were seasonally lower. In the fourth quarter, we proactively aligned our inventories with market demand through targeted rate reductions.

These actions helped reduce our working capital and generated positive cash flow from the segment even in a highly challenging environment. Our teams executed safely and deliberately to provide a reliable supply of product for our customers while supporting our balance sheet. We continue to make steady progress on the planned divestiture of our 4 European assets.

Regulatory reviews, work council consultations and transition plans are all advancing as expected, and we remain on track to complete the transaction in the second quarter of 2026. This is a significant milestone in reshaping the regional footprint of our global O&P portfolio. As we move into 2026, our O&P EAI segment has no major turnaround scheduled for the coming year and expect improved volumes with lower maintenance activities. We expect to operate our European assets at a rate of 75% during the first quarter. With that, I will turn it over to Aaron.

Thank you, Kim. Please turn to Slide 13 as we take a look at our Intermediates and Derivatives segment. Fourth quarter EBITDA was $205 million. The typical seasonal decline in oxyfuels margins was delayed due to planned and unplanned industry outages that tightened supply early in the quarter and supported stronger blend premiums.

Additionally, propylene glycol demand improved due to aircraft deicing demand, while acetyls results were negatively impacted by the turnaround. During the quarter, the team completed the turnaround at our La Porte acetyls unit. This turnaround included key initiatives to begin converting our vinyl acetate monomer production to an innovative LYB catalyst system that improves margins and helps reduce our reliance on costly precious metal catalysts.

The turnaround was completed on time, but we kept the asset down longer to help manage inventory levels. We began the start-up process in early January, and the asset has come back down due to cold weather. We expect the January downtime to impact first quarter EBITDA by approximately $20 million as seen in the modeling information in the appendix to our slides.

To align with maintenance and softer year-end demand, we operated our I&D assets at a rate of approximately 75% during the fourth quarter. As we begin the first quarter, we expect to see positive trends in our PO&D business with additional glycol sales into the deicing market and capacity rationalizations in both Europe and the United States, improving LYB's market share.

Acetyls volumes are expected to improve following the fourth quarter La Porte turnaround and oxyfuels profitability should exhibit typical seasonal margin improvements towards the end of the quarter. Our plan is to operate our assets at approximately 85% during the quarter. With that, I will now turn the call over to Torkel.

Thank you, Aaron. Now let's review the results of our Advanced Polymer Solutions segment on Slide 14. Fourth quarter EBITDA was $38 million. APS volumes were lower due to typical fourth quarter seasonal demand patterns, including softer automotive production across all regions.

Even with a softer backdrop, year-over-year, APS delivered 55% higher EBITDA, along with substantial improvement in cash generation, reflecting meaningful progress in our commercial execution and cost discipline. I'm extremely proud of the progress the APS team is achieving in our transformation.

Throughout 2025, we delivered substantial operational and financial improvements, drove exceptional fixed cost discipline and strengthened customer centricity despite a challenging market. Looking ahead, we expect seasonal demand improvement across our key markets, and we will continue to regain market share with our renewed focus on customer centricity, reliable service and differentiated solutions.

With that, I will return the call to Peter.

Thanks, Torkel. I agree with you. The APS team is doing excellent work in managing their business turnaround despite all the market challenges. To close out on the segments, let's turn to Slide 15 and discuss the results for our technology business on behalf of Jim Seward. During the fourth quarter, the segment delivered solid results.

Catalyst demand strengthened across key regions and revenue increased as a higher number of previously sold licenses reached revenue recognition milestones. Together, these factors contributed to segment EBITDA of $80 million in the quarter. Looking ahead, we expect first quarter results for the Technology segment to trend lower, potentially approaching levels seen in the second quarter of 2025.

While we anticipate a typical seasonal uplift in catalyst sales, licensing revenue is expected to decline as fewer revenue milestones are expected in the quarter. The substantially lower demand for licenses is an indication of the ongoing trend of reduced global investments in petrochemical capacity additions at the bottom of the cycle.

Now let's turn to Slide 16 for our near-term market outlook.

Following pronounced fourth quarter seasonality, we expect modest improvements as we move through the first quarter, and we're likely to consume some working capital as normal. In North America, we expect typical seasonal demand recovery. Additionally, our polyethylene price increase initiatives are supported by low industry inventories, while exports continue to play an essential role in balancing markets.

In Europe, demand should also seasonally improve, although the impact of imports into the region continue to pressure pricing. Supportive regulatory frameworks for circularity, along with the continued asset rationalizations in the region remain a helpful tailwind over the medium term. In Asia, near-term capacity additions continue to weigh on margins, while medium-term rationalization announcements are an encouraging trend that should eventually help to balance global supply. In the packaging sector, demand remains stable and driven by essentials.

Consumers continue to be value focused, and we're seeing a sustained shift towards private label brands across both North America and Europe. In building and construction, sentiment remains cautious. Low interest rates should provide some support, but we expect the environment to remain soft in the near term. In the automotive sector, North America continues to reflect challenged affordability dynamics even as interest rates decline, while Europe is showing signs of stabilization.

For oxyfuels, geopolitical uncertainty is expected to keep markets volatile. We continue to monitor supply developments closely. Overall, while macro conditions remain mixed, we expect modest sequential improvement from the seasonal lows of the fourth quarter. Our teams remain focused on execution, cost discipline and value-driven growth as markets gradually strengthen.

Even in this challenging environment, I'm confident that LYB continues to be well positioned, and I'm proud of how our team continues to execute with discipline. Now with that, we're pleased to take your questions.

[Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank.

Peter, just on the dividend, your yield is twice that of your closest peer, you trade at a full turn multiple discount on EBITDA to that peer. So investors aren't really giving you credit for the higher yield. But -- so why not just cut the dividend, invest that cash into your project pipeline because investors do pay for growth and move on from there?

Thanks, David. Of course, I mean that's the core question, very good question, I mean to start with. What you have seen, what we have accomplished during the year 2025, yes, they are very difficult market environments, but the team delivered cash from ops of $2.3 billion in such a market environment. We overperformed on our cash improvement plan, $800 million.

I give you a couple of data points. We're running the entire company at the end of 2025 with 18,700 people. That's a very lean organization that we have, and that's 1,350 people less than at the end of 2024. It doesn't mean, I mean that we don't continue to work on that as we announced also that we will continue to focus on our cash improvement plan during 2026, with a target of an additional $500 million.

Of course, all that in the context of navigating the cycle. Needless to say, we've said it multiple times that our investment-grade balance sheet is the foundation of our capital allocation strategy. And of course, when we are focusing on our cash improvement plan, we will continue to prioritize, I mean, safe and reliable operations. I said it in the prepared remarks, this has been the safest year 2025, I mean, at LyondellBasell. So it's a clear evidence that we prioritize safe and reliable operations, continue to work also on our value enhancement program, but we focus on projects that have a no cost or low cost and immediate return on investments.

It's clear that at the bottom of the cycle, we are evaluating the balance between cash returns to shareholders and growth investments, as you alluded to, and that in the context of a lower cash generation and, of course, also considering the metrics that are required for an investment-grade balance sheet. You know that we have delayed, I mean, certain growth investments, Flex-2, MoReTec-2, some other smaller growth initiatives. We continue to work on the projects that we have in Saudi Arabia, where we continue to get, I mean, quite a lot of support from the local authorities.

And definitely also, the last thing that I want to say to that is we have, of course, regular robust conversations on our capital allocation strategy with our Board and decisions on whether we recalibrate the dividend to maintain our investment-grade metrics, they are decided by our Board, and they are regularly being reviewed during our scheduled Board meetings and the next one will take place in February.

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

This is Alex on for Patrick. I had a question on your CapEx guide for '26. You're guiding about $1.2 billion. Now historically, Lyondell was around somewhere between $2 billion. So I'm just wondering if the reduced CapEx guide is a function of just the recent asset sales or if there's a change in your maintenance CapEx or if the new $800 million on maintenance is the new normal baseline for Lyondell. If you could help us understand your CapEx outlook for '26 and maybe the years beyond that, that would be helpful.

Yes. Let me start with your question, Patrick. Thank you for your question. Indeed, I mean, $1.2 billion in 2026 is the CapEx that we have communicated that we are planning. And out of that, I mean, $0.8 billion in maintenance. Let me put that a little bit into the context. We've been investing in our company in growth, in reliability, in productivity, also through our value enhancement program, but also big investments like our PO/TBA facility that ran above nameplate capacity, as you know, very successfully above depreciation during the last years.

So we have invested in growth. Also last year, cash CapEx, $1.9 billion, accrued CapEx, $1.7 billion is well above, I mean, our depreciation level. So also here, in 2025, I mean, we have continued to invest in growth, reliability, safety and productivity. So in that context, when we revisited our plan for 2026, we came to the conclusion that in 2026, we can actually postpone a couple of turnarounds because of all the work that we have done already in '24 and '25.

We could, of course, also limit the maintenance CapEx, safety and maintenance CapEx for '26, I mean, to that $800 million. And then the delta is a couple of the growth projects, but of course, important in that is our continued progress that we have on the MRT -1 investment in Cologne.

Anything you want to add, Agustin?

Peter, that was a very comprehensive answer. I would say just, Alex, that the other point is this is also a fairly light year in terms of turnaround. We only have the turnaround in the Midwest plant, then we have also a smaller one for I&D.

And as Peter alluded, we have been very diligent on managing our maintenance CapEx. And this time, that's why we can achieve now this $800 million for maintenance CapEx. And as Pete mentioned, $400 million for growth projects.

But just to be clear, I mean, normally, I mean, we have turnarounds, I'd say, in the environment of 3 to 4 per year. So we only will have, I mean, 2 in 2026. It doesn't mean that you can take, I mean, $800 million as safety and maintenance CapEx and extrapolate that for the foreseeable future. You know that we have $1.2 billion in the past in safety and maintenance CapEx. Once we have fully executed our European assessments, we expect that number to go down to something around, let's say, $1.1 billion. But you can always steer it a little bit, I mean, from 1 year to the other, just like we do in the cash improvement plan then for 2026 with $800 million.

Our next question comes from the line of Frank Mitsch with Fermium Research.

So you shut down the Houston refinery a year ago. And some may argue that things have changed with respect to the outlook in the midterm, given the events at the beginning of this year, in terms of Venezuela. And as you know, that Houston refinery was perfect for running Ven crude. I'm curious as to what your thoughts are. Obviously, this was something that you were looking at possibly doing with MoReTec, et cetera. But given that it's only been shut down a year, what might be the possibility that Lyondell would look to monetize that asset should some of the refiners look at, hey, the Ven crude becomes more plentiful down the line, that asset could be rather valuable. What are your thoughts there?

Frank, nice to meet you again. A good question. I mean on the refinery in the context of what happened in Venezuela. I mean our plan with the refinery continues to be, as we explained before. Of course, we look at in the context of the cash improvement plan. You know that we have delayed, I mean, the investment in MRT-2. One thing that I want to highlight as well, remember, I mean, when we decided to shut down the refinery, we avoided CapEx of, I would easily say, I mean, $1.5 billion because we hadn't done a turnaround anymore on the refinery since, what, about 8 years in total.

So in order to continue to run the refinery at that time, we would have taken the decision, of course, to do the turnaround, which would have been quite costly. Of course, I mean, the old refinery is not the only one in the United States that can take that kind of crude quality from Venezuela. There is quite a lot of refineries that can take that crude.

So our plan, I mean, continues to be, as we have explained, I mean, transform, I mean, the refinery in the context, of course, from a time line perspective of the cash improvement plan. And as such, I mean we continue to remain very open in what we can do, I mean with the existing assets that we have there.

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

The balance sheet was managed very, very well at the end of 2025 with your receivables and inventories really coming down. Do those need to be built back up in 2026? And what do you think your working capital benefit or use will be in 2026?

Jeff, good question. I'm going to start with some comments and then hand over to Agustin. I heard you saying that was very well managed at the end of 2025. Thank you for your comments on that. But of course, I would like to point out that we managed it very well also during the last, I mean, 4 years. .

If you look at our cash conversion since 2022, we have been consistently above 90%. And yes, I mean, 95% in 2025. I think that's fantastic work. You see the discipline in our organization, fantastic execution by our people. And it was not just, I mean, in Q4, again, in the cash improvement plan I alluded to that already before, partly because of our portfolio management, partly before -- because of further streamlining our organizations. We reduced, I mean, our headcount by 1,350, which is quite substantially if you take that from a 20,000 number approximately. It's quite an accomplishment that has been delivered by our people.

Working capital also over revenue. If you look at it, I mean, and you exclude, I mean, the revenue of the refinery that we had historically, so apples-to-apples, I mean we are, where trade working capital, running the entire company at somewhere between -- over the year between 12% and 13%, which also in my history, having worked in different companies is extremely low, especially if you also consider that we don't do any factoring. So with that, Agustin?

Yes. Thank you, Peter, for the answer. Jeff, so you're absolutely right. Actually, the working capital level on an absolute value is the lowest we've had since 2020. And again, I commend the teams really for the excellent work they did on managing working capital, especially here in the second half and most importantly during Q4. To your point, yes, we will have to rebuild some working capital as we go into 2026.

But this has all been factored now into our cash improvement plan and allows us -- we have enough offsets and initiatives in place to allow us to deliver the $1.3 billion cumulative in '25 and '26. But yes, you should see some moderate build as we go through the year in working capital terms.

And you would not be surprised, Jeff, I mean, just like what we said on the cash improvement plan, $600 million target for 2025, and we over-delivered that $800 million. That means that the entire team is, of course, very, very much focused in also finding ways and how can we overdeliver the $500 million in 2026. That's the way how we work.

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

Just wondering if you could give us your assessment of the oxyfuels market for 2026. I know '25 had some peculiarities with another competitor asset startup or refinery startup as well as maybe some volatility negative in the oil market. But how would you assess your opportunity there in '26 versus 2025.

Two points, and I will hand over. I mean, to Aaron. I mean, first point, you're right. I mean, Vincent, was quite volatile in 2026. But the second point I also want to make is that, if you look at average margins and you compare them historically, they were slightly above and you saw that in the one slide that we showed. So with that, Aaron?

Yes. Thanks, Peter, and thanks, Vincent, for the question. I think the short summary is that we are expecting oxyfuels to normalize following a pretty volatile 2025 to your earlier comment, with typical seasonal improvements during the summertime. We're watching crude along the comments that you made as well, just all the geopolitical unrest that we've seen here in the first quarter. We've seen a lot of volatility in crude itself, whether it's Brent or WTI is up $8 a barrel over the month.

So obviously, that's going to impact our profitability looking forward. We did start the year with pretty low inventories consistent across all of our businesses and with some of the freeze outages here in the U.S. Gulf Coast, it created a little bit of upward price movement, but demand does remain seasonally low here in the first quarter.

Our next question comes from the line of Matthew Blair with TPH.

Great. Could you talk a little bit more about the polypropylene market. Is it safe to say that polypropylene is actually weaker than polyethylene due to higher exposure to areas like autos and construction. And over the next couple of years, are you more optimistic on recovery in polyethylene or polypropylene?

Very good, Matthew, good question. I mean clearly, I mean, polypropylene, if you look at the different sectors and applications that polypropylene go in, which is, let's say, also for propylene oxide, a bit the same. It's more, I mean, dependent on demand in durable goods and how demand and durable goods is actually behaving if it is growing or not.

Now let me go back a little bit in history. Everybody knows that in 2021, the demand for durable goods after the pandemic 2020 was exceptionally high. And since then, it has been quite weak, which is a quite long period that demand for durable goods has been weak. In addition to that, I mean, everybody sees and knows that the inflation rates are coming down, interest rates little by little, but they are coming down.

Yes, consumer confidence is not yet up to the level that we would like to see. But if that leads, I mean, to consumer confidence also moving up, then one may expect that both for polypropylene and propylene oxide that demand would also recover. With that, let me hand over to Kim.

Okay. Yes. Peter has alluded to the demand side of the equation. I'll just make a couple of comments about the supply side. We've mentioned in other calls, and I'm sure you've heard from others, the polypropylene cost curve globally is pretty flat. So most players don't export. I say most. For example, North America doesn't export polypropylene, but the Middle East and China because China is so heavily oversupplied in polypropylene, they are exporting. And what you are seeing in the margin charts in the slides that we showed today is just that.

We believe polypropylene is at the bottom based on the combination of oversupply and the demand factors that Peter alluded to. So as Peter alluded, as demand would come back. And as people are rationalizing, it could have to your question about which may bounce more, it may bounce higher initially.

And you see quite some activities also going on in consolidation, rationalization, not just I mean of crackers, but of course, also linked to that, I mean, polypropylene. And I would even say probably more heavy weighted I mean to polypropylene today than it is to polyethylene.

Agreed.

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

I'd appreciate your updated thoughts on the U.S. Gulf Coast market for polyethylene. So maybe for Kim, I would love your thoughts on kind of the contract pricing opportunity as you see it. I know some of the consultants are inclined to give pretty good credit for price realizations.

Maybe you could talk through what you would anticipate on a gross basis and also net of any changes in annual contract discounts this time of year. February pricing that may be on the table? And then maybe on the other side of the coin, ethane feed has been quite volatile, so on the back of natural gas. So would love your thoughts on how you see that flowing through on a unit margin basis.

Okay. Kevin, lots of moving parts in that question. And let me just kind of talk through how I think about it. So if you think about the ACC data that many of us look at on the inventory side, second quarter of '25 probably was one of the high points with the 44 days right after liberation. You saw the industry kind of lower inventories in third quarter to 43.5. Now while we don't have December data yet. November data shows for the fourth quarter down to 40. So big pool in the fourth quarter. I would anticipate December probably even took that lower. So you're coming into the year on very, very low inventories in the industry.

Number two, you had higher pricing in the fourth quarter. So on the upstream side, you had ethane that was higher, you had natural gas that was higher. So people were not making the profitability that they wanted to in the fourth quarter. Now here comes winter storm Fern, and you've seen the variability in ethane and natural gas price, and you've seen industry producers like ourselves proactively take down derivative units through the storm.

Now that enabled an ease or seamless restart, but nonetheless, it took even more capacity off short term. So inventory or available inventory is very scarce. You also see export pricing increasing as we enter into the January time frame. And you're now starting to see downstream converters announcing price increases. So I think when you put all those factors together, the price initiatives that are out in the market today are very supported.

Yes. Good answer, Kim. I mean, so you can clearly hear I mean that we are seeing lots of indicators that are supporting, I mean, our announced price increases, and we expect that integrated margins as a consequence, should go up. I mean demand has been very robust.

Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets.

You have a good window into China and the local policy. What's your latest thinking in terms of anti-involution policies? Will it have any more specific news maybe in the next few quarters there? And has your thinking changed at all over the last 3 months?

Thank you, Aleksey. It's a good question. I mean on China, mean a couple of points that I want to make. I mean, we've seen, I mean, in China that there has been also some price increases on a modest level, but there has been some price increases in January. And that probably also has to do, I mean, with the fact, I mean, there was some inventory depletion and growth, I mean, continue to be at around a 4% level for polyolefins.

When we look at the anti-involution, with our people that we have on the ground and all the relationships that we have in our technology business unit, there is a lot of movement. There is a lot of discussion. And we're waiting to see, of course, what the decision will be. But we believe, I mean, that because of all the discussions that are happening that there is a very diligent and very serious evaluation that is going on by the NDRC.

So we expect that something will come out. Will it be in Q2 remains to be seen. But I mean, there is lots of pressure, I mean, behind it. And we hear, I mean, for example, criteria for asset rationalization, not at 300 kt for a cracker but 500 kt these kind of discussions. Another thing I want to point to is you see some other policies that are being put in place, like we heard, from a new naphtha consumption tax that is being put in place not small.

I mean, for emerging domestic transactions, $300 per ton. Yes, refundable, but it would have to be paid, first of all, upfront, which means, I mean, cash flow and especially, if you have nonintegrated players, nonintegrated ethylene cracker capacity in China is about 11 million tons. Remember that. So that's not -- it's not small. They would have to then pay upfront, I mean that new naphtha consumption tax.

So what I want to say is there is a lot happening, I mean, in China that all points in the same direction. And that is making sure that there is also a rationalization going on in that market. I've had another look, I mean, also at the numbers that we presented on a global basis in terms of capacity rationalization. Remember the slide that we showed during the third quarter earnings results.

At that time, we talked about a little bit more than 21 million tons of ethylene capacity rationalization, and that did not include the anti-involution. When we look at the further announcements, here and there, news on the ground, we're now looking more at a bit more than 23 million tons of capacity rationalization, again, ethylene capacity rationalization and still that does not include I mean, the anti-involution.

Our next question comes from the line of Mike Sison with Wells Fargo.

In OP Americas, how much of that capacity do you export? And export margins have been noticeably kind of zippo or very low relative to domestic. What do you think needs to happen to get that part of those margins up over time? And should you reduce your exposure to export given it seems like it's more structurally impaired than the domestic profitability?

Mike, historically, I mean, we always had, I mean, lesser exports. I mean, because your question mainly goes, I assume into polyethylene. We always have lesser exports because of the portfolio of products, I mean that we have that are more differentiated. So we are selling more in the domestic market as a consequence and therefore, lesser dependent on polyethylene exports. With that, Kim, anything you want to add?

Yes. I would just say, in general, I think we've typically said to the investment world that we're 10% to 15% lower than the industry on our exports. So if you look at LYB's exports in '24 and '25, we were 34% and 38% versus an industry number of closer to like 48%. The other thing I would say is you asked kind of about pricing and how to make that a better margin. I think '25 is a very difficult year to look at export pricing and actually, I would even say domestic regional pricing. There were so many changes and thoughts around tariffs and supply chains were constantly changing. I think an upside to '26 is that tariffs normalize, supply chains will normalize and everybody will have an opportunity to have the best netback to their individual regions.

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

Just a quick one. I was wondering on the Olefins EAI, I know there are a number of shutdowns and outages, some outside of your control from a supplier perspective. How much of a detriment was that in the fourth quarter? And how much of that do you expect to come back in the first quarter?

So the olefins impact for EAI in the fourth quarter was $35 million.

Our next question comes from the line of Hassan Ahmed with Alembic Global.

Peter, I just wanted to get a little more granular about a couple of comments you made earlier about rationalizations. You talked about that 20 million ton figure of rationalizations that you guys highlighted in your Q3 presentation going up to 23 million. And obviously, that's not including the Chinese anti-involution potential. I mean as I sort of sit there and run the numbers and try to sort of identify announced rationalizations where an actual facility, name facility, has been identified. The number comes up closer to around 10 million. And I know that obviously, the Koreans are talking about 2.5 million to 3.5 million.

But again, some of the facilities have not been identified. So I guess, long-winded way of asking you, how comfortable are you with that 23 million ton figure, clearly with some of the facilities not having been identified as yet.

It's a good question, Hassan, and thanks for asking that question. I mean, first of all, I am comparing my baseline is 2020. Just to be clear on that, if -- to your questions on South Korea, I have nothing included in those numbers on closures to date since 2020 or announced closures. But it is, in my number as an anticipated closure of around, I mean, 3.7 million tons of ethylene in capacity. So the vast majority clearly continues to be in Europe, where we see closures to date of around 5 million tons announced closures on top of the 5 million tons of 2 million tons, and I have not included yet any anticipated closures on -- in the European region.

But if you ask me, I think we're going to see more. I think we have not seen everything there may be more, I mean, to follow. There has been some closures, I mean, of course, also in China that maybe not a lot of people talk about since 2020, which adds up, I mean, to around 5 million tons. And there have been some closures in the meantime smaller number that have been announced.

And as I said, I mean, anti-involution is not included in that. And then, of course, in Southeast Asia, there have been closures announced by our peers like in Singapore. So you need to add them up as well. It's about 3 million tons in Southeast Asia closures to date and then another 1 million tons of announced closures and then I haven't talked about Japan, but also in Japan, you already have closures that have been executed to date and then you also have announced closures. So in total, that adds up to about 2 million tons. We've anticipated another 1.5 million tons. So I hope that helps you, Hassan.

Thank you. Ladies and gentlemen that concludes our question-and-answer session. I'll turn the floor back to Mr. Vanacker for any final comments.

Thank you again for all your excellent questions. And as I said in my prepared remarks, this is one of the most challenging and longest downturns in our industry. But we see clear evidence of reduced rates of capacity additions and rationalization of older assets being implemented globally that should help, I mean, to accelerate recovery. Our LYB team has over delivered on our promises to control the controllables by outperforming in safety, operational excellence, our cash improvement plan and our value enhancement program during 2025.

And that resulted in the fourth consecutive year delivering an industry-leading cash conversion that exceeded 90%. I want to thank, I mean, the global LYB team for delivering value and maximizing cash conversion during these challenging times while operating safely and reliably. This performance has convinced us to target another $500 million cash improvement in 2026 compared to 2025 and continue to progress on our value enhancement program by raising the bar to $1.5 billion of recurring annual EBITDA by 2028.

We remain committed to our long-term strategy but have focused our investments on projects that are immediately profitable. Another way to look at this prolonged downturn is as follows: I mean, the longer we are at the bottom of the cycle, the closer we get back to an up cycle and LYB will be ready to capture value accordingly. I wish you all a great weekend, stay well and stay safe. Thank you.

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

We'll go ahead and get started. We're very pleased to welcome to the stage the CFO for LyondellBasell, Agustin Izquierdo. He's relatively new to the company, came in 2022. So he hasn't seen the good stuff yet as far as the chemical cycle goes. But he wanted to start off. He's got a few slides he wants to walk through. So Agustin, if you want to go ahead and run through those, and then we'll jump into the Q&A when you're done.

Excellent. Thank you, Duffy, and thank you for having me here. Let's just quickly go through a few slides. This is the normal cautionary statements as we'll be talking about forward-looking projections. And of course, also in the back of the slides, which are available on our website, you can see the reconciliation to GAAP measures. Just quickly some highlights on the third quarter, which, as you know, we reported on October 31. It was a good quarter for us, above consensus, where we saw the good recovery from OPAM in particular, to olefins and polymers in the Americas. This was the absence of the Channelview turnaround that helped quite a bit and that was one of the longest turnarounds that we've had, roughly an impact of $200 million.

Also, we had a little bit of recovery in terms of oxyfuels, which had an interesting summer season, very depressed, but here with some industry outages and recovery in margins, which has been nice and the APS transformation, which continues to be well on its way. The other thing to highlight, and you know this well, our businesses continue to generate a significant amount of cash. Lyondell has been historically a very good company for cash conversion.

Our long-term average is 80%. Over the last 12 months, we had 90% and just Q3 alone, 135% cash conversion. So the team continues to be extremely focused on monetizing every single opportunity. And to that extent, also, we launched earlier in the year, the cash improvement plan. As you know, it's a 2-year plan now, '25 and '26 for at least $1.1 billion in cash improvements and generation, and it's broken down, especially here, we're focusing on 2025, $600 million for '25, which is divided in these 3 categories. So working capital, which should be a release of at least EUR 200 million compared to where we finished last year. And we're adjusting also operating rates to make sure we're running for cash, not unlike many others in the industry. Fixed cost reductions, which we've been very aggressive on also targeting at least $200 million.

I think we're closer to achieving $150 million of those already. And this is against a reduction in personnel, closing open positions, professional services, delaying projects that are not at the highest profitability right now. And then on CapEx reduction as well, which if you recall, we started the year at there was a target of $2.2 billion, then we came $1 billion to $1.9 billion and $1.7 billion and continue to reduce it.

Now the reason why here it's in yellow is because on the accrued CapEx line, I would say, we do target a $1.7 billion, but you always have some invoices that come from -- pass from 1 year to the next. And that traditionally happens when you have big turnarounds at the end of the year or at the beginning of the year, and that's what happened this year. So we have a big turnaround in Germany at the end of '24 in OM6 in Wesseling and then the channel turnaround I mentioned before at the beginning of the year. So there's roughly $200 million of cash that we have to pay for services that were already delivered. But we're doing everything we can, obviously, to try to minimize the impact for this year.

And as we prioritize CapEx, there are also some projects where we had to take a difficult decision to delay. So the first one was Flex-2. This is the ethylene to propylene conversion project. And then the second is any final decision also on MoReTec-2, which will be the second chemical recycling plant. The first one, as you know, is in Germany. So I'll say that the program is on track. And for next year, we have $500 million that we're targeting as well. So CapEx will be at $1.2 billion in terms of spending. Our minimum CapEx is roughly $1.1 billion and once also the sale of the European assets, which I'm sure we'll talk in the future, that has roughly $100 million of CapEx associated with it. So going forward, Lyondell's maintenance CapEx is around $1 billion to $1.1 billion.

And so next year, we do maintenance CapEx and then a little bit of growth CapEx, which is to finish MoReTec-1, so chemical recycling in Germany at our Wesseling hub. And then the second is some also operational improvements to our Hyperzone technology, the PE here in the U.S. And the rest, again, incredibly tight focus on fixed cost and working capital management. In terms of the outlook, this slide will change slightly from what we said during our Q3 results. So North America, I think you continue to see the ACC statistics came out a couple of days ago. You see days on hand for the industry have continued to come down from August at 45 days, now 43 last month at 40.

So -- and also operating rates are coming lower around 83% back from 90 -- mid-90s also 2 months ago. So all operators, and we're all running for cash and optimizing, we're matching rates with demand, which is normal. But it's also a good sign, right, that there's industry showing a little bit more discipline. Europe, on the other hand, has shown to be weaker. Prices have continued to compress. CMA is showing that for PE, $70 per ton have compressed for PP, roughly $40 per ton have also compressed. So that's where we see the biggest challenge for now and also the biggest change from what we said during Q3. Asia, I think just same continues just to have the pressure from the new capacity additions in the region and TBD or the future impact, I would say, from any anti-involution. And in terms of our end markets and segments, packaging has been resilient and continues to be resilient.

So we're happy with that. Building and construction housing market continues to be depressed where the existing home sales have not moved, and that's an important sector for us. And automotive, I would say it's also -- it's not getting any worse, that's good news. And through our APS business also, we've increased our share gain, which is good news for us. And on the oxyfuel side, we had, as I said, a very strange Q2 or driving season. Q3 with the industry outages has improved a little bit, and we'll just face the normal seasonality as driving season also comes to an end here in Q4. And with that, maybe we can go to Q&A. But maybe I can also give a little bit of an outlook.

So what does that mean really for Q4 and the end of the year, right? So at the end of Q3, we said that we had a number of outages that were going to happen in Q4, roughly $110 million and that we announced during our Q3 call. That $110 million was broken $40 million in OPE for the Mar Gorda turnaround, which is our largest PE plant. We also had $40 million of the impact of the vesseling maintenance. So it's OM6, our cracker in Germany. And then we also had $30 million of impact in I&D from the acetyls turnaround. So that's the $110 million. So what's new from there? You probably saw in the news that we had an upset at the Louisiana joint venture, the LE joint venture.

So that's roughly another $30 million. We had an issue with a gas compressor. So the plant is down and should be coming up here at the end of the month. So that by the end of the year, basically. It's a big piece of equipment, so roughly $30 million impact there. You've also seen the ethane going up to roughly $0.30 per gallon. So there's price compression there. In terms of -- and then on the PE pricing, October settled flat, same as November, but October, you also see the negative $0.02 on the NTP. And that combined the effect of higher raw materials plus the lack of pricing, I would say, power in PE, probably roughly another $80 million for OPAM. For EAI, I think you can expect that Q4 will be at the same level as Q4 of last year. And we just talked about the margin compression that we saw from CMA.

I&D, I think just the normal seasonality that we continue to see as Q4 is weaker traditionally for oxyfuels despite the good performance that we have seen here in Q3 and they've hold up. And then technology, no change there. Basically, Q4 will be at the same level as Q1. So a little bit of an uptick there on payments regarding licenses and APS continues to do its transformation. So overall, that's the main changes from Q3.

Okay. So a bunch of stuff in there, I'd love to unpack. First one is just if you look at 2025 a whole over the year, how does that set up in your mind as a baseline to jump off into 2026? What gets better if you look today versus the average of the year, what may improve or get worse between now and next year. But just how do you use '25 as a baseline to think about '26?

Yes. So I'd say '25, obviously was a strange year. Liberation day didn't help. That caused chaos, I would say, in the PE market. And for 2 or 3 months, we really didn't see pricing evolved in the natural way. So that's one effect. And then the other big one was, I would say, oxyfuels. We had the big refinery in Nigeria Dangote startup. They actually started up very well to much of our industry surprise. But then around September, they had sort of operational issues and some problems with labor, et cetera, that they came down. I think they won't be as good running in the near term as which is the normal operational issues.

So when you look into '26 now, so what helps us or what doesn't hinder us. So we won't have the big turnaround. So Channelview took roughly $200 million out of our earnings. We also -- we cannot predict the weather, but in '25, we also had the [indiscernible] winter storm that was roughly a $60 million impact. So let's assume that doesn't happen again. If we have a normal oxyfuel season, that should obviously help APS continues to make good progress. So I would say that sequentially from '25 to '26, just based on the absence of items that consume cash, we should be $400 million to $450 million better at least from '25 to '26.

Demand continues to be good. As we said, 3% demand growth for last year, this year and probably next as well. We don't see things falling off. And of course, if we got help from housing restarting in any way, automotive getting a little bit better, PC in Europe in any way, shape or form helps consumer confidence, and there's quite a bit of polymers reconstruction. And then so specific stuff gets you $400 million to $450 million better year-over-year next year. When you think about where we're at, say, with just structural margins today in polyethylene, U.S., Europe, polypropylene, how does that compare with kind of last year at this time going into '25?

Because I think where people have some worry is just the oil to gas ratio looks like it could be worse next year than this year. So should investors think about another couple of hundred million dollars being negative to offset this where maybe the run rate is plus $200 million for next year? Or just how do you think about the negative offsets from the structural changes in the industry? I would say in terms of the oil-to-gas ratio, I mean, roughly, we're right now at 15% oil-to-gas ratio with winter time. So naturally, natural gas goes up. And with that, ethane has gone up. If you see the frac spread right now is at 0. But ethane storage is at almost all-time highs, right?

We're looking at the stat 80 million barrels in storage. So that's good news, and we're one of the main uses for ethane, as you know. The long-term average of oil and gas has roughly been 18-ish. So at 15 is not out of the ordinary. And I think this is, as I said, with the winter seasonality and spikes in natural gas. This is just the ratio has compressed. But we're sort of in good shape, and we don't think that it comes any lower. And our breakevens are well into -- you would need high single digits for us to breakeven. So there's quite a bit of room, and we will still be competitive with any of the Asian and Chinese and, of course, any European production.

So you don't see the oil to gas as a big risk for next year just year-over-year.

No, I think there's enough natural gas in the U.S. And when the margin improves a little bit, I think we'll see more drilling. There are a lot of wells that are drilled and you can connect quickly. So you can see the blips and deviations from that might light up last a few months, but it won't be a structural change or disadvantage for the region.

Fair enough. And then -- let's jump to the cycle because that's what we get the most incoming calls on. Obviously, supply-demand has weakened. -- operating rates have come down over the last couple of years. On paper, the consultants still have a number of new projects coming up next year, '27, '28. And the stuff next year, you would think mostly have steel and cement in the ground at this point.

So what are your -- I guess, for this year, how much new capacity do you think came on globally in PE this year? What do you think demand will grow? And then what's your best estimate for those 2 numbers for next year?

Sure. So I would say maybe we take a step back. And if we think of not necessarily where this started, but just to see how demand has evolved, right, if you think, and also to put into context why the durable cycle should come back. So after COVID, everybody went into a buying pattern cycle, right? We got dishwashers and refrigerators and furniture, and we were remodeling our houses. And that durable cycle has eventually to come back.

It's, call it, a 5- to 6-year cycle. So we are at the end of that cycle and things should improve in the durable sector here in the next year, call it, right? After COVID, we saw obviously a big spike. And then during, I would say, '21, '22, demand did not increase. It was around 0. And for the past 2 years now, we've been consistently at 3%, and that will continue. There's obviously been quite a number of rationalization across the world. In Europe, in particular, it's the most aggressive.

We've seen announcements from South Korea, from Japan. Obviously, we're looking at closely at what anti-involution means for us, although we do see encouraging signs from China and the articles from PetroChina closing more refineries and crackers, et cetera. But on net-net, we will still add. So I would say that supply probably for the next couple of years increases roughly 9% and demand, I would say, increases around 6%. And I think we -- our view -- usually, the consultants are a bit more pessimistic or unless it's announced, they won't count it. But we know also that some of the capacity additions, especially if they are in China, these additions will not run at full rates. So they could be 60%, 65%.

So it's a little bit misleading when you see all the additions of the nameplate because by this point, China should be self-sufficient and even shortly thereafter exporting. We see that they continue to import roughly 20% to 30% of their material needs and that polyethylene in particular, does matter quite a bit where you are in the cost curve.

Okay. And that 9% that's coming online over the next couple of years, what's your -- because obviously, it's newer, it's bigger scale than the average. Do you think it will run closer to full out? Or will it run more like what the Chinese average is over that period?

Because it depends where it is, right? So there are a couple of projects, one coming in the U.S. Gulf Coast this year that probably runs full, very good assets, good operators. If the capacity is put in China, I think it still runs in the 65% to 70%. If it's Middle East or U.S. runs full -- yes, China, I would argue still 65%, 70%.

And you guys have a joint venture in China, a cracker. Maybe just kind of help people understand what the economics of that have been over the last couple of years. Is it getting worse, getting better? Is it just kind of been at the bottom? And then does that cracker in particular, have a plan to get better next year? Or is it mostly just kind of hunker down at the current levels?

Yes. I mean it's been very difficult for us during that joint venture. It's -- we impaired it at the end of Q4 last year. Right now, it's roughly sometimes some months makes a little bit of breakeven. It depends also quite a bit on our partner on the raw material situation. But it's -- I would say the situation is not getting better, and it probably is breakeven at best.

Okay. And would you say within China's cost curve, where does that plant sit in all the plants in China? Is it in the better half?

I would say it's good second quarter.

Okay. Okay. And so if an investor says, okay, you guys are cheap enough, it feels like we're at the trough. How do I make money in Lyondell? I mean how long do I need to own it before we start to see a recovery, kind of what drives that recovery? What's your pitch to them? How does this company, how does this industry get better without waiting 3 or 4 or 5 years out?

I'm obviously biased, so I think we're a great opportunity. But look, we are an incredibly good operator, honestly. We run safely, reliable. We run very lean. We've taken a lot of portfolio actions to also improve our profitability. We shut down the refinery. We sold the ethylene oxide business. We are executing the sale of the European transaction. And so with that, just portfolio moves alone, profitability should improve by, call it, 3% or 4%. We've been very diligent on controlling the controllables.

As I said, we're cutting CapEx. We have working capital management like fixed cost reductions. And there's more to come once the European sale closes, then we can go into a next round of having a fit-for-purpose organization. And then there are a number of also projects that we've delayed, call it Flex-2, which has very good returns. MRT-2, we recently -- we started the PO/TBA plant in 2023, which is running at a little bit above nameplate capacity. And there are many other projects that really haven't full reach potential or full potential because we have -- we're not there at mid-cycles, but think of Hyperzone, think of the transformation on APS, think of all the projects that we do under VEP that have a lot of scrutiny. But of course, you need mid-cycle margins to really show the potential.

So there's a lot of growth that is call it trapped in the system. But of course, we need -- it's really a demand story, especially housing, automotive and durables that need to come back because packaging, as we've said, has been quite stable. And we see little by little also steps on rationalization across the world. And I think you saw it on our slides, Q3, 21 million tons of ethylene capacity that are coming out of the system. You can speculate how much more with anti-involution, perhaps another 7 million tons come out of the system. But there's action and things are happening.

And then what's the update on the European kind of asset fix? Where are we in the process? And then what does that do to the P&L on the demarcation day when the deal goes through?

So the project is going well. So we will have still expecting to close by the first half of '26. We have received all necessary regulatory approvals. We have received works council approvals as well. So we are on track. And so what happens at the moment that the transaction occurs. So we'll have to invest $350 million to capitalize these assets, and so they move to [indiscernible] in good shape, then there will be a working capital component that is in the -- with those assets that will also move. That's a noncash item. And then the other item that we have in terms of cash, we said during the 8-K filing, $100 million to $150 million of separation costs.

Those roughly $80 million we have spent already in '25 and then the balance will be during the first half of '26, and this is to do all the -- you can imagine financials, IT carve-out. There's a lot of stuff you have to do to get these 4 assets stand-alone and up and running.

Okay. And at today's rate, what does it do to the EBITDA of remain segment once that asset is hived off?

So these assets contributed very little EBITDA. So you won't see...

So no change.

Correct. And then the footprint that we have in Europe is really one that will allow us to be good and profitable in the region for the long run, right? Overall, we keep the I&D assets of the 2 PO/TBA plants, one in France and the Netherlands. And then we continue to have the hub in Wesseling with 2 smaller crackers, higher value-added PE products, and that's also where we're building the chemical recycling facility to have it all in the combined hub and then take really advantage of the integration plus the smaller catalyst technology sites.

Okay. And maybe since you bought a PO/TBA, this year was a weird year for oxyfuels in general. Maybe give us kind of an after-action review, what happened? Why was it weird? Is there a chance that it repeats next year? Or was it kind of a 1-year issue? And then how to think about that business going forward?

It wasn't an interesting year also in the sense of the refinery in Nigeria started up and that they needed 700,000 barrels per day. So it's one of the largest refineries in the world, and they needed to find a home for their octane component. So you saw a sort of octane going around the world, especially in Europe, some coming to the Americas as well. And that just disrupted the market, especially because they started so well and the market didn't expect it. Also, oil prices declined faster than everybody was forecasting and that also had an impact.

So the combination of those 2 elements basically eroded the MPD premium and at some point, the octane was negative. But that should normalize here. I think Dangote will have its ups and downs. We also saw a few cargoes from China coming into Latin America in particular, and that has stopped. So it again, remains to be seen whether that is structural or not. And we also had those as, the Pemex refinery that had its up and downs, but I think they have their own operational issues. But for now, next year, we should see a more normalized driving season. We continue to see very good demand from Latin America and Asia. So I really think that this was a blip in the oxyfuels market.

Okay. Just a whole school. I guess I definitely want to get this in because it's probably what we get the most incoming questions on, which is the dividend, the balance sheet. So kind of help people think through -- I think the question they ask me most is we'll pick an EBITDA. Again, it might be up 20%, might be up 5%. But how much of the dividend is Lyondell willing to put on the balance sheet to kind of paper over this period of a trough before the cycle recovers?

How much can they do without risking the -- going away from investment grade. So kind of what's the answer to investors for that? How much do you defend the dividend? How much can go on the balance sheet? And how are you thinking about it in the near term?

Sure. So I think first and foremost, I'll remind everybody where we started the year, right? So $3.4 billion in the cash -- in cash because we knew, obviously, we would need it. We were going through the low end of the cycle. And I'm very glad that my predecessor left the balance sheet in such good shape. As the year progressed, obviously, things didn't materialize. We have a weaker results and EBITDA in general for the year.

We launched our cash improvement plan. The total $1.1 billion for '25 and '26 obviously helps. We're turning every single stone doing smaller divestitures of assets that didn't contribute money, the portfolio cleanup that we spoke about. And we also have, as you know, a very large investor base that are income focused, roughly 30% or more. And for them, the dividend has been important. So we have turned every single stone and done everything that we can really in terms of cash preservation and cash generation to keep the balance sheet in good shape.

We're also very committed to our investment-grade rating, and that's something we're not willing to sacrifice. It helps us operate the company in the best shape possible, gives us access to liquidity. And our Board has been very supportive that, that is the way to go. I think at some point, if we have to recalibrate the dividend to maintain the investment grade, it's something that continues to be on the table, but it's something that we'll look every quarter gets closed at very closely, especially during this part of the cycle.

Okay. And I guess, for investors, what's the right metric for them to look at that investment grade? I mean, is there a net debt-to-EBITDA ratio LTM that it shouldn't fall? Is it a forward forecast? Is there some changes that the rating agencies make lets you do kind of behind the scenes? How should we on the outside track it, whether we're getting too close and maybe this is the quarter that we need to recalibrate that dividend?

So I mean the overall metric that we want to keep is we haven't deviated from what we said at Capital Markets Day. So this is the line on the view, right, to have 2.5x debt-to-EBITDA throughout the cycle to keep our minimum cash balance around $1 billion to $1.5 billion, so that we can operate with less, but the target continues to be 1.5. And then the rating agencies each have their own specific metrics, but obviously, leverage is important.

The free cash flow generation is important. And they also understand the cyclicality of the business, right? So they will give you leeway, I would say, or as you go through the cycle and if you -- I'm not saying breach, but if you start to become a little bit weaker on EBITDA or free cash flow generation, but if they see a path that you come out, then they'll be a little bit more tolerant. We're not managing to a specific rating to, call it, BBB or BBB-. We want to be investment grade.

I think it's a very slippery slope and dangerous game to be targeting a specific rating. We don't want to do that. is investment grade, keep the balance sheet in the best place possible. And let's not take actions on our end with financial policy that would accelerate a potential downgrade.

And you've done a fantastic job on cash generation recently. Once the business starts growing again and EBITDA moves back, let's say, towards a normalized rate, what -- is it still the 80%? Is that kind of the right level through the cycle for cash generation of EBITDA? Or structurally with the changes you've made, you've bumped that higher or maybe it's 85% now. How to think about that once the EBITDA starts coming back?

Yes. I think in the long run, the 80% is still a fairly good metric for us. Obviously, there will be quarters like Q3 in which we had 135%. I think you should expect also well above 100% here in Q4, especially as we release quite a bit of working capital. But through the cycle, 80% is a very good and healthy number, and we'll continue to target that.

In a lot of our other chemical chains historically, when conditions have gotten similar to the level of badness that they're at now, we've seen rounds of consolidation. We've seen people kind of give up on the industry. We haven't seen that in polyethylene. Do you think that's yet to come? Could we see some major rounds of consolidation? Does that make sense for the industry? Is it needed by the industry? Or do people still dream of kind of the economics of the 2010s and we all kind of get back to a $0.30 per pound polyethylene margin, and that's really normal. So people don't want to give up at the trough.

Yes. I mean it's normal to think about consolidation in this part of the cycle. I think we see some of that happening, BGI, for example, and ADNOC consolidating there. You see consolidation also, especially in Asia and Japan and South Korea. So yes, I mean, I don't discard it and it could happen, but we're very focused on making sure that LYB is in the best shape possible stand-alone, and we're taking all the measures that we can, as you can see, be the lowest cost producer, most effective and have good growth projects on the pipeline too.

Maybe jump -- because we still do get a few questions on ESG stuff, not nearly as many as we did 2 years ago, but the MoReTec technology, the construction of the plant, how are things there as far as timing, budget, on time, on budget? And then as you're talking to customers, you've had a peer now they're more in the polyester chain, but they've struggled to place some of the volumes from their plant that they brought on. Are you seeing similar pushback from your customers in this low kind of demand and price-conscious world where people don't want to make the jump to kind of lower carbon footprint plastic at a higher price?

Sure. It's a great question, but we see things differently. And so first on the investment. MoReTec-1 continues to be on track. It will start in 2027, as I said. And just to put it in context, it's a relatively small plant, I would say, 50 kt. Of that, I would say probably more than half of the plant is already sold and committed, which is good news. And what happens, our competitors, as you said, on a different part of the chain on PET. But the beauty of our MoReTec technology is that we can take the mixed plastic waste. And what we continue to see is very good demand by global brand owners, and they want to have the fully circular plastic, right? And it's we're seeing more pressure on mechanical recycling for sure, that those prices have come down.

But in terms of chemically recycled plastic coming from pyrolysis oil, we still see the demand, and we still see the healthy margins, roughly $500 per ton over virgin. So we haven't seen a slowdown there. Now we're also -- this plant is in Germany. In Germany, Europe in general has been -- had a very supportive environment for recycling, right? They recently passed PPWR so the packaging and packaging waste recycling and their mandated recycled content that they have to -- companies have to abide for. And so that helps -- provides a good environment.

Now in the U.S., high unlikely we see any sort of federal mandate on that front. But the same global brands have their goals and there might be delayed a little bit, but the demand and the basic supply-demand imbalance, especially on pyrolysis oil is there and will persist for a few years to come.

And then maybe just as we're kind of getting close to time here, a couple of your smaller businesses. But first, polypropylene doesn't get nearly the airplay that PE does because it's a smaller contributor. But where do you see polypropylene? That seems to be even worse in China than PE as far as the additions. But how do you see the health of that supply-demand playing out over the next couple of years? And how is your business positioned there?

Sure. So polypropylene is a dormant giant for us, right? It's basically at 0 margin for now. There's a bigger supply-demand imbalance. And different from PE, the cost curve is a lot flatter, and that is also what sort of doesn't help. Really the what we haven't seen is durables coming back for PP, right? And that's what's really hindering the revival we see now the ACC statistics I think operating rates are in the 70%. Propylene is also very low. But as I said, the cost curve is fairly flat. You can do it with PDHs almost everywhere.

And so where do we invest in polypropylene in the Middle East, where you have that feedstock advantage, but it's a very challenged market until durables come back really and supply-demand balance comes more...

And then just the last one for me. Acetic acid. It seems like we've built some new plants for the first time in a very long time that it had a nice run from 2010 to maybe '22. Now it feels a little bit challenged. What's your view on supply-demand for acetic acid and for your business over the next couple of years?

Well, we really like our acetyls business. We're actually investing there. We're debottlenecking. We're going through a new catalyst change technology. We move away from precious metals and moving to more of a silica-based catalyst. So we have the debottleneck. We have a good position there and good niche. We sell mainly into North America and Western Europe. It's really a business that makes roughly $200 million EBITDA at mid-cycle margins. So it's -- for us, it's a nice profitable business, and we haven't seen really any further degradation of markets or end demand. So we like it.

Terrific. Well, Agustin, thank you so much for coming and spending a little bit of time.

Thank you so much for the invitation.

Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. Following today's presentation, we will conduct a question-and-answer session. I would now like to turn the conference over to Mr. David Kinney, Head of Investor Relations. Sir, please go ahead.

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 in 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 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 p.m. Eastern Time today until December 1 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746-207. 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.

Thank you, Dave, and thank you all for joining today's call as we discuss our third quarter results. The LYB team is making excellent progress on managing the cycle with meaningful progress from our cash improvement plan, which contributed to our very high cash conversion of 135% in the third quarter. We're well on our way to delivering on our $600 million target by year-end. And our actions are expected to increase cash flow by at least $1.1 billion by the end of 2026.

Let us first take a moment to review LYB safety performance with Slide #3. Safe operations are fundamental to our core values and essential for our future success. This is demonstrated by our September year-to-date total recordable incident rate of 0.12 which is even better than last year's top decile results. Safety performance improved year-on-year, and this sustained trend is a direct reflection of the dedication and commitment of all our employees and contractors to operational excellence.

Please turn to Slide 4 as we discuss our financial performance. During the third quarter, cash generation improved as LYB continued to navigate the cycle. Earnings were $1.01 per share with EBITDA of $835 million and $983 million of cash from operating activities. We returned $443 million to shareholders in the form of dividends.

Turning to Slide 5. Let's discuss some encouraging trends developing in polyethylene markets. In recent months, PE demand has started to improve following the multiyear post COVID downturn in both North America and Europe, 2025 domestic demand for polyethylene is the strongest we have seen since the start of the downturn in the third quarter of 2022. Despite the recent volatility in U.S. exports, caused by shifting trade and tariff policies, third quarter year-to-date North American demand is up by 2.5% relative to 2024. After a prolonged weakness following the onset of the Russia Ukraine conflict, August year-to-date polyethylene volumes in Europe are up approximately 3% compared to the same period last year.

Consumer packaging demand remains resilient, reflecting the essential role of polyolefins and everyday applications despite changing consumer behavior. At the same time, investments in durable goods to support trends in energy, digitalization and infrastructure are also driving demand growth. Renewable energy and data center construction requires durable, high-performance polymers for wire and cable jacketing, conduits and water piping. Electric vehicles use approximately 10% more plastic by weight than vehicles powered by internal combustion engines.

LYB's broad portfolio of innovative polymers position us well to meet the stringent performance and sustainability benchmarks required to address these attractive and growing market opportunities. Let me be clear, these are not yet green shoots for our financial results. Markets will need to absorb new capacity and operating rates will need further improvement before suppliers develop meaningful pricing power. But these inflections in demand trends are encouraging and could be the early indicators of our market recovery.

With this in mind, let's turn to Slide 6 and take a longer view on demand growth for polyethylene and polypropylene. As shown in the top chart, global polyethylene demand has consistently grown at GDP plus rates of over 3% for at least 35 years. Unlike other markets like automobiles, our housing polyethylene markets have exhibited consistent growth. Even after recessionary downturns and pandemic-related spikes, polyethylene demand quickly returns to its long-term trajectory. This reflects the power of the underlying trends driving global consumption, population growth, deurbanization and a rising middle class. Some observers questions whether the flatter growth rate seen in 2022 and 2023 after the 2021 spike were reflective of a secular change. But as you can see, in 2025, we are reverting to long-term global historic growth rates of over 3%. Most consultants are predicting continued growth through at least 2035 with some shifts in share of production from fossil-based feeds towards circular feedstocks.

Looking at the bottom chart, mature markets such as North America and Europe, leads in per capita consumption aligned with established demand patterns. Meanwhile, emerging regions, such as India and Africa, provides significant long-term growth opportunities as living standards improve in these regions. China continues to demonstrate strong volume growth, supported by its extensive manufacturing base and industrial activity. In contrast, South America reflects comparatively lower consumption, which can attribute it to a smaller manufacturing footprint and lower industrial intensity relative to other regions.

These trends reinforce the importance of regional dynamics, shaping the growth of polyolefins in the global market. While mature markets remain critical for stability, demand growth within these regions will be increasingly driven by infrastructure developments. Electrification, EV mobility, home care and pharma, while emerging economies will drive meaningful volume growth. Importantly, this demand growth is not negatively impacted by circularity. In fact, we are seeing growth shifting towards innovation, efficiency and circularity in these markets. LYB continues to lead in sustainable solutions by investing in innovative feedstock sourcing, positioning us to capture value across diverse markets as we advance our strategy.

On Slide 7, let's shift to the supply side and discuss how capacity rationalization trends are accelerating and reshaping the global ethylene supply landscape. As seen on the chart to the left, announced and anticipated closures and idling from 2020 through 2028, add up to more than 21 million tonnes of ethylene capacity representing roughly 10% of global supply. Asia is leading the way with recent government announcements highlighting the magnitude of this trend. South Korea is targeting closures of up to 25%, while Japan recently announced closures of 1.5 million tonnes. China is also a critical driver for global rationalization. With high costs for feedstocks, much of the Chinese petrochemical industry is on the wrong end of the cost curve. China's anti-involution measures core focused on reducing uncompetitive capacity and approvals for new facilities are facing increased scrutiny.

In Europe, regulatory burdens, persistently high operating costs and weak margins are driving massive reductions in petrochemical capacity. Announced rationalizations total approximately 20% of regional capacity and we expect more announcements will follow. The domino effect of these rationalizations is leading to an acceleration. Smaller petrochemical clusters are finding that the economics for cogeneration or industrial gas partners no longer work when a few assets are shuttered in smaller industrial parks. About 30% of our global closures have been announced in just the past 12 months, underscoring the speed and magnitude of this shift. We're confident that these closures will help to partially offset the overhang from the substantial capacity additions underway in China.

At LYB, we're leveraging the market trends that reinforce our strategy. We're growing our presence in cost-advantaged regions, upgrading our challenged positions and leveraging our technology to ensure a strong presence in attractive markets. We're also cultivating deep partnerships with governments and regulators to ensure a fair trade environment and working towards smart policies, especially in Europe that will provide critical support for our industry.

Now with that, I will turn it over to Agustin to discuss capital allocation and the progress on our cash improvement plan.

Thank you, Peter, and good morning, everyone. Let me begin with Slide 8 and review the details of our third quarter capital allocation. As Peter mentioned, we generated $983 million of cash from operating activities, an improvement of over 2.5x relative to the prior quarter. During the quarter, we returned $443 million through dividends while funding $406 million of capital investment. Our team remains focused and committed to balanced and disciplined capital allocation as we navigate the cycle. Our investment-grade balance sheet remains our priority while we invest in safe and reliable operations and work to preserve shareholder returns. We continue to advance our strategic initiatives to build a stronger and more resilient LYB.

Today, we are announcing a further reduction in our 2026 capital expenditures to $1.2 billion. We will continue to work to complete our MoReTec 1 chemical recycling facility in Germany as we work to optimize our 2026 spending on maintenance. We are continuing to make good progress on the value enhancement program, which remains on track to exceed our target for 2025. Similarly, our cash improvement plan is on track to deliver our $600 million target of incremental cash flow. Year-to-date, we have achieved $150 million in fixed cost reductions. I will review the progress on our cash improvement plan in more depth on the next slide. We are taking clear actions to ensure that we can continue to successfully navigate the cycle with a commitment to our investment-grade credit rating as the foundation of our disciplined capital allocation framework.

Please turn to Slide 9, and let's continue by reviewing the progress on our 2025 cash improvement plan. For this year, we are targeting $600 million of improvement through a combination of working capital, fixed costs and CapEx reductions as part of our total commitment to deliver $1.1 billion of improvement by the end of next year. We are making progress on working capital reductions through our traditional levers of managing inventories and payables. With this in mind, we are on track to meet our target of realizing approximately $200 million of working capital reductions.

As you all know, LYB has historically led the industry with a low-cost operating model. Nevertheless, we have identified further opportunities to streamline our operations and are on track to exceed our $200 million fixed cost reduction target by the end of 2025 and with year-to-date fixed cost reductions at approximately $150 million relative to our 2025 plan. And from a CapEx reduction standpoint, we are making progress to reduce spending on an accrued basis, but these reductions are impacted by timing of payments with cash realization currently trailing. We continue to prioritize safe and reliable operations while making progress on MoReTec 1 and delaying construction of Flex-2 and MoReTec 2 until we see market conditions improve. Together with working capital and fixed cost initiatives, these actions position us to deliver on our target to achieve $600 million of incremental cash flow in 2025.

Now please turn to Slide 10 as we outline our cash generation. Over the past year, LyondellBasell generated $2.7 billion of cash from operating activities. Our team converted EBITDA into cash at a rate of 99% over the past 12 months and 135% during the third quarter, well above our long-term target of 80%. In the third quarter, we were able to maintain robust shareholder returns with dividends and share repurchases totaling $2 billion over the last 12 months. Our cash balance increased during the third quarter to end at $1.8 billion. We will continue to take proactive steps to protect our investment-grade balance sheet as we navigate the cycle.

Now let's turn to Slide 11, and I'll provide a brief overview of our segment results. Our business portfolio generated $835 million of EBITDA during the third quarter. Profitability in Olefins and Polyolefins Americas improved with lower cost of ethylene due to co-product contributions coupled with less downtime following the successful completion of turnarounds at our Channelview complex in the second quarter. In Intermediates & Derivatives, improvements in oxyfuel margins were partially offset by planned maintenance at our La Porte, Texas acetyls facility and the normalization of unusually high second quarter styrene margins. In technology, subdued licensing activity impacted third quarter profitability, and all segments benefited from our progress on fixed cost reductions.

Third quarter results included identified items of $1.2 billion, net of tax, primarily associated with asset write-downs in our O&P EAI and Advanced Polymer Solutions segments. Related to the prolonged downturn in the European petrochemical and global automotive industries. We have also updated the guidance for our 2025 full year effective tax rate to negative 13% primarily due to these noncash impairments recognized during the third quarter. In addition, our cash tax rate is expected to be substantially lower than our prior guidance. Please refer to our updated 2025 modeling guidance in the appendix to this slide deck describing impacts from planned maintenance and other useful financial metrics.

With that, I will turn the call over to Kim.

Thank you, Agustin. Let's begin the segment discussions on Slide 12 with the performance of the Olefins and Polyolefins Americas segment. During the third quarter, O&P Americas EBITDA was $428 million, an improvement of 35% quarter-on-quarter. Seasonally higher demand and increased utilization following our Channelview turnarounds supported sequential growth. For third quarter operating rates for the segment was approximately 85%, with our crackers running at approximately 95%. During the third quarter, North American olefins industry operating rates remained high, driven by -- 3% quarter-over-quarter supported by the restart of the Channelview assets.

During 2025, operations of our Hyperzone polyethylene plant in La Porte have significantly improved with more uptime higher rates and increased on-spec production of the full range of premium products. We will perform some modifications at the plant in early 2026 that should allow our Hyperzone PE technology to reliably deliver high-quality premium products with performance advantages that our customers desire. This is part of our portfolio transformation towards more specialized applications.

In the fourth quarter, we expect typical seasonal trends of softer demand and customers' desire to minimize year-end inventories will pressure sales volumes. Nonetheless, producers are also seeking to minimize inventories and reductions in the industry operating rate are providing evidence of adjustments to market conditions. The balance of supply/demand will ultimately determine the success of our price increase initiatives. Sequentially higher natural gas and ethane prices are likely to result in somewhat higher costs during the fourth quarter, but we expect that this will be partially offset by our fixed cost reduction initiatives. Despite volatile oil prices, the favorable oil to gas ratio continues to provide an advantage to North American ethylene producers relative to oil-based production in other parts of the world. We remain focused on aligning our operating rates to manage working capital while serving domestic and export market demand. We expect to reduce our operating rates by 5% and are targeting 80% utilization across the segment during the fourth quarter.

Please turn to Slide 13 as we review the results of the Olefins and Polyolefins Europe, Asia and International segment. During the third quarter, the segment generated EBITDA of $48 million. Altogether, EBITDA for both O&P segments improved by 31%. In EAI, segment EBITDA remained relatively flat as operational improvements helped offset margin pressures in polymers due to weak demand. Despite fewer operational constraints on some of our own assets, polymer margins declined due to increased competition from imports originating in cost-advantaged regions such as North America and the Middle East. We continue to advance our strategic objectives in the regions as we progress on the proposed sale of the select European assets.

As part of this transaction, I am proud to share that we have achieved a major milestone with the signing of the sales and purchase agreement. This marks another step towards closing the transaction, which we expect to occur in the first half of 2026. The transaction is another example of our strategy to grow and upgrade the core through optimizing our portfolio for long-term value creation. Additionally, as part of our second strategic pillar to build a profitable CLCS business, we are making good progress on the construction of our MoReTec 1 facility in Wesseling, Germany. Major equipment deliveries are underway and structural steel is being installed to position us for a successful ramp-up in 2027.

Looking ahead to the fourth quarter, we expect similar seasonal softness in Europe. Rising feedstock costs are expected to add further pressure on margins. In response, we are taking steps to significantly reduce fourth quarter production. We intend to idle the larger of the 2 crackers in Wesseling, Germany, OM6, for at least 40 days during November and December. As such, we are targeting operating rates for approximately 60% across the segment during the fourth quarter.

With that, I will turn the call over to Aaron.

Thank you, Kim. Please turn to Slide 14 as we look at the Intermediates and Derivatives segment. In the third quarter, segment EBITDA sequentially increased to $303 million as improved margins for Oxyfuels were partially offset by planned maintenance downtime at our La Porte acetyls assets. Oxyfuels margins were supported by planned and unplanned outages that reduced the supply of high octane gasoline blend stocks in the Atlantic Basin. Our Bayport facility had a 3-week unplanned outage related to a third-party supplier, impacting EBITDA by approximately $15 million, while other notable outages included competitors along the Gulf Coast and in Western Africa.

As a result of our downtime, LYB operating rates across the segment fell 5 percentage points short of our goal of 80% rates for the third quarter. Styrene margins normalized following second quarter supply disruptions across the industry. In September, we began a planned turnaround of our acetyls assets that will continue into the fourth quarter. The turnaround will support the first steps of our catalyst conversion initiative aimed at improving margins and productivity while reducing our reliance on costly precious metals. As we navigate the cycle, our focus on operational excellence continues to deliver results.

In addition to executing on the La Porte turnaround, we recently achieved a milestone with our Channelview PO/TBA facility exceeding benchmark production rates during the quarter, reflecting focused execution and reliability across the site. Moving into the fourth quarter, we expect oxyfuels margins to moderate as typical year-end trends take hold in both gasoline and butane prices, although perhaps not as pronounced as in previous years. As part of our work to manage inventories, we will idle one of our PO/SM units in Channelview at the beginning of November for approximately 40 days. With this additional downtime, we expect to operate our I&D assets at a weighted average rate of approximately 75% during the fourth quarter.

With that, I will turn the call over to Torkel.

Thank you, Aaron. Please turn to Slide 15 as we review results for the Advanced Polymer Solutions segment. Third quarter EBITDA was $47 million as our cost discipline supported margin improvement to overcome headwinds in automotive markets. Global automotive production volumes declined as OEMs experienced typical downtime in the third quarter, and our volumes slightly declined due to lower demand from customers in the construction and electronics industries. EBITDA for the first 9 months of 2025 exceeded full year results for 2023 or 2024 clearly demonstrating the excellent progress the APS team is making to transform the business despite the challenging market environment.

Looking ahead, we expect near-term demand to remain soft across key sectors and regions. Pricing pressures are partially offsetting the benefits of fixed cost reductions achieved through our cash improvement plan. The slightly challenging market backdrop, we remain laser focused in our work to transform our APS segment to a customer-centric growth business. With a 75% improvement in our Net Promoter Score with customers since 2023 and having been recognized with supplier excellence awards by customers like Toyota, Nissan and Stellantis amongst others, we continue to increase our growth funnel and improve our win rates to gain new project qualifications. We are proactively managing the business portfolio and remain confident that the work we are doing will profitably transform the APS business and enable us to achieve our long-term goals.

With that, I will return the call to Peter.

Thank you, Torkel. Please turn to Slide 16, and I will discuss the results for the Technology segment on behalf of Jim Seward. Third quarter EBITDA of $15 million was lower than the guidance we provided during our second quarter call. Licensing profitability decreased as revenues declined and market dynamics remain challenging with very low licensing activity and lower catalyst volumes. We see licensing activity has dropped nearly 2/3 since its cyclical peak in 2018, with current levels comparable to the lows seen in the early 2000s. Underscoring the significant slowdown of investments in global petrochemical capacity. In contrast, margins for our catalyst increased on sales mix improvements. .

In the fourth quarter, we expect improved profitability as previously sold licenses achieved revenue milestones. Additionally, catalyst demand is expected to improve from the unusually low level seen in the third quarter. As a result, we estimate that the fourth quarter Technology segment results will be similar to the first quarter results.

Let me share our views on our key regional and product markets on Slide 17. In line with earlier comments, we expect typical year-end seasonality and our actions to proactively reduce operating rates will create headwinds across most businesses, resulting in lower fourth quarter profitability. In the Americas, exports will continue to play a critical role in balancing markets. Despite a small uptick in fourth quarter ethane costs, the U.S. feedstock-based cost advantage is durable and will sustain regional competitiveness despite trade volatility.

As global trade flows adjust these structural advantages will continue to allow LYB to capture opportunities from cost advantaged U.S. production. Within Europe, fourth quarter demand is particularly weak and polyolefin pricing remains under pressure from increased imports from the Middle East and North America. Nonetheless, circularity initiatives continue to benefit from supportive regional regulations reinforcing consumer preferences for sustainable products in the region. In addition, accelerating capacity rationalizations will help to improve supply and demand balances across the industry.

In Asia, near-term capacity additions will continue to pressure regional supply and demand dynamics. That said, we remain cautiously optimistic as recent rationalization efforts in the region as well as China's anti-involution measures could provide partial offsets over the medium term. Within packaging markets, demand remains good even amid broader economic uncertainty has a shift towards value-driven consumption for packaged foods and other essential products sustained steady demand for our products. In building and construction markets, while lower interest rates are driving an increase in mortgage applications, affordability continues to constrain pent-up consumer demand for new and existing homes.

In automotive markets, forecasts have become less pessimistic in the industry as recent trade agreements are providing greater clarity and reducing uncertainty across the sector. Lastly, in oxyfuels, despite a strong October, the seasonal compression in gasoline crack spreads are expected to reduce profitability for the remainder of the year. However, we expect industry downtime will provide some modest support for margins relative to typical fourth quarter trends.

As we conclude today's call, I would like to acknowledge the resilience and discipline our team continues to demonstrate. Throughout the third quarter, we faced market headwinds and we will undoubtedly face more challenges before the year is done. But our team continues to make smart decisions while operating our assets safely and reliably to deliver on their commitments and provide value for customers. We continue to navigate the cycle with discipline, agility and a clear vision that will position LYB to emerge stronger and deliver lasting value for all our stakeholders. I am proud to lead this dedicated team as we continue taking strategic actions to reshape LYB, create value and position our company for sustainable success.

Now with that, we are pleased to take your questions.

[Operator Instructions] Our first question comes from the line of Patrick Cunningham with Citigroup.

I guess just on polyethylene, we seem to sit in a position of pretty resilient demand. You have some confidence exiting into next year on this growth trajectory. But with $65 crude net capacity addition is more likely to accelerate versus this year before closures become meaningful and then some trade flow uncertainty on top of that, how would you wait the likelihood of any sort of inflection point in supply and demand or underlying prices and margins into next year?

Thank you, Patrick. Let me make a couple of comments on your question, and then I will hand over to Kim. Rightfully so, yes, as we've shown in the presentation, you see that spike of additional capacity coming on stream in China during the next couple of years. But as we have also shown about 1 million tons of Italian capacity is about to disappear as well. That's our estimation. Of course, not all of that has been really communicated and decided yet. But we believe that, that will be a good balancing out of the overcapacity.

Please remind, I mean that a lot of that capacity in China is at the wrong side of the cash cost curve, as we said in the prepared remarks. So they will have continuously difficulties to compete as well. And therefore, if margins remain low, then they would run at minimum technical capacity. So one may not -- and I've said that before, look at nameplate capacities only one needs to look at economical feasible capacity based upon current market conditions.

We continue to see that polyethylene globally is very robust in terms of demand. That, of course, has to do with the different application that it goes in. Consumer packaging continues to be very robust. What we have seen also in the past during critical periods in time like, for example, a pandemic. We also see that there is more and more support by having lower inflation rates, lower interest rates that, of course, we would expect will lead to more demand in durable goods. One may expect during the next couple of years than the housing market would be more positive than what we have experienced in 2025. And the last thing that I want to point out is that, I mean government spending on infrastructure is one element that is driving demand, tech, artificial intelligence, data centers, utility construction for power, EV cars and that -- they all demand, I mean, applications. These are all applications that increased demand, not just for polyethylene but also for polypropylene.

Kim, anything you want to add?

I think the only thing that I would add to all those comments, Peter, as it relates to LyondellBasell and our ability for an inflection point in 2026 is going to be -- there's been new capacity -- derivative capacity brought online this year by one of our competitors. And there's another proposed set of assets coming online next year. So you're going to see a tightening in the ethylene market and that's going to likely improve change in margins as we think about '26.

And with regards to mean to the oil gas ratio, I mean, we continue to believe that the high oil gas ratio is sustainable. We've seen oil gas ratios in the range of 15% to 25%. It would actually have to go down to, let's say, around 6, 7 for the productions in the Gulf Coast to, let's say, have a flattening cost curve, and we don't see that happening. We don't see that happening. We're more looking at something in the range of 12% to 15% and the immediate for foreseeable future.

Our next question comes from the line of David Begleiter with Deutsche Bank.

Peter, in China, can you just talk to what -- discuss what's happened there? You have a unique perspective of getting your JV. So how -- why and how are these plants still running? Is it cheap Russian crude? Is it government support? Or are they not allowed to close? Maybe you can relate that to your own experience with the board JV.

Thank you, David. That allows me. I mean then also that question to again highlight what I said in the prepared remarks. I mean you said it rightfully, we have unique access to the Chinese markets also due to our licensing activities. And the licensing activities, they have dropped about 80% from its peak in 2019. So that's really what you see. I mean, that slow down, that cyclicality because, of course, on one hand side, there is no profitability in China. On the other hand side, you hear more and more in the next 5-year plan, discussions locally going on around ethylene and related projects, the burden, I mean, to get the approval from Central NDRC is much higher than eventually it has been by local NDRC in the past.

If you look at our joint venture, we are running at technical minimum capacity if you look at -- and we are in first quartile, lowest cost in China. If you compare that to the others, why are they running a minimum technical capacity and not shutting down? I think it continues to be mainly because of safeguarding employments. But everybody knows and everybody talks about the anti-involution measures. And even if it's still early, and we don't have the full visibility. You saw the chart in our presentation, we do expect and hear that on the ground that there will be quite some closures that will flow out of that anti-involution. So our level of confidence from quarter-to-quarter is increasing that there will be capacity shutdowns in China.

Kim?

I think the only thing that I would add is just this week we announced at our JV that we have added ethane to the feed slate. So we're looking to improve our cost position even more.

Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt.

Great. Can you talk a little bit about the security of the dividend? I think the current yield is up to 12%. And despite the strong cash conversion this year, your free cash flow appears pretty unlikely to cover the dividend. So how are you thinking about this? And with the cash that you spent on the dividend, would that be better served in areas like shoring up the balance sheet or maintenance CapEx or things like that?

Thank you, Matthew. And of course, I mean, we were expecting that someone would ask that question. So thank you for asking the question. Let me highlight, I mean 4 points on our thoughts on our dividends. First of all, as you all know, we were very careful in how we were managing our cash during the last couple of years. And I know some people have asked us questions why are we keeping that cushion. Today, I'm happy that we did took those -- take those decisions in the past. So we started 2025 with a cash balance that provides us a cushion. It's a robust cash balance of $3.4 billion. which has been much higher than the cash balance that we had in the past, which was more around $1.7 billion. That's the first point.

Second point, we continue to take a balanced approach to capital allocation especially as we are navigating the cycle. We reminded you, again, we are on track on the cash improvement plan. $1.1 billion at least until the end of 2026, the first tranche of $600 million until the end of 2025, we said well on track. And we also communicated today when we looked into more details on our CapEx for next year that we could further reduce our CapEx from $1.4 billion to $1.2 billion again in 2026.

The third point is our investment-grade balance sheet remains, of course, the foundation of our capital allocation strategy. You all know, I mean that investment grade makes it cheaper to do business, avoids -- I mean having to make dramatic changes to our strategy, our portfolio to address, I mean, the balance sheet and we continue to have very proactive dialogues with credit agencies. We are also fully aware of their expectations and the sensitivities. So also as part, you saw our actions of navigating the cycle. We proactively renegotiated the net debt-to-EBITDA covenants on our RCF in September from 3.5 notable to 4.5 turns and that through 2027. And that's, of course, also -- these are activities that build trust with the rating agencies.

And the last point I want to make is safe and reliable operations at sustaining CapEx remains a core priority for us. So we are not making -- we're not short cutting. We're not putting safety and reliability in jeopardy. But as we have transformed already our portfolio, it means that also moving forward, we can do with less safe and reliability so sustaining CapEx.

And the last element is progressing, as we said, very well in that portfolio management, and that is the exit of the 4 sites, the sale that we have as said, with very good involvements of equity in the entire process. They are very committed. So therefore, we continue to believe that we will be able to close in the first half of 2026. And that, of course, will continue to free up CapEx for LYB.

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Your CapEx number for next year that you project $1.2 billion is below your depreciation and amortization. Are there any growth projects that are left in the capital budget for next year? And if there are, which ones? And for Agustine, do you expect your accounts payable to be very different in the fourth quarter than they were in the third quarter?

Thank you, Jeff, for your question. Let me take the first part, and then I will hand over to Agustin to take the second part. If you remember well, I mean, then we have been investing quite above, I mean, depreciation during the last at least 4 or 5 years. And that gives us opportunities because we are not fully leveraging but those opportunities yet because of where the market today is. Let me remind you that we have our Hyperzone that was standing for $170 million per year improvements. We are ramping it up. We do some additional smaller investments in Hyperzone so to make it very further reliable. We do the investment in acetyls reliability and the debottlenecking, the new technology, standing for $75 million. All of that, of course, mid-cycle margins. .

Our MRT-1 continued to progress, which is standing for about $25 million plus per year in EBITDA. MRT-2, we have progressed it up to a point where we said, okay, we will see, I mean, how the market further develops but we can activate it relatively quickly if the market develops further. And in addition to that, if we also -- if it fits from a cash, I mean perspective. PO/TBA, as you know, was standing for $450 million mid-cycle margin. We've worked, I mean, on capacity creep which adds another $50 million on top of that $450 million. We've done productivity improvements in our PO/SM, $25 million. APS even if the market is very challenging, we continue to make very good progress. We have invested in net bad. We're still working on the second phase.

And remember, we've launched, I mean, about 3 years ago, our value enhancement program. We're well on track to exceed, I mean, the $1 billion exit run rate mid-cycle margin target for the end of 2025. Of that, a real contribution is about $700 million, so what we call in periods is $ 700 million up to the end of this year. So the delta between the $1.15 billion and the $700 million, which is about $450 million is something we did not capture yet on one hand side because of future potential growth. And on the other hand side, because we are substantially below mid-cycle margins. So if you add it all up, I think we have some -- quite some impressive growth opportunities as the markets continue -- as the market returns back, let's say, and we hope that, that will happen already in 2026, but definitely 2027, '28 and beyond.

So with that, Agustin the second part of the question?

Sure, Jeff. Thank you for the question. Happy to answer. I think it's just consistent with the remarks and comments on operating rates that we're expecting for Q4. It is also normal that our payables will be lower, probably in the neighborhood 40-50 lower versus what you saw in Q3. But I would also highlight that we are expecting a working capital release in Q4 close to $1 billion. This is consistent also with the cash improvement plan with all the very good measures we're taking throughout the year and not dissimilar actually to what we did during fourth quarter of 2024. So we know how to do this, and we will again be very focused on cash generation.

Our next question comes from the line of John Roberts with Mizuho Securities.

When you sell or out-license technology, the customer's plant starts up several years later, and you noted the low activity currently. But you have your catalyst sales kind of lag that. When do your catalyst sales peak? And more importantly, when is the drop-off than in the new start-ups of the companies that you've licensed -- out-licensed to?

Thank you, John. Very good detailed question. I mean, normally, the catalyst sale, I wouldn't say really peaks and then it drops down. It's more dependent on the run rates of the assets. So what you see today is assets that are buying our catalysts like, for example, in China, when they run at minimum technical capacity, then of course, the sales of catalysts are slower because you don't consume the catalyst as fast. But as if operating rates would go up or for example, if new investments and common stream, then you would continue to see that our catalyst sale is going up. We've done in the last couple of years. I didn't mention that when answering the question of Jeff. But of course, during the last couple of years, we had done some investments on debottlenecking also on the catalyst side to be prepared if the market picks up, then we would be able, of course, also to then produce and sell those catalysts.

Our next question comes from the line of Frank Mitsch with Fermium Research.

Happy Halloween, everyone. Peter, a comment on a question, my comment or I guess to summarize your thoughtful response on the dividend is that yes, we will pay it in the near term. Am I interpreting that correctly? And then secondly, from a high-level perspective, looking at the fourth quarter, you outlined $110 million sequential headwinds from turnarounds obviously, we'll layer in some seasonality that's typical in the fourth quarter. Are there any other material puts and takes that we should be aware of looking at the fourth quarter relative to the third quarter?

Thank you, Frank, and thanks for wishing us a nice Halloween. I'm not going to tell you if we are having a Halloween costumes here in our room. To your first question, again, as I said, on the 4 points and what you see from our actions in navigating the cycle, we have that very sharp focus on cash conversion. We have our cash improvement plan. We're proceeding very well in that. We have a strong balance sheet to start -- that we have started with, and it continues to be in very good shape. I know, I mean, from our history, I mean, this is a fantastic team that is really focused, I mean, on execution.

The team has shown in the past that we are excellent in execution. So from that perspective, that's what we are doing. I mean control the controllables, focus on the execution and make sure that we continue to make progress. So I don't know what else I mean that I should say, I mean, to that, I'm very pleased. Yes, when I see, I mean, how aligned everybody in the company is and how everybody is doing its best diligently by controlling the controllables.

To your second question, Q4 outlook, you're right. I mean we -- when we looked at the market environment, and we had some work, I mean, that we wanted to do in Wesseling at OM6 some work that we had to do, I mean, in Matagorda and then also looking at acetyls and PO/SM and I&D. So we said let's take the opportunity. Now let's do it now in Q4 instead of waiting until, I don't know, maybe the second half of 2026. So then we are ready, and we don't have a lot of these downtimes with its respective impact on the bottom line for 2026. So that's a decision that we took and assets you rightfully recalled, I mean, what that delta is compared to me to Q3.

We have polyethylene price increases on the table. We, of course, continue to look at everything what is happening in the market. I mean, polyethylene has grown. Exports continue to be robust based upon low delivered cost positions that manufacturers, including ourselves, have in the Gulf Coast. So we will continue to, of course, push, I mean, for price increases because we believe it is appropriate that polyethylene prices go up. Too early to say if we will be successful, but it gets a lot of attention, of course. Maybe I want to hand over also to Aaron to talk a little bit about MTBE raw material margins seasonality to give a little bit more color on that because October was very strong in his area.

Yes. Thanks, Peter. I appreciate the opportunity to talk a little bit about MTBE. So it has, to your point, a really good start to the quarter with premiums carrying over from September into October. As I mentioned in my planned remarks, much of the third quarter benefit was from both planned and unplanned outages, not only in the U.S. Gulf Coast, but in the Atlantic Basin. And as we've seen those premiums carry over into October, I just want to remind everyone that 20% of U.S. Gulf Coast capacity remains off-line and should be back in operation maybe second half of November. So it's still possible that we see positive premiums carry over into November. And what we would usually say is a seasonally low quarter for oxyfuels margins.

And many have a look, I mean, also Europe, I mean, diesel cracks are very strong, with everything that is happening around Russia. Gasoline is performing better. I'll point you to our gasoline inventories. They are materially lower than normally at that point in the cycle. And we are not done yet with our fixed cost reductions in our cash improvement plan. We've delivered very well in Q3 but of course, you will see more that is flowing in Q4 as well. So if I take everything together, yes, I mean, there is an impact that we have from that -- those decisions on the increased downtime in Q4, very deliberate decisions, do the turnarounds, do the maintenance work now instead of postponing it or doing it as normally we would probably say we would do it in 2026 somewhere.

Our next question comes from the line of Matt DeYoe with Bank of America.

This is Salvator Tiano filling in for Matt. I wanted to ask about the slide where you show car already happened and projected ethylene capacity closures. And firstly, can you discuss how many of these have already happened in prior years before 2024 because I believe the notes as this goes back to 2020? And for both ethylene as well as polyethylene, can you talk about where operating rates are today. So essentially, how important would the incremental closures be from today rather than just on the 2020 to 2024 period?

Let me give you the first shot, Matt. Thank you for your question. If I look at the closures and the announcements that have been made so far, it's somewhere, let's say, in the ballpark of 9.5 million tonnes of ethylene capacity. So there's still things that have been communicated that have been talked about that we would expect to see to come up with that 21 million tonnes. And again, on the 21 million tonnes, especially also on regions where it's -- these assets are not very competitive like in Europe, for example. Even if there is 20% of ethylene capacity that we expect to disappear based upon the announcements, we don't believe that we are at the end of all the announcement yet. We still expect there will be more to come.

Yes. I think the simple answer, and the reason that we created this chart, the way that we did is so that you know what is closed today because so many people are announcing closures in the future and then there's this anticipation. So I will also go back to some of the comments that Peter made in his prepared remarks. You'll notice, for example, in China, we don't show any anticipated closures yet we all are hearing comments every day about anti-involution and what that will be and whether you believe the criteria about 300 kt plants and 20 years for some of the new evolving criteria that is being discussed in China now. You have the potential for another 4 million to 8 million metric tons that comes out there.

And then the last comment that I want to reiterate is this domino effect. A lot of these are ethylene cracker announcements. So now the feedstocks are coming out of these derivatives and industrial parks, and it leaves a lot of ambiguity around what's the steam provider going to do? What's the natural gas provider going to do? Is this still going to be an economic situation for all parties involved in the complex. So I do believe there's dominos that we will also see.

And I want to point out to your second question on operating rates. I mean, we need to differentiate. That's a key message that I had in one of the first questions because low-cost delivered assets are running at very high capacity at this point in time, because they are competitive. If you look at European capacities, if you look at Chinese capacities then there, I would say, yes, they are running at minimum technical capacity. So that may be 70%, 75% some of them minimum technical capacity if they don't have the flexibility as close to 80%.

But that's the scenario that you see unfolding during the entire year 2025, and that's what you would expect also in a market where supply and demand is not balanced is that the low-cost delivered capacities will continue to make good returns, create good cash flow and run at maximum capacity, whereby the other ones are either force the mean to consolidate to idle, to shut down or run at technical minimum capacity.

Our final question this morning will come from the line of Vincent Andrews with Morgan Stanley.

This is Turner Hinrichs on for Vincent. I'm wondering if you all can help provide some thoughts on the bridge to 2026 in I&D. Specifically, there are some items that we may need to level set for including sizable U.S. propylene oxide closure, potential headwinds to octane cracks from a refinery in Nigeria, assuming the rates return to high levels. Reversal of this year's [ cetyls ] turnarounds for you all and U.S. Gulf Coast competitor capacity coming back online and MTBE. It'd be great to hear some thoughts.

Yes. Thank you for the final question. So maybe I'll point to a few different comments and we have reason for optimism as we look to 2026. I'll start with PO rationalization, to your point, 10% of global capacity has been announced to come off-line in the last 12 months. And so in the primary regions that we serve, we're already seeing market share improvement, particularly in the U.S. and in Europe. You spoke to asset deals. That's an investment that we've been waiting to make really at this level since COVID. We've been pushing capital out and waiting to invest in the asset.

But the investment that we're making, we do expect it not only to show in terms of improvement from reliability, but we'll also see additional capacity coming out of our acid unit next year. I already mentioned in my planned remarks from a PO/TBA capacity perspective, we've demonstrated that we can run beyond benchmark rates, a little less than 10%. And remember, that's CapEx free capacity. So I'd say that's -- combine all 3 of those, and that's the reason why I look to 2026 and have some optimism.

Thank you. That concludes our question-and-answer session. I'll turn the floor back to Mr. Vanacker for any final comments.

Thank you again for all your thoughts, for questions. Let me make some final comments. Our sharp focus on cash conversion, our cash improvement plan and our strong balance sheet is allowing us to successfully navigate through this prolonged downturn, and our execution track record clearly demonstrates our progress. We have captured some of the value from our past investments in the new PO/TBA facility, Hyperzone PE, the [ net bad ] joint venture and our value enhancement program. These investments will provide further upside as markets recover. In addition, with our ongoing investments in MoReTec 1 and our acetyls technology, LYB is well positioned to capture market growth and create additional durable long-term value for our shareholders.

Over the past 3.5 years, we've actively managed our business portfolio and we are progressing well with the execution of our European strategic assessment. Upon completion, we will have established a much more focused industry-leading low-cost model. We're finding some tailwinds for 2026 and 2027. Monetary policy is becoming more accommodative for the industrial economy. And LYB is prepared. After several years of heavy maintenance, we expect next year, we will have less downtime and our smaller footprint will require less sustaining capital to support our results over '26 and '27. We hope that you all have a great weekend and a great Halloween. Stay well and stay safe. Thank you.

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