Lyondell – Momentum Turning Into 2017 So Far

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Graham Copley / Nick Lipinski

203.901.1629/203.989.0412

gcopley@/nlipinski@ssrllc.com

February 3rd, 2017

Lyondell – Momentum Turning Into 2017 So Far

  • The biggest risk to our positive LYB and ethylene position has always been that we believe the stock is discounting lower earnings than consensus estimates, and that estimates for 2017 were probably too high.
  • Today’s earnings release confirms the current more positive momentum which we still believe is not reflected in the stock price and gives us more confidence that annual estimates could be realistic.
    • While we would not be surprised to see Q1 estimates come down, the increased volume of ethylene that LYB has in 2017 (because of lack of shutdowns and because of expansions) as well as further share count reductions could and should offset lower overall ethylene margins as long as the declines in margin are not dramatic.
      • Currently margins are moving up, despite LYB pointing to a decrease in January versus the Q4 average. January is up versus December.
    • LYB states that its ethylene is fully contracted through 2019, which had been a concern given some of the start-ups and LYB’s expansions.
  • LYB confirms industry views that 2017 could be balanced to tight for ethylene – both IHS and Woodmac have become more positive over the course of the last 6 weeks and with ethylene pricing up in the US and ethane pricing down, margins going into February look good.
  • Note that everything else at LYB has positive momentum:
    • Polyurethane is improving
    • Methanol is improving
    • Refining is improving
  • Share repurchases continue and the dividend is high.
  • There may be some weakness post earnings and if Q1 comes down but we would buy more on material weakness.

Exhibit 1

Source: Capital IQ and SSR Analysis

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