LyondellBasell Industries N.V. Q3 FY2025 Earnings Call

Hello, and welcome to the LyondellBasell Teleconference. At LyondellBasell's request, this conference is being recorded for instant replay purposes. I would now like to turn the conference over to Mr. David Kinney, Head of Investor Relations. 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 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 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 & 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's 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 result. 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 multi-year 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 in 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 positions 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 a 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 or 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, urbanization and a rising middle class. Some observers questioned whether the flatter growth rates 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 lead in per capita consumption aligned with established demand patterns. Meanwhile, emerging regions such as India and Africa provide 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 be attributed 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 toward 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 are 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 all 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-effective 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 2.5 times 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 cost 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 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.

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. Our 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 favorable margins and good demand. Although industry margins declined, LYB integrated polyethylene margins improved by approximately 23% 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.

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.

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. Despite the challenging market backdrop, we remain laser-focused in our work to transform our APS segment into 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 two-thirds 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 achieve revenue milestones. Additionally, catalyst demand is expected to improve from the unusually low levels 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 as a shift towards value-driven consumption for packaged foods and other essential products sustains 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 is 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're pleased to take your questions.

Our first question comes from Patrick Cunningham with Citigroup.

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

Thank you, Patrick. I'd like to address your question briefly before passing it to Kim. As we indicated in our presentation, there is an increase in capacity in China expected in the next few years. However, we anticipate that around 21 million tonnes of ethylene capacity will also be phased out. While not all details have been finalized, we believe this will help balance the surplus capacity. It's important to remember that much of the capacity in China is not competitive due to high cash costs, which we mentioned earlier. This means that if margins stay low, production may operate at minimal technical capacity. It’s crucial to evaluate not just the total capacity, but the economically viable capacity based on current market conditions. We continue to observe strong global demand for polyethylene, driven by various applications. Consumer packaging remains resilient, as we've seen during past challenging times, such as the pandemic. Additionally, lower inflation and interest rates may boost demand for durable goods. We can expect the housing market to improve in the coming years compared to what we've seen recently. Lastly, increased government spending on infrastructure is a significant factor driving demand. Innovations in technology, artificial intelligence, data centers, utility construction for energy, and electric vehicles all contribute to rising demand, not just for polyethylene, but also for polypropylene. Kim, do you have anything to add?

I would like to add that regarding LyondellBasell and the potential for a shift in 2026, new derivative capacity has been introduced this year by one of our competitors, and there are additional assets expected to come online next year. As a result, we can anticipate a tightening in the ethylene market, which is likely to enhance chain margins as we look towards 2026.

And with regards, I mean, to the oil and 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're more looking at something in the range of 12% to 15% in the immediate foreseeable future.

Peter, can you discuss what's happening in China? You have a unique perspective with your joint venture. Why and how are these plants still operating? Is it due to inexpensive Russian crude, government support, or restrictions on shutting down? Perhaps you could relate this to your own experience with the Ningbo joint venture.

Thank you, David. This allows me to emphasize what I mentioned in my prepared remarks. You accurately pointed out our unique access to the Chinese markets, which is partly due to our licensing activities. However, those activities have declined by about 80% since their peak in 2019, which explains the slowdown we're experiencing. There is currently no profitability in China, and discussions about Italian-related projects in the upcoming 5-year plan reveal that the requirements for approval from the central NDRC have become significantly stricter compared to what local NDRCs used to enforce. Our joint venture is operating at minimum technical capacity, and we maintain one of the lowest cost structures in China. Other plants are also functioning at minimal capacity rather than shutting down, mainly to protect jobs. There is widespread awareness of the anti-involution measures, and while it's too early to have complete visibility, as shown in our presentation, we anticipate that these measures will lead to several closures. Therefore, our confidence in the likelihood of capacity shutdowns in China is growing with each passing quarter. 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.

Could 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 spend 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, for your question. I want to share four important points regarding our dividends. First, we have been very cautious in managing our cash over the past few years, which some might question, but I'm glad we made those decisions. We began 2025 with a solid cash balance of $3.4 billion, significantly higher than the $1.6 billion to $1.7 billion we had previously. Second, we are maintaining a balanced approach to capital allocation while navigating the current cycle. We are on track with our cash improvement plan, targeting at least $1.1 billion by the end of 2026, including a first phase of $600 million by the end of 2025. Additionally, we have indicated that we may lower our CapEx from $1.4 billion to $1.2 billion in 2026. Third, our investment-grade balance sheet is central to our capital allocation strategy, enabling us to conduct business more affordably and avoid major strategic shifts. We are actively engaging with credit agencies to address their expectations and manage sensitivities. Recently, we renegotiated the net debt-to-EBITDA covenants on our revolving credit facility from 3.5 to 4.5 turns through 2027, which helps build trust with the rating agencies. Finally, maintaining safe and reliable operations and sustaining CapEx is a top priority for us. We're not compromising safety and reliability, and our portfolio transformation allows us to reduce sustaining CapEx going forward. We are also making good progress in our portfolio management, including the exit of four sites. We have strong support from AEQUITA in this process and believe we can close this in the first half of 2026, which will further free up CapEx for our company.

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 Agustin, do you expect your accounts payable to be very different in the fourth quarter than they were in the third quarter?

Thank you for your question, Jeff. I'll address the first part and then pass it to Agustin for the second part. As you may recall, we have been investing significantly above our depreciation for the past four to five years. This positions us well as we have yet to fully leverage those opportunities given the current market conditions. Our Hyperzone is expected to result in a $170 million annual improvement, and we are in the process of ramping it up. Additionally, we are making smaller investments to enhance Hyperzone's reliability, alongside investments in acetyls reliability and debottlenecking, which together represent an expected $75 million impact, all considering mid-cycle margins. Our MRT-1 is making steady progress and is projected to contribute over $25 million annually in EBITDA. For MRT-2, we have made advancements and are prepared to activate it quickly if the market develops favorably from a cash perspective. On the PO/TBA front, we anticipate mid-cycle margins of $450 million, supplemented by capacity increases that add another $50 million. We've also implemented productivity improvements in our PO/SM unit, contributing an additional $25 million. Despite challenging market conditions, APS continues to make strong progress. Our investment in NATPET is ongoing, with the second phase in development. Remember, we initiated our value enhancement program around three years ago, and we are on track to surpass our $1 billion exit run rate mid-cycle margin target by the end of 2025. The real contribution is projected at around $700 million, which accounts for the in-period contribution up to the end of this year. The difference between the $1.15 billion target and the $700 million realization, approximately $450 million, reflects both future growth potential and the fact that we are still significantly below mid-cycle margins. Overall, this indicates impressive growth opportunities as the market improves, which we hope will begin in 2026 and certainly extend into 2027, 2028, and beyond. Now, Agustin, please address 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 of 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 good measures we're taking throughout the year and not dissimilar actually to what we did during the fourth quarter of 2024. So we know how to do this, and we will again be very focused on cash generation.

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 then 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 it 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 come on 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, some 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.

Peter, a comment and 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 headwind 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 I appreciate the Halloween wishes. I won’t disclose whether we have costumes in our room. To your first question, regarding our focus on cash conversion and the actions we are taking, we are progressing well with our cash improvement plan. Our balance sheet remains strong. Historically, our team has demonstrated excellent execution, and that focus continues. We are controlling what we can, emphasizing execution, and ensuring consistent progress. I am pleased with how aligned everyone is within the company, and the diligence shown in managing what we can control. Regarding your second question on the Q4 outlook, you're correct. We assessed the market environment and identified some necessary work at Wessling and Matagorda, as well as in acetyls and PO/SM and I&D. We decided to take the opportunity to address these in Q4 rather than delaying until the second half of 2026. This strategy helps us avoid downtime affecting our bottom line in 2026. You rightly noted the differences compared to Q3. We are focused on polyethylene price increases and monitoring market developments closely. PE has seen growth, and exports remain strong due to competitive low delivery costs for manufacturers, including us, in the Gulf Coast. We will pursue price increases, believing that they are warranted. It’s too early to determine our success, but it is a priority. I’ll also hand it over to Aaron to provide more insights on MTBE raw material margins and seasonality, as October was particularly strong in this area.

Yes. Thanks, Peter. I appreciate the opportunity to talk a little bit about MTBE. So it has, to your point, been 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 offline and should be back in operation maybe in the second half of November. So it's still possible that we see positive premiums carryover into November and what we would usually say is a seasonally low quarter for oxyfuels margins.

Yes. And I mean have a look, I mean, also at Europe, I mean, diesel cracks are very strong with everything that is happening around Russia. Gasoline is performing better. I would point you to our gasoline inventories. They are materially lower than normally at that point in the cycle. And we're 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 those decisions on the increased downtime in Q4, very deliberate decisions, to do the turnarounds, to 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.

This is Salvator Tiano filling in for Matt. I want to ask about the slide where you show already happened in 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 say 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 focus on the 2020 to 2024 period?

Let me take the first question, thank you for asking. Looking at the closures and announcements made so far, it's around 9.5 million tonnes of ethylene capacity. There are still discussions and communications that we anticipate will contribute to that 21 million tonnes. Regarding the 21 million tonnes, especially in regions where these assets are less competitive, such as Europe, even if we expect about 20% of ethylene capacity to disappear based on the announcements, we don't think we've seen the last of these announcements just yet. We believe there will be more to come. Kim?

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 or 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 dominoes 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 is 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 forced to consolidate or idle, shut down or run at technical minimum capacity.

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 a 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 acetyls turnarounds for you all and U.S. Gulf Coast competitor capacity coming back online in MTBE. It'd be great to hear some thoughts.

Thank you for your question. I have a few comments that give us reason for optimism as we look toward 2026. To start with, 10% of global capacity has been announced to come offline in the last 12 months, which is leading to market share improvement in our primary regions, especially in the U.S. and Europe. Regarding acetyls, we have been waiting to invest at this level since COVID, and we expect that our investment will improve reliability and enhance capacity from our acid unit next year. Additionally, from a capacity perspective for propylene oxide and TBA, we have shown that we can operate beyond benchmark rates by nearly 10%, and this is without any capital expenditures. Considering all these factors, I remain optimistic about 2026.

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 thoughtful 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've captured some of the value from our past investments in the new PO/TBA facility, Hyperzone PE, the NATPET 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. And 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.