LyondellBasell has turned its attention to its European polyolefins operations as part of its plan to restructure and deal with a $23bn debt burden.The Netherlands-based company filed for Chapter 11 on 6 January and although this covered US operations and not those in Europe, its asset review is taking in global operations so that it can meet a restructuring target of cutting $700m in fixed costs by the end of 2010.
The group is midway through developing its reorganization plan, and has a target date of mid-August to present the plan, said Vaughn Deasy, who is senior vice president of base chemicals and PE.
North American operations have taken the brunt of shutdowns up to now and are unlikely to feature in the August announcement, said Deasy in a 23 June interview at NPE2009. “In North America, we think we’re done,” he said.
There are a lot of challenges in reviewing operations at its various European locations in 13 countries and Deasy did not name specific sites that would be closed. - We are currently spending a lot of time on what should be done, and what could be done in Europe - he said.
LyondellBasell is an integrated olefins/polyolefins group and in North America 75% of its ethylene production is used for its own PE production. But in Europe the situation is different and its ethylene production does not cover all its PE needs.
One problem is what Deasy calls the “pocketed” nature of European regional production, which adds complexity to decisions about which plants will contribute in the longer term and which may need to close because of their cost position.
LyondellBasell’s capital structure will look very different following its reorganisation and while Deasy could not reveal details of what will be announced in August, there will be “very little, if any, asset sales - he said.
- Many people have speculated about a possible sale of assets. But given that market values are so low today, we don’t see that as an attractive alternative to generate value.
The company believes value for the company lies in holding together a global entity and Deasy said LyondellBasell has support for that view from its financial creditors.
There is a lot of work for the senior LyondellBasell management team to do, but they are meeting all deadlines in the restructuring process that the company hopes will lead to its emergence from Chapter 11 by its target date of mid-December 2009.
In North America, the company is taking advantage of the ability that Chapter 11 allows for it to review contracts. LyondellBasell has more than 25,000 contracts in just the United States. Deasy said the economic situation means it is a good time for renegotiating contracts with its suppliers, and “each and every one is being evaluated.
While corporate matters are taking up a lot of management time, LyondellBasell is still going about its day-to-day business of trying to make a profit from polyolefins supply.
Deasy noted it has been successful in raising prices this year. This has been important for LyondellBasell in rebuilding its margins after the precipitous price falls of end-2008. An interesting aspect of the polyolefins price trough, according to Deasy, is that North America’s crackers are the second lowest cost, behind the Middle East and ahead of Europe and Asia. He estimated North American naphtha cracker costs to be roughly 10 cents per pound below European and Asian crackers.
New polyolefins capacity coming on stream in Middle East countries will have an impact, of course. - We knew the storm was coming, and now we’re in it - said Deasy.
But he was confident that penetration of Middle East commodity polyolefins in the North American market would be manageable. is still expecting to export 10% of its capacity in three years’ time, and 5-10% in five to 10 years’ time.
