Executive Summary / Key Takeaways

• Portfolio Transformation for Resilience: LyondellBasell is aggressively reshaping its global asset base, exiting low-margin businesses like refining and certain European operations, while strategically investing in cost-advantaged regions (Americas, Middle East) and high-growth circular and low-carbon solutions (CLCS) to enhance long-term profitability and reduce cyclical exposure.
• Technological Edge in Sustainability: Proprietary technologies like MoReTec for advanced chemical recycling and innovative VAM catalysts provide a significant competitive moat, offering superior yields, lower carbon footprints, and cost advantages that are critical for capturing value in the burgeoning circular plastics market.
• Disciplined Capital Allocation Amidst Headwinds: Despite a prolonged industry downturn, LYB maintains a robust balance sheet and strong liquidity, enabling disciplined capital allocation that prioritizes sustaining investments, high-return growth projects (e.g., Flex-2), and consistent shareholder returns through a secure and growing dividend.
• Cash Flow Optimization and Efficiency: The company's Cash Improvement Plan (CIP) targets over $1.1 billion in incremental cash flow through 2025-2026 via working capital reductions, fixed cost savings, and CapEx deferrals, demonstrating a sharp focus on cash conversion and operational efficiency to navigate market volatility.
• Outlook for Gradual Recovery: While near-term market conditions remain challenging, particularly in Europe and certain durable goods sectors, LYB anticipates a gradual recovery driven by improving North American polyolefin demand, ongoing European capacity rationalization, and the long-term structural demand for circular plastics, positioning it for significant upside when the cycle inevitably rebounds.

A Chemical Giant's Strategic Evolution

LyondellBasell Industries N.V. (LYB) stands as a global leader in the chemical and polymer industry, producing essential materials that underpin everyday life, from food packaging to automotive components. Incorporated in 2009, the company has historically leveraged its scale and integrated operations to maintain a strong market presence. However, recognizing the evolving dynamics of the petrochemical landscape, LYB embarked on a significant strategic transformation following its Capital Markets Day in March 2023. This strategy is built on three core pillars: growing and upgrading its core businesses, establishing a profitable Circular & Low Carbon Solutions (CLCS) segment, and enhancing overall performance and culture.

The current period represents what management describes as the "deepest and longest downturn" in the industry, characterized by sluggish global growth, particularly in China, structurally higher energy costs, and volatile trade policies. In response, LYB is proactively reshaping its portfolio to emerge stronger and more resilient. This involves divesting non-core, low-margin assets and strategically investing in high-return opportunities that align with future market demands.

Technological Moats and Innovation Driving Future Value

Central to LyondellBasell's long-term strategy and competitive differentiation is its commitment to technological innovation, particularly in the burgeoning circular economy. The company's proprietary technologies provide a significant competitive moat, enabling it to produce high-value products with superior performance and a reduced environmental footprint.

The flagship of this innovation is the MoReTec (Molecular Recycling Technology). This advanced chemical catalytic recycling technology is designed to convert hard-to-recycle mixed plastic waste into cracker feedstocks. The tangible benefits are substantial: MoReTec boasts a plastic-to-plastic yield of more than 80%, significantly higher than many alternative recycling methods. It also features low energy intensity, the ability to utilize 100% renewable electricity, and a carbon footprint that is half that of fossil-based feedstocks. The "so what" for investors is clear: this technology enables LYB to produce "circular polymers that are indistinguishable from fossil-based polymers" while commanding attractive margins due to strong demand and limited supply. The construction of the 50,000 metric tons per year MoReTec-1 facility in Wesseling, Germany, commenced in September 2024 and is slated for a 2026 start-up, supported by a €40 million grant from the EU Innovation Fund. A larger 100,000 tonnes MoReTec-2 unit is planned for the former Houston refinery site, leveraging existing hydrotreaters, with a final investment decision (FID) deferred until market conditions improve and off-take commitments from brand owners are secured. This modular investment approach allows for capital efficiency and responsiveness to market signals.

Beyond recycling, LYB is also innovating in its core chemical processes. The company is transitioning its vinyl acetate monomer (VAM) production to an innovative proprietary catalyst. This new catalyst is expected to improve margins and reduce the utilization of costly precious metals. The implementation of this technology at the La Porte VAM unit will occur in stages through 2028, beginning with a turnaround in late 2025. This technological upgrade not only enhances operational efficiency but also contributes to the company's Cash Improvement Plan through the monetization of excess precious metals inventories, which contributed at least $50 million in 2025.

These technological advancements are not merely R&D projects; they are integral to LYB's strategy to build a profitable CLCS business, targeting $1 billion of incremental EBITDA from 2 million tons of annual volumes by 2030. The company's CLCS volumes already increased by 65% in 2024 to over 200,000 tons, demonstrating the early success and market acceptance of these differentiated solutions.

Strategic Portfolio Reshaping and Operational Performance

LyondellBasell's strategic transformation is evident in its decisive portfolio actions. In February 2025, the company ceased operations at its Houston refinery, exiting a volatile, low-margin business. This move is expected to yield a net cash benefit of approximately $175 million in 2025, primarily from working capital release. The site is being repurposed as a potential hub for CLCS projects, including MoReTec-2 and facilities for renewable and bio-based feedstocks, leveraging existing infrastructure.

Further optimizing its European footprint, LYB announced in June 2025 an agreement to sell select olefins and polyolefins assets in France, Germany, the UK, and Spain. This sale, expected to close in H1 2026, is part of a broader European strategic review aimed at rightsizing the asset base and focusing on sustainable solutions. While the sale is expected to result in a non-cash loss of $700-900 million upon closing, it will reduce recurring CapEx and other costs in the region, aligning the European operations with the strategy of focusing on recycled and renewable feedstocks for local markets. This follows the permanent closure of the Dutch PO joint venture with Covestro (1COV) in March 2025, incurring $117 million in shutdown costs in Q1 2025.

Complementing these exits, LYB is making targeted growth investments. The Final Investment Decision (FID) for the Flex-2 project in Q1 2025, though construction has been deferred, aims to convert ethylene into higher-value propylene, reducing LYB's net long ethylene and net short propylene positions in North America. This project, with an estimated mid-teens IRR and $150 million annual EBITDA benefit post-startup, leverages LYB's cost-advantaged feedstock position. Additionally, a feedstock allocation in Saudi Arabia for a joint project with Sipchem (2310), potentially starting in 2031, positions LYB for growth in cost-advantaged Middle Eastern markets.

Financial Performance and Liquidity

LyondellBasell's financial performance in the first half of 2025 reflects the challenging market conditions and the ongoing strategic transformation. For the three months ended June 30, 2025, sales and other operating revenues were $7,658 million, down from $8,678 million in Q2 2024. Operating income for Q2 2025 was $285 million, a significant decrease from $999 million in Q2 2024. Net income attributable to company shareholders stood at $114 million ($0.34 diluted EPS) in Q2 2025, compared to $923 million ($2.82 diluted EPS) in Q2 2024.

For the six months ended June 30, 2025, sales were $15,335 million (down from $16,982 million in H1 2024), and net income attributable to company shareholders was $289 million ($0.88 diluted EPS), a sharp decline from $1,394 million ($4.25 diluted EPS) in H1 2024. The effective tax rate for H1 2025 was 37.1%, notably higher than 20.8% in H1 2024, primarily due to the discrete tax recognition of foreign exchange gains and losses with lower pre-tax earnings.

Despite the earnings pressure, LYB's cash flow management remains a core strength. While cash used in operating activities for H1 2025 was $228 million (compared to $1,234 million provided in H1 2024), the second quarter alone saw positive cash flow from operations of $359 million, a substantial sequential improvement. This was supported by a $117 million working capital release. The company ended Q2 2025 with $1.7 billion in cash and cash equivalents, exceeding its target cash balance of $1.5 billion. Total debt, including current maturities, was $11,825 million as of June 30, 2025, with $4,650 million in unused credit facility availability, underscoring a robust liquidity position and favorable debt maturity profile.

The Value Enhancement Program (VEP) continues to deliver, on track to unlock $1 billion in recurring annual EBITDA by the end of 2025. This, combined with the Cash Improvement Plan (CIP) targeting $600 million in incremental cash flow for 2025 (and $1.1 billion across 2025-2026), demonstrates LYB's proactive approach to mitigating cyclical pressures.

Competitive Landscape and Market Positioning

LyondellBasell operates in a highly competitive global chemical industry, facing rivals such as Dow Inc. (DOW), ExxonMobil Corporation (XOM), BASF SE (BAS), TotalEnergies SE (TTE), and Eastman Chemical Company (EMN). LYB's competitive positioning is defined by its strategic focus on cost-advantaged regions, integrated operations, and differentiated technologies.

In the Olefins and Polyolefins-Americas (OP-Americas) segment, LYB benefits from access to low-cost NGL feedstocks, with ethane comprising 75-80% of its North American cracker raw materials. This provides a structural cost advantage over competitors reliant on crude oil-based feedstocks like naphtha, common in Europe and Asia. LYB's U.S. polyethylene business holds a stronger domestic market share than many local peers, with only 26% of its September year-to-date PE volumes exported, indicating a strong customer base and insulation from some trade volatility. While Dow also has a strong polyolefins presence, LYB's specific focus on optimizing its monomer balances through projects like Flex-2 aims to further enhance its cost structure and reduce market exposure.

The Olefins and Polyolefins-Europe, Asia, International (OP-EAI) segment faces significant challenges due to high feedstock and energy costs. LYB's strategy here diverges from traditional petrochemical competition, focusing on circular and renewable feedstocks to serve local markets. This contrasts with competitors like BASF, which has a broader product portfolio, or TotalEnergies, which is diversifying into renewables but still maintains a significant fossil-fuel chemical footprint. LYB's investment in MoReTec-1 and the acquisition of APK for solvent-based recycling technology position it to capture value in the European circular plastics market, where regulation is driving demand. This proactive approach to sustainability-driven markets provides a competitive edge against peers who may be slower to adapt or lack proprietary recycling technologies.

In Intermediates and Derivatives (ID), LYB's newest PO/TBA asset operates at benchmark rates, providing a world-leading cost advantage for propylene oxide and oxyfuels due to its ability to produce from butane at a significant discount to crude oil. This efficiency is a key differentiator against integrated oil and gas majors like ExxonMobil, whose chemical segments may benefit from scale but not necessarily from LYB's specialized process technology.

The Advanced Polymer Solutions (APS) segment, while facing headwinds from automotive demand, is focused on improving customer win rates and manufacturing efficiency. This segment, along with the Technology segment (which licenses polyolefin process technologies and sells catalysts), contributes to LYB's overall competitive standing by providing specialized solutions and leveraging its intellectual property. The moderation in licensing revenue reflects a broader industry slowdown in new polyolefin capacity additions, impacting all technology licensors.

Overall, LYB's strategic rebalancing towards cost-advantaged regions (North America, Middle East) and high-value circular solutions positions it to improve its portfolio of cost-advantaged operations from 60% to 70%. This shift aims to enhance profitability and create sustainable competitive advantages, particularly as the market for circular plastics is expected to remain supply-constrained and supportive of attractive margins for the foreseeable future.

Outlook and Risks

LyondellBasell's outlook for the third quarter of 2025 anticipates a mixed but improving environment. North American integrated polyethylene margins are expected to improve due to completed maintenance and increased prices driven by solid domestic and export demand. European OP-EAI assets anticipate steady seasonal demand and favorable feedstock costs, with ongoing capacity rationalizations aiding market balance. However, oxyfuels margins are expected to remain low for the summer season. The company targets Q3 2025 operating rates of 85% for OP-Americas, 75% for European OP-EAI, and 80% for ID assets. Management believes there is "absolutely potential for price increase in the third quarter" for polyethylene, citing positive indicators like improved export demand, rising domestic demand, low global inventories, and hurricane season.

Longer-term, LYB expects its capacity share in cost-advantaged regions (North America and Middle East) to exceed 70% by the next decade. Following the planned European asset sale in 2026, sustaining capital expenditures are projected to be around $1.1 billion per year. The company remains committed to its dividend, having declared a $1.37 per share dividend for Q3 2025, and aims to increase it over time, supported by its strong balance sheet and expected cash flow improvements. No further share buybacks are planned for 2025 and 2026, prioritizing cash preservation.

Despite this strategic clarity, several risks persist.

• Trade Volatility: Evolving tariffs and trade policies could continue to disrupt global trade flows and impact demand, although LYB's diversified global network and ability to shift supply mitigate some direct impacts.
• Prolonged Downturn: The current cyclical downturn has been unusually long, and a slower-than-expected global economic recovery, particularly in durable goods and construction, could continue to pressure volumes and margins.
• Commodity Price Fluctuations: Volatility in crude oil, natural gas, and NGL prices directly impacts feedstock costs and product margins, especially for oxyfuels and non-integrated operations.
• Environmental Liabilities: Accrued environmental remediation costs and potential future liabilities, though currently not deemed material, could increase with new information or regulatory changes.
• Execution Risk: The successful execution of large-scale strategic initiatives, including asset divestitures, new project startups (MoReTec-1, Flex-2), and the Cash Improvement Plan, carries inherent risks that could impact financial targets.

Conclusion

LyondellBasell is undergoing a profound strategic transformation, repositioning itself for long-term value creation amidst a challenging petrochemical cycle. By shedding non-core, low-margin assets and aggressively investing in cost-advantaged regions and innovative circular solutions, LYB is building a more focused, resilient, and profitable enterprise. Its proprietary MoReTec technology and advancements in catalyst development provide a distinct technological edge, enabling it to capture significant value in the growing market for sustainable plastics, where supply is expected to lag demand for years to come.

While the near-term outlook remains cautious due to persistent market headwinds and trade volatility, LYB's disciplined capital allocation, robust liquidity, and commitment to cash flow optimization through its Cash Improvement Plan underscore its ability to weather the downturn. The company's strategic shift towards a higher proportion of cost-advantaged operations and its leadership in circularity position it favorably for the inevitable market rebound. For discerning investors, LYB represents a compelling opportunity to invest in a chemical leader actively reshaping its destiny, with a strong dividend yield providing attractive returns while awaiting the full realization of its strategic vision and the cyclical recovery.