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Why LyondellBasell’s Refining Segment’s Operating Income Turned Positive

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LYB’s Refining segment revenues

LyondellBasell’s (LYB) Refining segment accounted for ~19.6% of LYB’s total revenues in 3Q17, compared with 18.0% in 3Q16, indicating a YoY (year-over-year) rise of 1.6 percentage points. The Refining segment reported revenues of $1.67 billion in 3Q17, or 25.6% higher YoY. In 3Q16, the segment reported revenues of $1.33 billion.

The increase in this segment revenues was primarily driven by the rise in crude oil prices. During the quarter, the crude oil prices rose ~$8.00 per barrel YoY. Higher prices resulted in revenue growth of 23%, while the increased volumes helped LYB’s revenues grow another 3%.

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Operating income and margins

The Refining segment reported an operating income of $10 million in 3Q17, compared with its operating loss of  $56 million in 3Q16. The turnaround was possible because of higher prices and relatively lower plant turnarounds in 3Q17.

Notably, in 3Q16, a fire and planned turnarounds impacted crude processing adversely. The segment’s operating income margin stood at 0.60% in 3Q17.

Outlook

With crude oil prices staying above $50.00 and with the no planned turnaround activity scheduled for the rest of the year, this segment looks as if it can continue its revenue growth next quarter.

We will not be reviewing LYB’s Technology segment in this series as its revenues only accounted for $98 million in 3Q17.

Investors can indirectly hold LyondellBasell stock by investing in the First Trust Materials AlphaDEX Fund (FXZ), which has ~3.3% of its portfolio holdings in LyondellBasell. The other holdings of the fund include Chemours (CC), Cabot (CBT), and Westlake Chemical (WLK), which had weights of 3.7%, 3.5%, and 3.3%, respectively, as of October 27, 2017.

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