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A Look at LYB’s Olefins and Polyolefins EAI Segment’s Performance

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LYB’s O&P-EAI segment’s 1Q18 revenues

LyondellBasell’s (LYB) Olefins and Polyolefins Europe, Asia, and International (or O&P-EAI) segment accounted for 36.5% of LYB’s total revenue in 1Q18 compared to 35.9% in 1Q17, indicating a rise of 0.60% YoY (year-over-year).

The O&P-EAI segment reported revenue of $3.6 billion in 1Q18, 17.8% higher YoY. In 1Q18, the segment reported revenue of $3.0 billion.

Three factors influenced the segment’s revenue growth. Firstly, higher demand and increased production resulted in higher sales volumes, helping the segment’s revenue to rise 3%. Secondly, the prices of most of the segment’s products increased, resulting in a 3% revenue rise. Finally, the weakness in the US dollar helped the segment’s revenue rise a staggering 12%.

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Segment’s EBITDA and margins

The O&P-EAI segment reported EBITDA (earnings before interest, tax, depreciation, and amortization) of $518 million in 1Q18, a fall of 2.1% YoY. In 1Q17, the segment’s EBITDA was at $529 million. It fell primarily due to the increased cost of ethylene production. The fall was partially offset by favorable foreign currency movements and gains in equity investments.

The fall in the segment’s EBITDA resulted in a contraction in the segment’s EBITDA margin. The O&P-EAI segment reported an EBITDA margin of 14.5% in 1Q18 compared to 17.5% in 1Q17, representing a contraction of 300 basis points over the previous year.

Outlook

The segment’s revenue should continue to benefit from favorable foreign currency movements. However, any increase in production costs will need to be transferred to clients to improve margins.

Investors can indirectly hold LyondellBasell stock by investing in the Guggenheim S&P 500 Equal Weight Materials ETF (RTM), which has 4.0% of its portfolio in LyondellBasell. The fund’s other holdings include International Flavors & Fragrances (IFF), Monsanto (MON), and Albemarle (ALB) with weights of 4.3%, 4.2%, and 4.0%, respectively, as of April 27, 2018.

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