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LyondellBasell has pipeline of ideas if Braskem deal falls through: CEO

Houston — Global petrochemical and refining giant LyondellBasell is working through its potential acquisition of Brazilian petrochemical producer Braskem "very methodically," but the company has other possible developments in mind if the deal falls through, CEO Bob Patel said Friday.

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"It has been a rather lengthy period that we've been discussing with our counterparts," Patel said when an analyst asked during a quarterly earnings call whether LyondellBasell was getting to a point where a decision needed to be made in the next few months.

"We're working through it very methodically and thinking through value creation, and weighing sort of the risk-reward very carefully," Patel said. "If we don't do it, we have a very robust pipeline of ideas that we can develop."

The Wall Street Journal in October 2017 first reported that LyondellBasell was considering buying Brazilian construction conglomerate Odebrecht's majority stake in Braskem, pegging that stake's value at $10 billion-$12 billion.

LyondellBasell and Odebrecht released a joint statement in June 2018, announcing they were in talks for the former to buy the latter's shares. Odebrecht owns a 38.3% share in Braskem, while Brazil's state-owned energy producer Petrobras has a 36.1% stake.

There was no discussion on the call of a Brazilian court's decision earlier in April to freeze up to $25.1 million in Braskem's financial assets to potentially pay costs associated with fissures and other geological damage to neighborhoods near the company's salt mining operations in the Brazilian state of Alagoas.

Braskem has said there is no conclusive evidence that the company's salt extraction activities are responsible for fissures or a 2018 earthquake recorded in the region, but Brazil's Geological Survey (CPRM) is slated to release a report on the damage in the coming days.

If concluded, the deal would give LyondellBasell an entrance into South American markets. Patel said during Friday's call that the company's return aspirations "will be adjusted based on the risk that we see in the transaction. So I think all things are open, and we continue to think about how we can build a great company over the long term."

Patel addressed other issues as well, including weak polyethylene and polypropylene prices during the fourth quarter of 2018 as companies sought to reduce high inventories amid economic concerns.

"Q4 was just extremely weak as we look back on it because of the destocking and some of the macro concerns," he said. "I think buyers really, really pulled back. But we don't believe that demand growth trends have changed materially."

He said the company does not foresee another short-term spike in US prices of ethane, the chief feedstock for ethylene, which is used to make polyethylene and PVC resin.

In September 2018, concerns about whether there was sufficient infrastructure to move US ethane to markets helped push ethane prices to 61 cents/gal, which pushed spot ethylene to 23 cents/lb FD USG. However, prices retreated and have not reached those levels since.

On Wednesday, the US spot ethane price was assessed at 21.875 cent/gal, and spot April ethylene was assessed at 13.625 cents/lb FD USG, down 0.25 cent. Ethylene hit an all-time low of 12 cents/lb FD USG in May last year, according to S&P Global Platts data.

Looking at low monoethylene glycol prices in China, Patel said he expects high Asian inventories that have pressured prices be worked off when summer demand rises for downstream polyethylene terephthalate, a resin used to make plastic bottles. The CFR China MEG marker was assessed down $14/mt Friday to end the week at $570/mt, a 39-month low, on ample inventories in the region.

"There is also a seasonality to that business because some of that ends up on PET and in summer months, you have more demand for more disposable goods," Patel said.

--Kristen Hays, kristen.hays@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com

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