Materials giant LyondellBasell Industries is making another big resins move by paying $2 billion for a 50 percent stake in Sasol Ltd.'s new petrochemicals complex in Lake Charles, La.
The Lake Charles complex opened last year and includes around 2 billion pounds of annual production capacity for low and linear low density polyethylene resin. The site also operates more than 3 billion pounds of annual capacity for plastics feedstock ethylene.
Houston-based LyondellBasell and Sasol of Johannesburg announced the deal Oct. 2.
In an Oct. 2 conference call, LyondellBasell CEO Bob Patel said that LyondellBasell will operate the site. He added that the firm may acquire Sasol's share in the JV at some point in the future. The new 50-50 JV will operate as Louisiana Integrated PolyEthylene JV LLC.
When asked if LyondellBasell will sell the site's PE mostly into the U.S. — as Sasol had planned — Patel said that his firm "would market all of the material into our global network, to maximize value wherever we can do that."
Building the Lake Charles site hasn't worked out as Sasol had planned. Major cost overruns on the project led to financial problems and the ouster of co-CEOs Bongani Nqwababa and Stephen Cornell late last year. The company's situation worsened this year because of the COVID-19 pandemic and low oil prices.
In June, media reports had named LyondellBasell as one of three firms in final bidding for a stake in the project.
The site has been out of production since late August, when Hurricane Laura damaged electric facilities in the region. LyondellBasell officials said that the Sasol site should be ready for startup once power returns. A major LyondellBasell complex, including large PP operations, in the region also has been out of production.
Like many North American firms, LyondellBasell has expanded its resin production capacity in the region in recent years because of low-priced shale gas feedstock. The pace of those expansions has slowed more recently, leading the firm in September 2019 to end plans for a new ethylene cracker additional polypropylene resin capacity.
LyondellBasell made another big plastics investment in early 2018 when it acquired A. Schulman Inc. — a global compounding leader based in Fairlawn, Ohio — in a deal worth $2.25 billion.
On Sept. 1, LyondellBasell announced the startup of its JV complex in Liaoning, China, with Liaoning Bora Enterprise Group. That site has annual production capacity of almost two billion pounds of PE and about 1.3 billion pounds of PP, all of which will be sold into the Chinese market.
Patel said Oct. 2 that he's confident about future PE market growth.
"If you look at PE demand during the pandemic, we're seeing growth of 4-5 percent in China and of about 1.5 percent in the U.S," he said. "On the supply side, you're seeing some delays and cancellations. I've been through a lot of cycles in more than 30 years in the industry. This is how cycles work."
Initial Wall Street reaction to the Sasol deal was positive, sending LyondellBasell's per-share price up more than 3 percent to a little more than $70 in early trading Oct. 2. The broader Dow Jones market was down almost 1 percent at the time. LyondellBasell's per-share stock price opened 2020 near $90 before the impact of the pandemic was felt.
The Lake Charles site's annual PE capacity of just over 1 billion pounds of LLDPE and just over 900 million pounds of LDPE complements LyondellBasell's existing PE production, which is mostly high density PE, Patel said.
In a news release, Patel said that the investment "represents a unique opportunity to bring together the best of both companies and create deep, long-term value while immediately realizing the many benefits of new, strategically located, world-scale assets."
He added that transaction is expected to be accretive to cash flow and earnings per share within a year and has "significant upside" as market conditions continue to improve.
Sasol President and CEO Fleetwood Grobler said in the release that LyondellBasell "is the ideal partner to ensure the success of these world-class assets with its deep expertise in commodity chemicals."
In the release, officials added that LyondellBasell's investment allows the company to expand in a core area of its business and leverages the company's operational and commercial strengths. They added that, by investing in these assets, LyondellBasell will realize immediate returns and eliminate customary construction risks associated with new project execution.
For Sasol, officials said that the transaction represents "a significant step" in achieving its financial and strategic goals by reducing net debt and rapidly shifting the company's portfolio toward specialty chemicals. The LyondellBasell proposal "offered the best combination of upfront and long-term value" and was consistent with Sasol's long-term strategic priorities, officials added.
LyondellBasell ranks as one of the world's largest producers of polypropylene and polyethylene resins and as North America's largest plastics compounder. The firm has operations in more than 100 countries and posted sales of $34.7 billion in 2019.