LyondellBasell Expands Relationship With Sinopec to Form Joint Venture

LyondellBasell and Sinopec have agreed to form a 50/50 joint venture called Ningbo ZRCC LyondellBasell New Material Company Limited to produce propylene oxide (PO) and styrene monomer (SM) in China.

LyondellBasell (LYB) is one of the largest plastics, chemicals and refining companies in the world, and Sinopec is the largest oil and petrochemical products supplier in China, with the second most gas stations in the world.

The joint venture, which is expected to start at the end of 2021, will see a new PO and SM unit constructed in China. Using LyondellBasell’s PO/SM technology, the unit will have 275 kilotons per annum (KTA) capacity of PO and 600 KTA capacity of SM.

“As China’s economy continues to grow, so will demand for propylene oxide and styrene monomer. We are excited to expand our relationship with Sinopec through this joint venture in order to better serve China’s domestic market. Sinopec’s outstanding operational capabilities combined with LyondellBasell’s leading technology is a win-win,” said Torkel Rhenman, Executive Vice President, Intermediates and Derivatives, and Refining.

LyondellBasell already operates five facilities in China, which according to IHS Markit, will account for 40% of the global chemical market growth over the next decade. (See LYB stock analysis on TipRanks)

JPMorgan analyst Jeffrey Zekauskas reiterated his Buy rating on LYB last week, raising his price target to $104 from $85 (16% upside potential).

Zekauskas expects domestic polyethylene prices to rise another 5c in January, following December’s 5c rise brought on by increased demand and falling supply caused by hurricanes and a drop in North American capacity. He sees this translating to “substantially more” earnings for Lyondell than the Street forecasts for 2021.

Meanwhile, the rest of the Street is slightly more cautious, with a Moderate Buy consensus rating based on 4 Buys, 7 Holds and 1 Sell. The average price target of $90.36 implies that LYB shares are fully priced at current levels.

News Sentiment around Lyondell over the last seven days has been Very Bullish, with 100% of the articles published being Positive, compared to a 60% Bullish Sector Average.

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