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					Cyclicality Has Not Been Repealed

    Chemical Analysts of NY
       November 5, 2003

           Dan Smith
       President and CEO
Safe Harbor Language

Statements in this presentation relating to matters that are not historical
facts are forward-looking statements. These forward-looking statements are
just predictions or expectations and are subject to risks and uncertainties.
Actual results could differ materially, based on factors including but not
limited to the cyclical nature of the chemical and refining industries;
availability, cost and volatility of raw materials and utilities; governmental
regulatory actions and political unrest; global economic conditions;
industry production capacity and operating rates; the supply/demand
balance for Lyondell's and its joint ventures' products; competitive
products and pricing pressures; access to capital markets; and
technological developments and other risk factors. For more detailed
information about the factors that could cause our actual results to differ
materially, please refer to Lyondell Chemical Company’s Annual Report on
Form 10-K for the year ended December 31, 2002, filed in March 2003, and
Lyondell’s Quarterly Report on Form 10-Q, which will be filed in November
2003.



                                       2
You and your peers have raised several questions about
the future of the ethylene industry

   What will be the impact of future Asian/Middle East
    supply/demand balances?
     – Will US operating rates remain depressed forever?
   Are relatively high US polyethylene prices hastening the demise
    of the industry?
     – Will the US become merely an importer of resins and products?
     – Will the US lose its entire converter industry?
   Do the economics of production allow US producers to survive?
     – Has a change in energy costs made the US non-competitive?




                                      3
 There is a growing consensus that the global economy is
 beginning to emerge from a difficult period:

                                  Global GDP
        (Percent change in real GDP)
    5

    4

    3

    2

    1

    0
        1986      1989    1992    1995       1998   2001   2004   2007


Source: Global Insights
                                         4
 It’s not atypical for industrial production to fall more than
 GDP but recovery is lagging


                                                    US GDP and Industrial Production
                             10
                              9
                              8
                              7
                              6
                              5
     U.S. Growth( Yr/Yr %)




                              4
                              3
                              2
                              1
                              0
                             -1
                                  87

                                        88

                                              89

                                                    90

                                                          91

                                                                92

                                                                      93

                                                                            94

                                                                                  95

                                                                                        96

                                                                                              97

                                                                                                       98

                                                                                                             99

                                                                                                                   00

                                                                                                                         01

                                                                                                                               02

                                                                                                                                     03

                                                                                                                                           04

                                                                                                                                                  05

                                                                                                                                                        06

                                                                                                                                                              07

                                                                                                                                                                    08
                             -2
                              19

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                                                                                                                                          20

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                                                                                                                                                       20

                                                                                                                                                             20

                                                                                                                                                                   20
                             -3
                             -4
                             -5
                             -6                                                                                                                Ind Production           GDP
                             -7
                             -8




Source: Global Insights
                                                                                                  5
The US economy should begin to benefit from economic
stimulus
                                                            Δ GDP
                                                     Leads to After
           Stimulus                Change          1 Year       2 Years   Actual Change


Fed Rate Reduction                  100 BP          0.6             1.7      150 BP


Real Dollar Decline                  10%            0.4             1.6       18%


Income Tax Reduction               1% of GDP        0.4             0.8        3%


Stock Price Increase                 20%            0.4             0.8       Flat


Oil Price Decline                   $10/bbl         0.2             0.4      Up $8



* Source: Fed Reserve, Jan. 1999
                                               6
 We believe that global ethylene supply/demand is on a
 path to a tight balance
                                                                300


                                                                        Effective Capacity            Demand
       World Ethylene Supply - Demand




                                                                275
                                        (billion pounds/year)




                                                                250




                                                                225




                                                                200




                                                                175
                                                                      Current (2003)    2007 - Base       '07 + 2% Growth   '07 - 18 Mo Delay




Source: CMAI
                                                                                                7
 The companies adding capacity have much at stake at
 their existing facilities

  Company                  New Capacity*   Existing Capacity*
  Dow                            360            24,970
  ExxonMobil                     300            18,510
  Shell                        1,890            14,370
  Sabic                        2,870            12,100
  BP                           1,920            10,230

  Top 5 Total                  7,340           80,180


  * MM Lbs/Year per CMAI



Source: CMAI
                                       8
  The emergence of a middle class increases local demand
  for plastics


                                 12 0
    PE Consumption/capita, lbs




                                 10 0                                                                                         US
                                                                    Taiwan                              Singapore
                                  80                        Korea
                                                                                                   WE

                                  60                                                                                  Japan
                                            Malaysia

                                  40
                                                 Thailand
                                  20         China
                                             India
                                              Indonesia
                                   0
                                        0          5,000       10 , 0 0 0    15 , 0 0 0   20,000    25,000   30,000     35,000     40,000


                                                                                  2000 GDP/Capita

Source: CMAI 2001
                                                                                          9
    Even forecasters that have recently developed negative
    outlooks continue to forecast growth in the US market
                                         Quarterly U.S. Ethylene Dem and Vs GDP
                              20
                                                NPRA Quarterly Demand                             2010
                              18                CMAI Based Forecast
  Quarterly Ethylene Demand




                                                30-Year Trendline
                              16


                              14
            (Bl. Lbs)




                              12                                                   2003


                              10


                              8


                              6          1970



                              4
                                   3.0            5.0             7.0          9.0         11.0          13.0
                                                        GDP - Trillion $ (constant 1996 $'s)
Source: SRI, CMAI, NPRA, US Govn.
                                                                        10
 When all factors are considered, exporting is not always
 profitable

 Basis:             1 B lbs Producer
                    Domestic Margin - 17¢ / lb
                    5% Exports


      Export              Export                 Neutral Domestic Market
      Margin              Profit                        Response
                                            % Returned       Price Impact,
          ¢ / lb        $ MM / Yr             to US              ¢ / lb


            2                  1                      12%         0.1


            5                2.5                      30%        0.26
Source: Lyondell Chemical Company
                                                 11
 We believe that resin importation growth is a temporary
 phenomena

                                    40                                                                          60
  HMW HDPE Imported Resin MM lbs.




                                    35
                                                                                                                50
                                    30




                                                                                                                     Spread cents/lb.
                                                                                                                40
                                    25

                                    20                                                                          30

                                    15
                                                                                                                20
                                    10
                                                                                                                10
                                     5

                                     0                                                                          0
                                         J-




                                         J-




                                         J-




                                         J-




                                         J-




                                         J-




                                         J-




                                         J-
                                         M

                                         M



                                         S-

                                         N-



                                         M

                                         M



                                         S-

                                         N-



                                         M

                                         M



                                         S-

                                         N-



                                         M

                                         M



                                         S-

                                         N-
                                           00




                                           00




                                           01




                                           01




                                           02




                                           02




                                           03




                                           03
                                            -0

                                            -0




                                            -0

                                            -0




                                            -0

                                            -0




                                            -0

                                            -0
                                            00




                                            01




                                            02




                                            03
                                             00




                                             01




                                             02




                                             03
                                              0

                                              0




                                              1

                                              1




                                              2

                                              2




                                              3

                                              3
                                         HMW HDPE Imported Resin MM lbs.        HMW Price Spread to Feedstock



Source: CMAI
                                                                           12
Labor costs are the primary driver behind the importation
of bags and sheet
                                  80



                                  70



                                  60
  Bag Production Cost, cents/lb




                                  50
                                                                                           U.S. Domestic Freight
                                  40                                                       Ocean Freight
                                                                                           Conversion ex labor
                                                                                           Labor
                                  30
                                                                                           Raw Material

                                  20



                                  10



                                  0
                                       U.S.   China to U.S.        China to U.S. @ equal
                                                                             RM Cost



Source: CMAI & Lyondell
                                                              13
You should not extrapolate bag imports to the
demise of the US ethylene industry

      Bag/Film Imports As Percent
                                                 US PE Bag Imports
        of N. American Ethylene
                Demand                               1997             2002
      %                              $MM
100                                   700
 90
                                      600
 80
 70                                   500
 60                                   400
 50
                                      300
 40
 30                                   200
 20                                   100
 10
  0                                       0

       '96 '97 '98 '99 '00 '01 '02             NAFTA           Asia w/o           ROW
                                                                Japan
      Source: CMAI                    Source: Global Trade Information Services


                                     14
Despite the pressure caused by resin prices some
converters have maintained a reasonable margin




                           15
   It is important to consider the economics of the
   incremental supplier as well as the full cost of the new
   capacity
                          Delivered to China

                         45
Polyethylene Cash Cost




                         40
  (cents/lb delivered)




                         35
                         30
                         25
                         20
                         15
                         10
                          5
                          0
                              Saudi - Ethane         Asia - Naphtha            NA - Ethane

                                          Cash Costs w/Freight   Capital Recovery

       Source: PACE, Lyondell estimate
                                                       16
 Existing US capacity is competitive in its home market –
 E/P crackers are likely to be the high cost global facilities

                                               Delivered to U.S.

                         45
Polyethylene Cash Cost




                         40
  (cents/lb delivered)




                         35
                         30
                         25
                         20
                         15
                         10
                          5
                          0
                              Saudi - Ethane   Asia - Naphtha   NA - Naphtha   NA - Ethane

                                         Cash Costs w/Freight     Capital Recovery

     Source: PACE, Lyondell estimate
                                                         17
Growing global demand will increasingly be supplied by
gas based raw materials
                                          Global Ethylene Supply by Feed Type
 Ethylene Supply - Heavy vs Light




                                    140

                                    120
      (billion pounds / year)




                                    100

                                    80

                                    60

                                    40

                                    20

                                     0
                                          Current (2003)                        Additions (2008)

                                                           Heavy Liquid   NGL Based


                                                                 18
Future Ethylene Capacity Additions Favor a Growing
Liquid Raw Material Advantage


                                    2003 -- 2008
                   Current     Demand       Olefins Plant
                   Demand      Growth      Supply Growth     Δ
                    Blbs         Blbs            Blbs       Blbs


Ethylene                 213     52              51          (1)


Propylene                124     34              12         (22)




Source: CMAI September


                                      19
The future appears likely to provide some relief from
recent high energy costs

                                                                                                                       $6
              $30
                                                                                                                       $5




                                                                                                                            Natural Gas, $/MM Btu
              $25
                                                                                                                       $4
 WTI, $/Bbl




              $20
                                                                                                                       $3
              $15

              $10                                                   2004 Forecasts             WTI       Natural Gas   $2
                                                                    Investment Research      $24 - $28   $3.8 - $4.8
                                                                    Energy Consultants       $25 - $27   $4.1 - $4.8   $1
               $5                                                   Chemical Consultants     $24 - $26   $4.2 - $4.7
                                                                    NY Merc                   $27.40       $4.85
               $0                                                          t                                           $0
                95

                       96

                              97

                                     98

                                            99

                                                   00

                                                          01

                                                                 02




                                                                                 04

                                                                                        05

                                                                                               06

                                                                                                       07

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                                                                        es
              19

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                                                                   03
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                                                               20
It appears that natural gas in the US will be more closely
coupled to global energy prices
                                             Natural Gas & Substitutes Price Trend
          $9
                                                                                             NYMEX

          $8


          $7
$/MMBtu




          $6
                                                                                                                           Distillate

                                                                                                                               Natural Gas
          $5

                                                                                                                                     Residual
          $4
                                                                                                                                     Fuel

          $3
                                                                          J ul
                                                                   J un
                                           Feb




                                                                                                                         Feb
                                                 Mar




                                                                                                                               Mar
                                    3




                                                                                                                  4
                      Nov

                            Dec




                                                                                                    Nov

                                                                                                          Dec
                                                             May




                                                                                       Sep
               O ct




                                                                                             O ct
                                                                                 Aug
                                                       Apr
                                  J an-0




                                                                                                                J an-0
 Source: NYMEX
                                                                          21
It appears that natural gas in the US will be more closely
coupled to global energy prices




                           18
                           16
                           14
    LNG Capacity - BCF/D




                           12
                           10
                            8                      Actual      Import
                                                                                          Announced North
                                                                                          American Growth
                            6                    Imports       Capacity

                            4
                            2                                             Existing Terminals
                            0
                            1999   2000   2001   2002   2003     2004     2005   2006     2007   2008       2009

Source: Platt's Publications
                                                               22
This analysis drives our industry view, actions, and
strategy

   Industry view
     – Global and domestic industries will both continue to grow
     – Demand will drive increased operating rates and the cycle will turn
     – Liquid cracking offers significant leverage and value
     – Chasing the incremental export sale generally destroys value
   Actions
     – Focus on domestic market
     – Ethylene expansion must be advantaged and is not a priority
   Strategy
     – Operationally focus on Operational Excellence
     – Financially focus on liquidity and debt reduction




                                         23
We would like to leave you with some other thoughts to
consider

   Is there evidence that the global demand for plastics is
    decreasing? Or conversely will global development accelerate its
    usage?
   Is there evidence that new ethylene plants are significantly more
    efficient than existing plants? Or does the investment in new
    capital mean they are less cost effective?
   Are the middle east countries likely to give away the value of
    stranded ethane? Or is it more likely to follow the path of crude
    oil that at one time cost less than $3/bbl?
   Will the major oil companies and your banks rush to subject their
    current investment exposure to excess incremental supply?
   Has cyclicality been repealed?


                                     24

				
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