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Positioned For The Cyclical Upturn 15 th Annual Smith Barney Citigroup Chemical Conference December 7, 2004 Dan F. Smith President and Chief Executive Officer. Safe Harbor Language.

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slide1
Positioned For The Cyclical Upturn15th Annual Smith Barney Citigroup Chemical ConferenceDecember 7, 2004Dan F. SmithPresident and Chief Executive Officer
safe harbor language
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 subsidiaries’ and 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, 2003,  Lyondell’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, Lyondell’s Annual Report on Form 10-K for the year ended December 31, 2004, which will be filed in March 2005, Millennium Chemicals Inc.’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2003 and Millennium’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. 

Reconciliations of GAAP financial measures to non-GAAP financial measures are provided at the end of this presentation.

lyondell has built a major global chemical enterprise
Lyondell Has Built a Major Global Chemical Enterprise
  • Global producer of basic chemicals, polymers, and fuels
  • Built one of the world’s leading chemical companies through:
    • Acquisitions and joint ventures
    • New investment where differential
  • Our value proposition
    • Excel at low-cost operation in a mature industry
    • Return cash flow to investors:
      • Dividends and interest
      • Debt reduction
lyondell has followed a consistent path over the years
LCR/Refinery

Upgrade

Partnered With

PDVSA

Equistar 2

Oxychem Joins

Equistar

Partnership

Bayer

Divested

Polyols

Business to Bayer

PO & BDO

Europe

LYO & MCH

Combine

Alathon

Purchase

Acquired HDPE

Assets

From Oxychem

Lyondell Has Followed A Consistent Path Over The Years

Growth

Integration

Consolidation

Rexene

Polymers

Purchase of LDPE

& PP Assets

1985

Formation:

ARCO Olefins, Houston Refinery

1985-95

2000

2001-03

1996-97

1999-00

2004

1998

Merged

Structure

Combined

Management of

Equistar and

Lyondell

Equistar 1

Joined With

Millennium toForm

Equistar

Increase

Equistar

Ownership

Purchased Oxy’s

Share of Equistar

ARCO

Chemical

Purchased ACC

total chemical leverage per share has increased
Total Chemical Leverage Per Share Has Increased

Pounds / Share

Notes: Lbs refers to capacity times ownership percentage.

19942004Post-closing share assumption

Share Count 80 MM 177 MM 242 MM

leading product positions create significant earnings leverage
Leading Product Positions Create Significant Earnings Leverage

Intermediate

Chemicals and

Derivatives

Equistar

Millennium

1 Source: Capacities as of January 2004, CMAI, SRI

2 Does not include refinery-grade material or production from the product flexibility unit at Equistar’s Channelview facility.

3 Based on 1¢/gal change

operational excellence is a priority
14.0%

12.0%

8.9%

10.0%

SG&A + R&D, %Sales

8.0%

6.0%

4.2%

4.0%

2.0%

0.0%

LYO+EQU

Peers

Lyondell

Equistar

PO11 Spending

Regulatory

180

150

120

90

60

30

0

Operational Excellence Is A Priority

Safety Performance

LYO & EQU Incident Rate

Average SG&A and R&D, % Sales

2000 - 2003

2

Peers

include:

Dow,

Nova,

Eastman,

Celanese,

Solutia,

Westlake,

Millennium,

Georgia Gulf

1.5

1st Quartile ’03 0.97

1.18

0.99

Recordable Injury Rate

1

0.8

0.52

0.52

0.5

0

1999

2000

2001

2002

2003

Capital Spending

Days of Working Capital *

Days

$MM

2004 Budget

1999

* Based on accounts receivable (including those sold), inventories & accounts payable as of 12/03, and fourth-quarter days of sales.

our products are basic necessities in developed economies
Our Products Are Basic Necessities In Developed Economies

2003 Sales Revenue

* Includes Millennium and proportional share of LCR

3 rd largest chemical company in north america post transaction
3rd Largest Chemical Company in North America (Post-Transaction)

2003 Sales ($ in millions)

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0

LZ

EC

CK

VAL

DD

RPM

ALB

ECL

POL

CYT

GLK

HPC

NCX

ARJ

FUL

EMN

FOE

PPG

DOW

WLM

ROH

SHW

SHLM

Pro Forma Lyondell

the tio 2 business has a broad global reach
The TiO2 Business Has A Broad Global Reach

Ashtabula, OH

Baltimore, MD

Stallingborough, UK

Le Havre, France

Thann, France

Bahia, Brazil

Paraiba, Brazil (Mine)

Kemerton, Australia

Bunbury, Australia

slide11
Demand – 4.1 MM mtpa; $8 billion

Capacity – ~4.8 MM mtpa

TiO2 Demand and Supply

Geographical Region

End-Use Market

Capacity

Source: Lyondell Estimates and Published Information

slide12
Global TiO2 Capacity Additions Have TypicallyUtilized Chloride Technology

Source: Lyondell, Published Information

approximately 75 percent of our tio 2 capacity is based on chloride technology
Product Attributes

End use dependent

Better purity and particle size control

Finishing is similar

Process Attributes

Continuous process

Fewer process steps

Fewer people

Smaller facility footprint

Less waste produced

Approximately 75 Percent Of Our TiO2 Capacity Is Based On Chloride Technology
slide14
There Are Minimal Announced TiO2 Capacity Additions

Operating Rate

M Tonnes

Demand

Capacity

Source: Lyondell

the ethylene outlook is quite strong
The Ethylene Outlook Is Quite Strong

Source: CMAI / Lyondell (September 2004)

liquid cracking provides an advantage vs ethane raw materials
Liquid Cracking Provides an Advantage vs. Ethane Raw Materials

Liquid Cracking Variable Cost Advantage vs. NGL

Ethane – Light Naphtha Cost of Ethylene Spread

Lyondell Capability

NGL

37%

Liquid

63%

Average

¢/lb ethylene

N. American Industry

(ex. Lyondell)

Liquid

25%

NGL

75%

Source: CMAI, Chem Data, and Lyondell

co product prices have increased more rapidly than raw material costs
Co-Product Prices Have Increased More Rapidly Than Raw Material Costs

Crude Oil-Based Raw Materials

Naphtha Cracking Product Yield

Source: CMAI, Lyondell Estimates

future ethylene capacity additions favor a strong liquid raw material advantage
Future Ethylene Capacity Additions Favor A Strong Liquid Raw Material Advantage

2004 – 2009

2003 Demand Olefins Plant

Demand Growth Supply Growth Δ

BlbsBlbsBlbsBlbs

Ethylene 226 56 55 (1)

Propylene 134 38 15 (23)

Ethylene /

Propylene 1.7 1.5 3.7 --

Source: CMAI September 2004

despite significant integration the lyondell system is long in key building block chemicals
Despite Significant Integration, the Lyondell System Is Long In Key Building Block Chemicals

Source: Lyondell

lyondell has benefited from increased refining margins
Lyondell Has Benefited From Increased Refining Margins

WTI Crude Oil Refining Margin

Source: Platt’s

slide22
Additionally, LCR Has Benefited From An Expanded Heavy Sour Crude Discount

WTI Crude Minus Maya Crude

$/Bbl

Source: Platt’s

our results reflect improving conditions
Our Results Reflect Improving Conditions

EBITDA $MM

Quarterly EBITDA

* Excludes $103 MM of asset impairment charges at Millennium.

lyondell s earnings capability far exceeds recent results
Lyondell’s Earnings Capability Far Exceeds Recent Results

Cycle EBITDA potential (current ownership)

Peak

Pre-

Recession

Recession/

Trough

2003 1

Proportional

Interest,

Dividends &

Capital

2

1

3

1

1 CMAI industry and LYO margin conditions for IC&D and Equistar products (ex. MTBE) applied to current capacities and ownership, LCR 2003 EBITDA, Millennium 2003 EBITDA. Note: Assumes 2003 debt levels and 242 MM shares.

2 Same as 1995 except 1988 CMAI industry margins for Ethylene, PE and Styrene.

3 Combined pre-acquisition EBITDA.

de leveraging benefits all stakeholders
De-Leveraging Benefits All Stakeholders

Impact of Lyondell debt reduction at constant capitalization1$3 Billion Debt Reduction

Debt to Capitalization 45%

Avoid Interest Expense $300MM / Year

Earnings Improvement 80¢ / share

Share Price Improvement at $12.40 / share 2

Constant Capitalization

1 Capitalization = debt + book value of equity + minority interest

2 Assumes 242MM shares outstanding

slide26
* Includes asset impairment charge of $103, reorganization, office and plant closure costs of $18 and $5 minority interest.
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