Q4 2019 Earnings Call
Thank you for standing by welcome to the Westlake Chemical Corporation fourth quarter and full year 2019 earnings conference call.
The presentation, all participants will be in listen only mode.
After the speaker's remarks, you will be invited to participate in the question and answer session.
As a reminder, ladies and gentlemen, this conference is being recorded today February 18 2020.
I would now like to turn the call over today today's host Yep, Holly West Lakes, Vice President Treasurer, Sir you may begin.
Thank you Andrew Good morning, everyone and welcome to the Westlake Chemical Corporation fourth quarter and full year 2019 conference call I'm joined today by Albert Chao or President and CEO, Steve Bender, Our executive Vice President and Chief Financial Officer, and other members of our management team.
The conference call agenda will begin with Albert will open with a few comments regarding west Lakes performance.
Current perspective on the industry, Steve will then provide a more detailed look at her financial and operating results. Finally, Albert will add a few completing comments and we'll open the call lots of questions.
During this call we refer to ourselves as Westlake chemical any reference to Westlake partners is to our Master limited partnership Westlake Chemical partners LP and similar references to Opco refer to our subsidiary Westlake Chemical Opco LP, which owns certain olefins facilities.
Today management is going to discuss certain topics that will be Ford working that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward looking statements suggest predictions or expectations and thus are subject to risks or uncertainties actual results could differ materially based upon many.
Factors, including.
The second cyclical nature of the industries in which we are which we compete availability cost and volatility a raw materials energies and utilities.
Governmental regulatory actions changes in trade policy and political unrest.
<unk> economic conditions, including the impact the krona virus industry operating rates.
Supply demand balance for Westlake products.
Competitive products and pricing pressures.
Access to capital markets.
In a logical developments and other risk factors discussed in her FCC filings. This morning, Westlake issued a press release with details of our fourth quarter and full year results. This document is available in the press release section of or web page at West Lake Dot Com.
We have also posted a presentation honor website to assist in the discussion of our results.
A replay of today's call will be available beginning today two hours following the conclusion of this call.
The replay may be accessed by going to following numbers domestic callers should dial 8558592 056.
International callers may access the replay at 4045373 406, the access code for both numbers as 8467639.
Please note that information reported on this call speaks only as of today.
You worry eight Ti 18, 2020, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.
I would find we advise you that this conference call is being broadcast live through the Internet webcast system that can be accessed our web page at West Lake Dot Com now I would like to turn the call over to Albert Shell Albert Thank.
Thank you, Jeff Good morning, ladies and gentlemen, and thank you for joining us discuss fourth quarter and full year 2019 results.
Let's let's focus on operational excellence cost management and prudent investments.
I have to be an advantage as a market stealth with straight uncertainty that cost is slowing global industrial manufacturing activities and drilled prices lower throughout a year.
Particularly lower in the export markets.
In this mornings press release.
<unk> net income of $72 million for the fourth quarter of 29 team all 56 cents per diluted share.
For the full year 2019, we reported net income of $421 million EBITDA of $1.4 billion.
Cash flow from operations of $1.3 billion.
And achieved record sales volumes in 2018.
Our fourth quarter profitability was impacted by lower global demand for products as economic uncertainties caused many of our customers to remain cautious.
Reducing the inventory levels and tightly managing the ongoing purchases.
The impact to prices will smoke most significantly in the export markets.
You know up I know segment industry experts reported that caustic soda export prices.
Well hundred $30 per ton.
And reported domestic caustic price indices.
Well down $85 per tonne both of these decreases.
From the fourth quarter of 2080.
To the fourth quarter of 2019.
You know olefins segment.
The surgery, new polyethylene capacity, primarily in the U.S., coupled with declining oil prices, which lowered the overseas competitors costs.
Put pressure on polyethylene prices.
Led to a reported polyethylene domestic price decrease of 14 cents per pound.
During the fourth quarter of 2018.
All drive full operational excellence and being positioned on the lower end of the global cost curve.
Which is the result of using cost advantaged ethane feedstock.
And gas based Poland.
Coupled with our product mix among the factors that drove ability to achieve record sales volumes in 2019.
We also took steps throughout 2019 to rationalize some facilities around the world.
Which helped concentrate and optimize our production while lowering costs costs and we will continue to keep that focus.
Even in these uncertain market conditions.
We completed all investments to strengthen our business.
We have started up our previously announced the vinyls expansions in both Germany, and Geismar, Louisiana, adding 750 million pounds PVC production capacity.
The expansion in Geismar provides us at higher degree of integration.
Hi, consuming a greater portion about rolling into the production of PVC.
Broadens our global sales channels.
The expansion, Germany optimize this capacity at improves cost in our specialty PVC business.
We also increased our interest in the LTAC ethylene joint venture.
With allotted chemical in October of 2019% to 46.8%.
This 2.2 billion pounds ethylene cracker in Lake Charles Louisiana.
We will lower our cost of ethylene feedstock.
By analysts business and reduce the amount of ethylene we purchase in the market.
Which keeps us on the low end of the cost curve.
All these initiatives increased integration lower costs and improve our global competitive position.
I would now like to turn Alco over to Steve to provide more detail on a financial and operating results.
Thank you Albert and good morning, everyone I will start with discussing our consolidated financial results followed by a detailed review of our vinyls and olefins segment results.
To begin with our consolidated results.
For the fourth quarter of 2019 were reported net income of $72 million or 56 cents per share compared to net income of 123 million for the fourth quarter 2018.
As Eric mentioned, the contraction in global industrial demand driven by the international trade uncertainties that persisted throughout 2019 led to lower prices and margins for our major products.
Especially in the international export markets.
Our vinyl segment, the combination of significantly lower industrial activity and lower inventory carried by our customers impacted global demand and therefore significantly lowered prices for many of our vinyl chemical products.
And our olefins segment, new polyethylene production capacity has come online over the past two years, leading to excess supply putting pressure on polyethylene prices.
Our global low cost position on the olefins and vinyls cost or provide a competitive advantage that drove record sales volumes in 2019.
While we benefited from these record sales volumes lower prices and margins for our products more than offset those volume gains.
Compared to the third quarter of 2019, we experienced lower prices for a major products and higher feedstock and fuel cost.
Also experienced typical seasonal slowdown in our downstream vinyl products businesses as many of these products are of a construction industry.
Our utilization the FIFO method of accounting resulted in a favorable pre tax impact of approximately $13 million or eight cents per share compared to what earnings would have been reported.
On the LIFO method. This calculation is only investment and has not been audited.
Now, let's move on to review the performance of our two segments, starting with our vinyl segment.
In the fourth quarter of 2019, or vinyls business saw sharply lower sales prices for caustic soda as compared to the fourth quarter 2018, driven by lower global industrial manufacturing activity.
Finally operating income in the fourth quarter 2019 of $68 million decreased 57 million from the prior year period, primarily as a result of lower sales prices for caustic soda that was partially offset by higher sales volumes for caustic soda PBC and downstream vinyl products.
Fourth quarter Vinyls operating income of $68 million decreased 85 million from the third quarter 2019, as we saw higher ethane feedstock and fuel cost as well as lower caustic prices and the typical construction season slowdown that lowers demand for downstream vinyl products.
In mid October we increased our interest in the LTCC ethylene joint venture to 46.8%, which reduced our total cost of ethylene by providing additional ethylene at cost and reducing the amount we purchased at higher market prices.
Now turning to our olefins segment full year 2019 saw.
Solid increases in global demand for polyethylene, however, the significant new ethylene and polyethylene production capacity that has entered the market has outweigh the increases in global demand, which coupled with lower global oil prices in 2019 poor sales prices and margins lower.
For the fourth quarter 2019, olefins operating income of $49 million decrease.
41 million from fourth quarter 2018, as result of lower plumbing sales prices that was partially offset by higher polyethylene sales volumes.
Fourth quarter 2019, olefins operating income of $49 million decreased 43 million from the third quarter 2019, as we were impacted by lower sales prices higher feedstock and fuel costs and higher cost from polyethylene turnaround activity when compared to the prior quarter.
Next let me turn our attention to the balance sheet and statement of cash flows.
At the end of 2019, we had cash and cash equivalents of $728 million and total debt of 3.4 billion.
Cash flow from operating activities was 333 million in the fourth quarter of 2019, and 1.3 billion for the full year of 2019, helping to support our strong balance sheet and liquidity position.
We compete we completed the previously announced vinyl expansions in the United States in Germany during the fourth quarter, which add 750 million pounds of annual PBC capacity.
These expansions along with our increased interest in the LCC ethylene joint venture increases the level of integration and our vinyls business to capture the margin with NR product chain reduces our ethylene cost and further leverages, our low cost footprint for existing operations to reach markets around the world.
We will invest prudently and opportunities to acquire businesses with leading technologies and an asset that further enhance the chain integration of our business, which improves our cost position and capitalize on our globally advantage feedstock position.
Now let me address some of your modeling questions looking forward into 2020 as a result or recent investments we do not expect to be a cash taxpayer in 2020 and expect our of tax effective tax rates within 2020 to be approximately 23%.
We expect cash interest expense in 2020 to be approximately $140 million or cap expenditures to be in the range of $650 million to $700 million.
We're planning for a turnaround of our Petro to ethylene unit, which could occur in September for later the turnaround in associated outage is expected to last approximately 60 days.
We will update you later in the year as we finalize our turnaround plan.
The estimated maintenance cost of the turnaround was approximately $100 million will be amortized over a five year period with that I will now turn the call back to Albert to make some closing comments Albert.
Thank you Steve.
Recent trade with solutions, such as the U.S.M.C.A. an agreement between the U.S., Mexico and Canada.
As well as the phase one agreement with China.
Well, it's a positive for global demand and we saw improvements in domestic and export prices will PVC and polyethylene.
Housing starts in the U.S. grew over 3% in 2019.
And so stronger growth in the fourth quarter.
This improving trend should also bode well for domestic PBC demand and a downstream vinyl products business.
However, with the outbreak of the cool enough virus, we are taking a conservative view of Twentytwenty has the potential impact on global industrial demand.
Which will be dependent on the time period. It takes for the Chinese and global economy to recover from does contagion.
We continue to optimize operations and lower cost position.
These steps compared pad with the discipline, we have shown in the past.
We will guide action seen twentytwenty and beyond.
With the advantaged position on the global cost curve combined with a strong balance sheet.
Positioned to continue to create value for the long term for shareholders.
Thank you very much for listening to our earnings call. This morning.
Now I'll turn the call back over to Jeff. Thank you Albert before we begin taking questions I would like to remind you that a replay of this teleconference will be available two hours after the call as and we will provide that number again at the ended the call Andrew We will now take questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone.
Your question has been answered or you wish to remove yourself from the Q may press the pound key.
And our first question comes from the line of Bob chord with Goldman Sachs.
Good morning. This is Don Campbell on for Bob on caustic soda, there's price increases have been amount for for caustic soda in January.
Discussion kind of pine.
Great potential price increases and generally what you're seeing and the caustic soda market in regards to inventory levels producer outages.
We demand trends to give us a sense of and likelihood or chances for that price increase actually go through.
Sure as you know that we reported caustic soda prices dropped a.
Both in export and domestic market.
In 2019 by a large amount large amounts and the industry.
Oh Westlake than other companies has made at various.
Price increases.
For the first quarter and.
Between 35 to $40 a dry short ton.
And both are effective immediately as allowed by the contract.
So we.
We'll see because of the.
No what.
Inventories pharma.
Most with are decreasing price last year.
We see.
Sean for restocking by our customers and increased demand. We believed at these prices will be put in place.
Got it thanks, Ann on PBC pricing looking into 2019.
Controlling pad anticipated some nice brave girl.
Oh that Dan ultimately materialize.
In any meaningful farm and 29 team.
That's despite some nice demand trends they talk about four.
You see in construction can you give a sense of kind of what prevented industry from gaining price and train 19, and then you guys looking into 2020 enough I guess timbar expectations.
For some nice price girlfriend give a sense of kind of the likelihood of that is kind of going through as we look through 2020.
Sure.
With the weakness in export demand.
Export pricing.
Globally in 2019, exorcise came down and which resulted impacted on us domestic price.
But.
With the increasing seasonal demand as well.
We see a pent up demand for PVC and downstream fabricated products and industry, including Westlake, We have passed a price increase all three cents per pound for January.
And this we have announced another three cents a upon pricing upon price increase will February and time will tell whether the second three cents upon price increase can be passed but we see that export prices have moved up.
And the domestic price some places that being higher than netbacks to domestic prices. So we believe to price increased momentum should improve.
Got it thank you.
You're welcome.
Thank you and our next question comes from the line of Steve Byrne with Bank of America.
Yes. Thank you.
Just continuing down the line of thinking.
Would you say that Youre chlor alkali operating rates have increased in the last couple of months inline with an improving demand and pricing for PVC and does that does that represents maybe an increase differential between the demand for caustic and the demand for the chlorine.
Side of the to you and does that present any any concern to you for caustic pricing moving forward.
I'll certainly up because of the fourth quarter demands will PVC.
General this week with seasonal construction slowing down so the mental PVC and caustic production at both the condo, but as the market recovers and the.
Building construction season starts there'll be more production of PVC and caustic.
And we'll see how industrial demand growth, both a U.S. and in the international markets, how well support a price increases for caustic.
And now are you mentioned.
Some of your customers continue to to reduce inventory levels. When you think about your your largest end markets for caustic are you seeing any signs of of an inflection in the those end markets any anything that would suggest that.
That those end markets have meaningfully decoupled from.
Global GDP growth.
Well.
Oh caustic as you know.
Use the.
Broadly in many manufacturing sector not only in alumina, but also in pulp and paper refinery cosmetics consumer products is very broad application. So it has a very strong correlation with GDP as well.
And.
Tom Hotel, we are concerned all deemed pet Cohen of Iris potentially on just the general industrial activities around the world and time will tell how much still impact.
Most production and demand because some of those plants, especially in China as being a.
Producing a low rates or shut down or they could not ship.
So not only.
Sup demand could be down the production costs will be del Sol will tell motel wants to.
Impactful both capacity production and demand would be.
Thank you.
You're welcome.
Thank you.
Next question comes from the line of Kevin Mccarthy with vertical research.
Good morning, Albert just to follow warning on on the prior points. What is your preliminary assessment of the likely net impact of the virus on China's net trade position you expected to be a net negative or are they are examples of.
Our net positive for you when you take into account the reduced supply position in China.
That's a good question was Joe trying to get information feedback as you know to assist the issues just started or less than a month ago.
China does.
Well did export fair amount of caustic the coastal regions, so with a plans not able to produce all Comcast ships to.
Load and unload.
Export market could be affected I'll do you have we don't know what the demand for the export markets awful Chinese caustic.
So that we don't come tell you it I think Alta months until we can get a better information.
Okay, and then secondly, I wanted to ask about your M&A pipeline I think Westlake was mentioned in a Bloomberg article several weeks ago.
As a possible acquirer.
Of.
Or be in Mexico.
Perhaps you can comment on a specific deal but in general what would you say about your appetite for sizable acquisitions as the businesses approach trough conditions you.
Well, Kevin as you can imagine and you heard our comments earlier, we're taking a conservative view as we enter this market and so we're going to be cautious about any opportunity that might be in the marketplace.
Right I can't comment about any particular activity that we might look at or any particular trend that we see in terms of assets in the marketplace, but we're going to take a conservative stance in terms of how we deploy capital in this business to make sure that we're creating real value to grow the business in a long term basis.
Understood. Thank you very much.
You're welcome.
Thank you.
Next question comes from the line of Neel Kumar with Morgan Stanley.
Hi, Thanks for taking my question I.
I think you mentioned some rationalization of your capacity around the rolling or comments, you just give us some more color on that just what kind of impact it had it in terms of overall size and how will it impact your cost structure in 2020.
So Neil we took the opportunity to rationalize a at asset in UK and at the same time added some capacity as you can see in Germany. So the net change was.
Mile net net Neil net change in our production capacity in Europe, but it allowed us to really concentrate and reduce our cost structure by having a more centralized location to produce products. There in Germany. So it allowed us to really reduce our cost structure and not have such a wide.
Spread footprint, but it didnt have a significant change in our production capacity.
We've also taken the opportunity to rationalize some of our downstream vinyl products assets in the North American market and have shuttered.
Facility to to make the again that more a cost effective business and reduce our cost, but still service customers well.
That's helpful and thank you mentioned, a $13 million positive impact from the fight the methods of IPO I was wondering if you just give aluminum or color on that as it seems that ethane prices actually came down throughout the fourth quarter. So I thought it would be a negative and just how are your feedstock cost looking so far in the first quarter belt that affords.
Quarter.
Well as Weve as we think about feedstocks. During the course of 19, we saw that ethane did trend down but certainly it still is fairly elevated at the end of the fourth quarter compared to the first quarter and so we did have a positive benefit as you note.
Since then we've seen ethane prices trend even further down.
And so is as long as you see that benefit will have a similar outcome in the.
And in the first quarter of.
20.
Alright, thank you.
Our next question comes from the line of this one.
Capital markets.
Great. Thanks, good morning.
Curious.
You know.
It looks like got polyethylene was able to.
Yeah, the industry was able to Inc. a four cents increase in January I, just get your comments on that you know is that kind of within your own with expectations do you expect further pricing as we move through 2020.
How does your inventories looking.
I guess, what do you think drove the increase there.
Yeah inventory was quite low going through the end up 29 Jean.
And with a price drop and with improving export price and the end also.
Middle end of December so the industry analyst.
The four cents, which is not push through earlier with effective in January and.
Some other company announced ended up five cents upon price increase for February.
And time will tell whether that will be able to put in place.
But but particularly LDP inventory is quite low demand is quite strong.
And what time will tell whether that.
I should know five cents can be put in place.
Okay, Thanks and.
Similarly on on the caustic front I know theres been a number of increases here.
By yourself and your competitors and the industry.
Maybe you can just give us your your chances of success there for the increases that had been announced some caustic soda as we move through the year I guess I'm just curious what it would take you know.
If theres anything that.
The industry can do outside of macro improvements are cyclical improvement or even corona virus kind of selling but.
As you look at the caustic market right now.
I think it takes a both the U.S. and global.
Demand increase so for industrial manufacturing as you know the.
M.I. index for manufacturing is going being below 50, many parts of the world.
And.
So if we see signs of improvement that will help in increasing demand for caustic.
Helping some rationalization of capacities in caustic in the U.S. and as I said earlier, we don't know what impact calls.
The coffee manufacturing and sales in China will be cost, even though the demand we presume be less a productions coming down a lot also.
Okay, Thanks, and just lastly.
Could you comment on your styrene business as well I know that.
Trends may have been challenging there, what's your outlook for that business and.
Are you looking at it within your portfolio longer term. Thanks.
Suddenly well against supply demand was the fall in oil prices.
Benzene prices come down a lot as well so that helped the cost position will starving and the global demand for full starring.
Which depend in plastics and tires again, depending on global GDP and industrial manufacturing, whether they will increase demand for that as well.
The starving.
It was you know they know that China has edison the starting capacities, but now with so the going a virus. We don't know the impact of production of those cities in China. So if those two capacities are not impacting global market that could change the dynamics of below market again.
Okay. Thanks.
You're welcome.
Thank you.
Next question comes from the line of David Begleiter with Deutsche Bank.
Thank you good morning.
Volume for Justin Good morning, Joe you just can't Capex forecast. This year, what is a maintenance capex in that number and what are you spending.
On the growth capital for this year and how should they are shrinking about growth capital going forward next couple of years.
So David the guidance I gave for Capex. This year in total was $650 million to $700 million and a little bit more than $500 million is that ongoing maintenance capital component as I mentioned earlier. We then we have several other a small it's small expire.
Pensions are de bottlenecks that make up the the rest of that capital beyond that a little over $500 million of maintenance capital.
That we expect to complete over the course of the next year and a half to two years, we havent given guidance for 21, Capex and we'll do that as we get further into the year and looked at our 2021 numbers as we typically do we give those numbers early in the new year once we finish our full budgeting process.
Very good and so you just saw you mentioned a cash taxes, you expect to pay no cash taxes this year.
What's driving that and that's a sample going forward.
David the benefit of the investments that we've made as we get the benefit of the bonus depreciation in in the current year and so the investments we made it both in the us through our PBC expansion of course, the investment in the ethylene unit allow us to avoid paying cash taxes. This year.
And going forward do you think or.
Well it'll depend on how earnings play out in 21 and beyond we'll give guidance as we see how earnings develop.
Thank you very much you're welcome.
Thank you.
Next question comes from the line of P.J. Juvekar with Citi.
Hi, Good morning, this is Eric Petrie I'm for future.
Good morning.
China recently announced that importers may be able to import U.S. high high density and linear low density at pre trade war duties or fix and a half percent.
Do you have any read on that and how it could benefit the industry.
Suddenly as we understand.
On February 17.
Use Chinese.
Regulation has put as Ken so with all the punitive.
Terrorists I'll use polyethylene exports to China.
Imports to China other than the normal terrorists, so I think.
US polyethylene things can get back to normal to the pre trade will ever polyethylene and others. Some other polymet as well.
Again, we don't know.
What the demand for Chinese on on polyethylene, China imports about 40% of his normal polyethylene needs.
But today the needs could have changed on other hand. The production also could be haven't put so depending on the region, China Some region that does not.
Look at local production to be have to import.
Okay helpful. And then secondly, how do you see supply demand balances for caustic soda in Brazil. It looks like Braskem has now importing salt to in the steel.
Yes, well the.
As we understand domestic economy in Brazil has nothing to robust so.
Demand for general part in this in Brazil has been slow.
I think because it was coming back from its a solve problems and so I think that.
Brazil used to.
Import and export export caustic so.
With the two dynamics things could change a bit.
Thank you Albert.
You're welcome.
Thank you.
Next question comes from the line up Hassan Ahmed.
Liberty Global.
Morning, Albert and Steve.
Good morning.
A question now on polyethylene you know as I take a look at near to medium term supply demand fundamentals.
They seem to be quite divergent depending on the grade I'm looking at you know it seems L.D.E. there isn't that much capacity coming on line you know over the next year or do quite a lot of HD be an L.D. capacity coming online now obviously historically pricing for most these grades moved in time.
Adam.
What are you guys. His views about you know.
How sort of de divergent supply demand fundamentals up impact pricing power going forward by grade.
That's a good question as you know that most of the.
Polyethylene to three times appalling polyethylene that's price movements all intended.
And us being discussions that are that doesn't make sense the dynamics supply demand for each part it's quite different as you mentioned.
All capacity added Leo low high density Dan and LDP.
And also the LDP added.
In the U.S., all tubular, which are more to commodity grades and was 80% of upgrades autoclave.
So time will tell whether the industry would have Oh bifurcate will try vacate.
Prices for all three different types of polyethylene.
Understood understood.
And as a follow up you know going back to the whole M&A side of things you know I know you kind of specific can you comment on the Bloomberg article about orbi up, but just strategically thinking through things I mean.
As I took a look like a D. Westlake portfolio. Historically, I mean, you guys would run a pretty sort of integrated portfolio you know into into building blocks and the like now you guys are net short ethylene.
Just you know strategically speaking how do you want the portfolio to be position going forward. I mean are there certain building blocks, if you want to be sort of net short.
Do you want to be net long caustic DTC you know I mean, just broadly speaking.
What are the preferences and watch how would you sort of.
See the portfolio evolving over the next couple of yes.
So let's start as you think about the investments that we have historically made and those that were continuing to make whether it be the recent investment in the ethylene unit with low today or whether it be these PBC expansions using some of our merchant.
Flooring to feed those into VCM PVC you see the focus is continuing to build out that integrated chain and sorry, we find that to be a very valuable.
Strategic approach and being very cautious in terms of how we invest in new incremental chain integration. So we think that makes good logical sense and you see over the course of 2019. We also extended that integration chain to include some additional downstream products with the addition of MOCON end Davinci and.
That portfolio. So we think that the means to further that integration is important you heard us also speak to some of the rationalization steps that we took in 2019 to increase our footprint and reduce our costs and so we think those integrated sites that bring us more value and lower costs and the integrator.
Integration model is I think very important in terms of how we think about the path moving forward.
Very helpful. Thank you so much so welcome.
Thank you.
Our next question comes from the line Frank Mitsch.
Research.
Good morning, gentlemen.
Good morning.
Yeah I'll read the press is reporting that a that you've had some production issues at Longview, Texas in terms of polyethylene I was wondering if you might be able to comment on a is that something that we should be concerned about the length of delay its set or anything or more and more broadly on the operational front as we sit here in the first quarter.
Yes.
Well, we do not report on specific planned operations, but we.
We don't have any material operation issues at Longview, Texas.
All right. Thank you and.
Steve You said before you know.
I think response of the to the M&A question or what have you. Just you know some of the conservative nature in terms of cash use how should we think about.
Westlake appetite.
For buybacks during 2020.
So frankly still have ample authorization from the board to by Opportunistically and that's how we've operated to look for opportunities, where we think the valuations are inappropriate and to take action. Accordingly, So the board's given a sample authority and certainly as we think about that will act on those opportunities, where we think that the valuation proposition is.
Favorable to investors for us to buy and returned some of that cash back to shareholders.
Alright, thanks, so much you're welcome.
Thank you.
Our next question comes from a lot of Mike <unk> with Barclays.
Great. Thank you good morning, guys.
I think.
I think in your prepared commentary you made a comment that you want to be conservative on demand. This year I know usually stick with the consultant guidance in terms of outlook, but as a fair to say, you're taking a more conservative views on them with your 2020 outlook or how should I think about how you're thinking about the market versus some of the other concert consultants out there.
Well I think.
The the impact of Cowen a virus on China and the rest of World is really just the beginning and nobody has a crystal.
Loss on understanding what's going to happen so.
Time will tell we just want to be cautious.
Got it no that's fair and then you touched on some of the excessive weakness in the export market. Today can you maybe just give us a sense with all of this new capacity coming on in the market, how you're thinking about your domestic versus export sales mix and your three key products polyethylene and PVC and caustic. Thank you.
Sure No I think the export weakness.
It's primarily flooding.
In 2019.
With the trade tensions and slowing down in.
Chinese manufacturing, calling me and global benefiting Connolly.
So that cost much of the price a weakness those export markets and in the U.S. market.
But with the.
Face when greenman, a U.S.M.C.A. or the tone has changed.
In December and we saw a price of moving up and the we're seeing continue prices moving up especially in polyethylene and PVC.
Caustic I think is somewhat slower, but we have seen some price increases also so barring at the caught up buys this impact if its.
The only contained within China in China seems to be controlling the the spread of the.
The thickness then things when could we call the foster if the called living spreads to more countries. All gets was in China. The impact will be worse. So we cannot tell how deadly impact demand and pricing in the coming months.
Thank you.
Your next question comes from the line of Jeff.
The cost because with JP Morgan.
Thanks very much.
First on the call you Hi, good morning early in the call you spoke about four cents per pound price increase in polyethylene, but but I think the I chess guys said that the net transaction price for that was zero.
In January that is that there was some increased but there were maybe some discounts that weren't factored in isn't really a four cents per pound increase in January when will that benefit your margins and the first quarter or is it more subtle okay.
Yes, I think there was some no market adjustments that ended the year with contract resetting.
So some of those penalties will impact in the fourth quarter last year.
And so if you combine depending when dose.
Putting place you could combined with the four cents and some people, saying that that that could be neutral or little bit positive.
But depending on a call the customers.
But the fourth ends price increase.
As we understand as well things any effect in January.
So does that mean, not all things being equal your per pound margins should be four cents pound tire sequentially or is it more complicated than not.
Oh, they should be a a positive impact in the first quarter earnings.
Leasable January.
Uh huh.
On.
What would the cash taxes you paid in 2019.
So Jeff will get a we won't we'll get a refund of all the cash taxes, we pay to 1919 because of those investments that earlier mentioned the ethylene unit as well as the PVC. So we'll while we were accruing and pain. Some small amount of taxes in anticipation of that those will all be refunded and so our net cash taxes.
In fact in 19 will be zero.
So what will your deferred so can you forecast your deferred tax number on your funds flow statement. So we will.
Yes, or eat our effective tax rate DTR will continue to grow it and we'll continue to accrue at a 23% rate, but from a cash tax perspective, both 19, and 20 I expect to pay no cash taxes, but as I said, we'll continue to show in a MTR and effective tax rate of 23% or.
We've always done difficulties about the virus.
Has import has your import demand for your.
Olefins business slowed down in 2020, so far we're happy not detected any change.
Import I'm, sorry, I misspoke export.
Yes.
Oh, so far we haven't seen much change actually demand things quite strong.
Okay, great. Okay. Thank you so much.
Welcome.
Thank you.
Next question comes from the line John Roberts.
Yes.
Thank you Albert the customers on the vinyl side globally in the construction industry very labor intensive and on the caustic side, we have a lot of large scale process industries that use caustic. So I would think the virus is going to reduce demand for construction related materials more than it would reduce demand.
And for caustic and so this should be I sort of a net favorable to caustic.
Central outcome from this.
Well.
But time will tell but this is the construction season and also India is a big.
Importer of PVC, especially does the dry season and globally, whether it's been quite warm so construction seeing start pretty early.
PVC demand has been quite strong tends to price increases.
Okay, and Steve what was the impact from two months of Filet Cc I'm in the quarter and are there any discussions to go higher in your ownership.
And so so John you know the impact as I mentioned earlier, we expect between 20 and $25 million a quarter.
Given the.
The delta between producer Economics and.
Market prices for ethylene.
And so we got a partial benefit in the fourth quarter.
Because our investment was made during the during the quarter, but on a go forward basis, it's in that range, depending on where market price for ethylene our course, and so certainly as we think about the ownership percentage of we certainly believe that the nearly 47% is a number that we are invested in today and certainly to the east.
Not that we can raise that something slightly higher to 50% will continue to have those discussions with our partner.
And any plans to put it into the partnership sometime soon.
You know Thats certainly an option that we consider as we move forward. It certainly is a qualifying income stream and could beacons could be structured to be in some of our manners or existing three units and so certainly thats a consideration as we think about growing the partnership's earnings potentials in the future.
Thank you.
You're welcome.
Thank you.
Your next question comes from the line of Matthew Blair Tudor Pickering Holt.
Hey, good morning, Albert and Steve Good morning method.
So your olefins volumes were down 7% quarter over quarter, if I look back over the past three years, the drop was about 4% quarter over quarter.
If I take that delta there that that 3% Delta is that a good approximation for the turnaround impact that you alluded to in and could you clarify what was that mostly on the p. side.
No. It yeah. The driver really was driven by some of the ethylene co products and some of this styrene timing of vessels moving polyethylene continue to have good volume.
During the period, we heads.
We as I say it was mostly I think for products and just timing of styrene shipments.
Okay sounds good and then Steve are you planning any debt reduction in 2020.
And in general how are you feeling about dividend raise a later this year.
So when we think about the balance sheet. We certainly have a series several series of goes on and Ike bonds that could be considered.
Later this year they have a par call opportunity and so certainly we'll assess those and see what the right action is on those bonds and certainly as we think about the dividend will have conversations with our board as we do every quarter about the dividend.
Thank you.
You're welcome.
Thank you at this time, the Q and recession has now and are there any closing remarks.
Thank you again for participating in today's call. We hope you'll join US again for our next conference call to discuss our first quarter results.
Thank you for participating in today's Westlake Chemical Corporation fourth quarter and full year earnings Conference call. As a reminder, this call will be available for replay beginning two hours. After the call has ended and may be accessed until 11 59 PM Eastern time on Tuesday February 20, Fiveth 2020.
The replay can be accessed by calling the following numbers domestic callers should dial 85585 9056.
International callers may access the replay at 4045373 406.
The access code for both numbers is 8467639.
Thank you.
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