Q1 2023 Westlake Chemical Corp Earnings Call
Okay.
Good morning, ladies and gentlemen, and thank you for standing by welcome to the Westlake Corporation first quarter 2023 earnings Conference call.
During the presentation, all participants will be in a listen only mode. After the speakers' remarks, you'll be invited to participate in a question and answer session.
As a reminder, ladies and gentlemen. This conference is being recorded today may four 2023, I would now like to turn the call over to your host today, Jeff Holly Westlake, Vice President and Treasurer, Sir you may begin.
Thank you good morning, everyone and welcome to the Westlake Corporation Conference call to discuss our first quarter 2023 results.
I'm joined today by Albert Chao, our President and CEO , Steve Bender, Our executive Vice President and Chief Financial Officer, and other members of our management team.
During the call we will refer to our two reporting segments performance in essential materials or pattern.
Or materials, and housing and infrastructure products, which we refer to as hip or products.
Today's conference call will begin with Albert who will open with a few comments regarding Westlake performance.
Steve will then discuss our financial and operating results after which Albert will add a few concluding comments and.
We will open the call up to questions.
Today management is going to discuss certain topics that will contain forward looking information 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. These risks and uncertainties are discussed in Westlake 's Form 10-K for the year ended December 31, 2022, and other SEC filings.
We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings, which are also available on our Investor Relations website.
This morning, Westlake issued a press release with details of our first quarter results.
This document is available in the press release section of our website at Westlake Dot com.
We have also included an earnings presentation, which can be found in the Investor Relations section on our website.
A replay of today's call will be available beginning today two hours. Following the conclusion of this call. This replay may be accessed via Westlake website.
Please note that information reported on this call speaks only as of today may four 2023, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.
Finally, I would advise you that this conference call is being broadcast live through an internet webcast system that can be accessed on our webpage at Westlake Dot com.
Now I would like to turn the call over to Albert Chao Albert Thank you, Jeff Good morning.
Everyone.
We appreciate you joining us to discuss our first quarter 2023 results.
For the first quarter of 2023.
We achieved sales of $3 4 billion.
Net income of $394 million and EBITDA of $825 million.
These solid results reflect significant improvement in volumes margins and earnings from the fourth quarter of 2022 as customer destocking activity moderated.
And mark demand improved and.
And we benefited from lower feedstock fuel and power costs.
As demand improved in the first quarter, we shifted sales volumes from exports to domestic markets.
Contributing to a better sales mix and higher integrated margins.
We also benefited from lower feedstock and energy costs compared to the levels of 2022.
Our globally advantaged low cost feedstock and energy position in the U S Gulf Coast improved further.
While we also saw lower energy costs in Europe as well.
Our results for the first quarter also reflected the achievement of approximately $25 million of cost savings.
Quarter towards our previously communicated $55 million to $105 million of targeted $2 23 cost savings.
Each of these factors supported solid improvement in our integrated margins from the fourth quarter of 2022.
Looking at our first quarter financial results.
I'm, particularly proud of our hip segment performance.
Which maintain an EBITDA margin of 20%.
Similar to the first quarter of 2022.
These margins were achieved despite a 21% decline in volume.
Compared to the prior year period.
Which was driven by the decline in homebuilding activity.
Due to lower affordability from higher mortgage rates.
This demonstrates the benefit of our product mix and strength of our brands.
The margin stability of these businesses along with the long term growth opportunity in the U S housing market.
We are key reasons why we invested in the hip segment in 2021 through the acquisitions of Boral building products Lesko fittings and <unk>.
We continue to have a positive long term view of the U S housing market.
Driven by the deficit in new housing construction since the great recession in 2000 22008.
An increasing demographic demand.
Turning to our Perm segment.
We continue to operate with agility as we navigate the current market dynamics are shifting PVC and polyethylene sales volume back from export markets to rebounding domestic markets.
Solid clarify la markets drove higher average selling prices for both chlorine and caustic soda in North America.
Lower feedstock and energy prices combined with our cost reduction actions drove significant improvement in integrated margins from the fourth quarter of 2022.
Overall, I am very pleased with our first quarter performance and the team's ability to successfully adjust to rapidly changing and market trends.
I would now like to turn our call over to Steve to provide more detail on our financial results for the first quarter 2023.
Thank you Albert and good morning, everyone.
Westlake reported net income of $394 million.
Or a $3 five per share in the first quarter of 2023 on sales of $3 4 billion.
Net income for the first quarter of 2023 decreased $362 million from the first quarter of 2022 as a result of lower average selling prices and integrated margins, particularly for PVC polyethylene PVC resins, and lower production and sales volume in each segment.
When compared to the fourth quarter of 2022 net income increased by $162 million in the first quarter of 2023 due to higher production and sales volume in each segment.
Lower feedstock fuel and power cost in North America and Europe .
The challenging market conditions that we experienced in the fourth quarter of 2022 improved throughout the first quarter of 2023.
As Destocking abated, and North American demand for PVC, and polyethylene improved which allowed us to shift sales volumes back to domestic from export markets and the stronger environment driving higher net backs.
Customer Destocking and our hip segment that occurred in the second half of 2022 also abated, which along with the seasonal uptick in spring construction activity drove a 10% sequential increase and hip volumes.
Overall, we were pleased with our first quarter 2023 operational and financial results and we are cautiously optimistic about demand trends as we move into the seasonally stronger second quarter.
For the first quarter of 2023, our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact of $45 million.
Compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited.
Moving to our segment performance our performance in our central materials segment first quarter 2023, EBITDA of $615 million decreased $456 million from the first quarter of 2022.
As compared to the prior year period performance materials sales in the first quarter decreased $647 million largely driven by lower average selling prices, particularly for PVC resin. In addition to lower sales volumes across our portfolio.
Essential materials sales in the first quarter of 2023 decreased $164 million over the first quarter of 2022, primarily driven by higher average selling prices for caustic soda.
As compared to the first quarter of 2022, our earnings were impacted by lower integrated margins for all of our performance materials products, including PBC epoxy polyethylene and lower production and sales volumes across most product lines.
These headwinds were particularly were partially offset by higher average selling prices in our central materials, along with lower fuel and energy prices.
<unk> segment EBITDA of 16 of $615 million in the first quarter increased $172 million from the fourth quarter of 2022 as a result of 60 elements.
Higher production and sales volumes, particularly in PVC and epoxy resins.
Improved performance materials sales mix as volumes in polyethylene and PVC shifted to domestic markets.
Higher essential materials average selling prices driven by caustic soda.
Lower feedstock and energy cost.
Reduced turnaround activity, particularly in our proxy.
And benefits from our cost savings program, we previously announced.
Turning to our housing and infrastructure products segment, we saw improved demand driven by seasonal uptick compared to the fourth quarter of 2022 as our customers saw improved demand in their markets.
Segment EBITDA of $205 million for the first quarter of 2023 decreased $53 million when compared to the first quarter 2022.
Housing product sales decreased $154 million from the prior year period as volumes declined by double digit rates across all product categories.
Infrastructure product sales fell $63 million from the first quarter of 2022, primarily due to a decline in sales volumes of infrastructure products servicing.
And wastewater applications.
The volume decline in housing and infrastructure products were driven by a lower housing starts and lower inventories.
Carried by our customers in the first quarter of 2023.
These volume declines were only partially offset by higher average selling prices and lower raw materials cost.
Along with the benefits realized from our cost savings program.
When compared to the fourth quarter of 2022 hip segment EBITDA of $205 million increased $72 million.
Housing product sales of $818 million in the first quarter of 2023 increased $60 million, while structured products of $189 million in the first quarter increased $9 million from the fourth quarter of 2022.
The higher sales and earnings were the result of lower raw material costs and broad based increases in sales volumes due to the moderating customer destocking and seasonal construction trends that I previously discussed.
The overall macroeconomic backdrop remains uncertain and our customers have kept their inventories rather tight as they look for <unk>.
Improvements in economic activity in our hip segment, while the first quarter experienced the beginning of the seasonal increase in construction activity in North America.
With March housing starts reported at 142 million similar to the average level for the second half of 2022.
We continue to see our hip customers remaining cautious in building inventory until they see less uncertainty in the economy.
Therefore, we are controlling our cost working closely with our customers to provide the pin products, they demand and supporting our building products customers with premium brands and products to meet their building and remodeling needs.
Turning to the balance sheet and cash flows as of March 31, 2023, cash and cash equivalents were $2 4 billion.
And total debt was $4 9 billion for the staggered long term fixed rate debt maturity schedule.
For the first quarter of 2023 net cash provided by operating activities was $512 million Capex.
Capital expenditures were $267 million, resulting in free cash flow of $245 million.
We continue to look for opportunities to strategically deploy our balance sheet.
Shareholder friendly manner to create long term value.
And reward our shareholders.
Now let me provide some guidance for your models.
We are reaffirming our earlier guidance for full year, 2023 revenue and our housing and infrastructure products segment to be between four three and $4 8 billion with an EBITDA margin in the high teens.
We continue to target $55 million to $105 million annualized savings in 2023 with approximately $25 million already achieved in the first quarter.
Our significant cash balance and investment grade credit rating position allow us to invest in our business and support our customers with.
We continue to expect total capital expenditures for 2023 to be approximately $1 billion.
Which is unchanged from our earlier guidance and are similar to our depreciation and amortization run rate.
As a reminder, this includes the planned 30 day turnaround at our Calvert City ethylene unit in the second quarter of 2023.
For the full year of 2023, we expect our effective tax rate to be approximately 23%. We also continue to expect cash interest expense to be approximately $160 million.
Now, let me turn the call over to Albert to provide current outlook for our business Albert.
Steve.
Since the fourth quarter of 2022.
<unk> environment has improved.
But with some mixed economic signals.
This improvement in the economy drove demand growth for all of our products during the first quarter of 2023.
As compared to the fourth quarter of 2022.
Additionally, lower natural gas.
<unk> and power costs further improved our structurally advantaged low cost position in North America.
Taken together, the volume improvement and lower cost position drove the improved first quarter results and.
And highlights the strength of our business in the current economic environment.
Looking ahead.
We are cautiously optimistic that economic conditions have stabilized and believe demand for our products. We will continue to improve as 2023 progresses.
We expect demand from China to continue to improve which would spur demand for many of our products.
Improving integrated margins.
We also expect demand in the U S to improve with increasing industrial and construction activity.
In our hip segment. The overall housing market continues to be impacted by affordability concerns.
Noting from the higher mortgage rates.
Yet we are seeing homebuilders, taking action to address these conditions and adjust prices.
Including increased incentives.
Our strong brand and product mix of 50%, new construction and 50% repair and remodeling.
Has remained resilient and supportive of margins in these market conditions.
Number two U S housing remains structurally under supplied due to the homebuilding deficit since 2007.
Relative to the 50 year average of one 5 million new homes built annually.
An improving demographics.
Support more first time homebuyers over the coming decade.
As a result, we continue to have a very positive outlook on our long term fundamentals for our building products business.
In our Perm segment growth in global population and continuing urbanization keep the outlook remaining favorable as performance materials using everyday products, such as housing packaging health care automotive and wind energy drive mental PVC and polyethylene.
In our proxy.
As Leslie we recognized the improving.
And the ability of our products and operations.
Remains critical to our future success.
In the first quarter of 2023.
We continued to make progress towards our goal to reduce our carbon intensity by 20% by 2030.
We also made significant progress in the commercialization of many of our sustainable products.
These exciting products include one pellet solution.
Inefficient polyethylene solution incorporating post consumer resin.
While maintaining its strength.
And our molecular already entered the PVC pipe while PVC.
Which provides a lighter weight and more durable PVC pipe with a lower carbon footprint than any other water main pipe materials.
Our dynamics business acquired in 2021 is one of the largest recycling of plastic materials in the United States.
Plus I think 100 million pounds of scrap and waste annually include.
Including an increasing amount of scrap from other Westlake businesses.
As part of our sustainability focus.
We are continuing to introduce products into the market that.
That include recycle and bio attributed component that satisfy consumer demands.
Finally.
We continue to look for opportunities to redeploy our well capitalized balance sheet.
In a disciplined manner.
Will create long term value for shareholders.
This includes both identifying acquisition candidates.
With returns that can seed our cost capital.
And returning cash to shareholders through both dividends and share repurchases.
We expect more opportunities to.
To redeploy capital to present themselves as economic conditions stabilize throughout 2023.
In the meantime.
Continued to benefit from the earnings power and disability created by the investments we've made in our business and our increasing focus on specialty material and downstream products.
Thank you very much for listening to our first quarter earnings call.
Now I'll turn the call back over to Jeff.
Thank you Albert before we begin taking questions I would like to remind listeners that our earnings presentation, which provides additional clarity into our results is available on our website and a replay of this teleconference will be available two hours. After this call has ended.
We will provide that number again at the end of the call.
We will now take questions.
Thank you so much ladies.
And gentlemen to ask a question. Please press star one on your telephone and weaker name to be announced.
Your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of Michael <unk> with Wells Fargo. Your line is now open.
Hey, guys nice start to the year.
Albert I think you mentioned that <unk> tends to be.
Seasonally better than one Q as you take.
As you look at demand and.
Integrated margins are for all of your businesses. How do you think that plays out this year given.
Things are weakening.
Across the board.
Yes, we are seeing.
Inventory Destocking runs its course and pretty much finished that destock.
Destocking process, and we believe that customers are reordering STC to demand and we believe that the economy has stabilized through the changes to interest rate increase.
And it should improve.
From the bolt ons, we are seeing in the fourth quarter of 222.
But having said that.
Just raised interest rates.
And they could have repercussions in the economy going forward.
But we believe that the U S economy is still quite strong domestic demand is quite strong we've seen that in our.
Both in the payment segment polyethylene PVC as well as <unk>.
Building materials business.
So we are cautiously optimistic that.
That we will see some improvements doesn't mean that we'll go back to.
2022, or 2021 high levels.
Before the interest rates start increasing.
Got it and then.
For PVC and polyethylene.
How is China recovering in the export market starting to improve we're couldn't really show up domestic operating rates.
Yes, I think China's economy is improving slowly slower than people expected after the opening up from pandemic and after the Chinese new year celebrations.
We see that the economy is still strong and people are going out about.
Traveling and spending.
And the stimulus from the government as well will take some time, but we believe that China's economy should be improving.
Great. Thank you.
Youre welcome.
So much.
Your next question comes from the line of Kevin Mccarthy of vertical Research partners. Your line is now open.
Yes, good morning.
Albert in your press release, there was a comment that you saw increasing demand for <unk> resins.
Surprised me a little bit can you can you elaborate on what youre seeing in the <unk> market with regard to.
Demand in operating rates and looking ahead or are you seeing.
Any increased stability in the pricing function there.
Sure Good morning, Kevin.
Yes, we see a proxy demand improving.
Primarily in North America is still quite weak in Europe .
With a high cost position Europe and also in Asia.
The weak, but we're seeing signs of improvement.
And the U S economy is still growing we need more windmill blades and coatings as well as structural products. So.
We believe that the coffee business.
This should have a good position going forward, but that is of course robust as in.
In 2021 2022.
But we believe the demand is there and I think when the economy recovers the increased demand in the epoxy, especially in the U S with a lower cost position as well.
Okay. Thank you for that and then secondly.
Your your hip segment margins hung.
Hung in quite well given the volume decline as you sort of prove out.
That business through what seems to be a tougher external environment.
Man wise.
Albert do you see opportunities to add to the construction related portfolio. During the current cyclical downturn. It looks like your net debt has declined about one 6 billion.
Year over year, providing you with more financial flexibility, so curious as to your appetite to.
Add via.
<unk> to that business.
Kevin, It's Steve and Youre right.
Scene I think good performance in the first quarter to be able to to maintain very strong margins in that business and I think it illustrates the strength of the brand and the mix.
As we think about the mix of products that we have in the branding there are opportunities to add to the portfolio and that building products business and we continue to be quite interesting to look to fill opportunities, where we see demand and can satisfy our customers with those branded products and add to that portfolio. So we will continue to look.
For opportunities to build out that portfolio, where it makes sense. So we're constantly looking as you would guess.
Actively in dialogue with folks as just finding the right opportunity and the right price.
Understood. Thank you so much.
Thank you so much.
And our next question comes from the line of Josh Spector of UBS. Your line is now open.
Yes, hi, Thanks for taking my question I was just wondering where you would say your cost basis now so with what you reported in the quarter does that reflect kind of the lower energy feedstock environment.
Our LIFO adjustment can you call out is that the right way to think about that or is there. Another tranche that kind of flowed through inventory that can help you versus where you are today.
Yes, certainly as a as a FIFO reporter you would imagine that there is still some of that lower costs that will flow through as a result, which is why I always like providing you some sense of what we would see if youre using LIFO versus our FIFO.
As you look forward into the forward prices for for gas or for ethane and you can see that compared 2022, 23 numbers for gas or for ethane will be significantly lower.
As we see in the forward curve so we.
Think we're very well positioned with a Gulf coast North American footprint for a large portion of our portfolio and that strong position will continue to play well if the forward curve plays out as it is forecasted to.
Joe just wanted to add some more information numbers as Steve said, the average gas price in 2022 was $6 55.
Medium Btu and.
Current and forecast estimate for 2023 is $2 95.
We didnt btu less than half of that and as you know natural gas also.
Impact the price of ethane, which is a fixed off of ethylene and also impact our power price, we buy a fair amount of power and natural gas price natural gas.
Large fuel input for Paula so all of that is a very positive impact.
Impact on our cost position so to give you some sense of the earnings potential here. When you think of the sensitivities, we have just to natural gas a dollar in MMA Btu.
On an annualized basis across the entire portfolio of Westlake is $125 million improvement in EBITDA.
EBITDA.
So given the fact that Apple is looking at $6 55 for 2022 and the forward curve.
$2 95, you've got over $3.
Forward.
<unk> that.
Play through so that sensitivity I gave you of $1 to $125 million viewed.
It's a huge potential opportunity for the company to see strengthening strengthened earnings this year.
Thanks, and I appreciate all that and just quickly on the PVC sales mix. I mean, you noted an improved in terms of shifting back to the domestic market would you say it's normal in terms of your mix now or are you still a little bit more skewed than you typically are.
Yes, it's more normal at the end of last year, the fourth quarter of 222 because of lack of demand people.
Destocking their inventory, we had export a lot overseas and those prices are being lower.
Domestic demand recover as well as the start of the building season.
It was really a starting from March so we are seeing in the second quarter. The demand has increased improve to.
Baltimore.
Okay. Thank you.
Youre welcome.
Thank you so much Josh our next question comes from the line of John Roberts.
Your line is now.
Thank you you noted the increased exports of polyethylene in vinyls could you talk about some of the geographic shift that's going on in Epocrates. So we've got China Epocrates moving into Europe are you shifting any of your geographic footprint and the Remoxy sales as well.
Yes, we have we are reacting to auto dynamics.
In the very competitive global marketplace.
As I said earlier that China with its <unk>.
Economy of being slowly in the past year or quarters.
That policy and.
As always the PVC to places like India, and Europe , we are seeing that being slowing down the Chinese economy is improving.
But things could change so, but we are very.
Cautious and his colleagues and although the activities going on.
And then secondly on the Westlake partnership are you still just waiting for a better value to do more dropdowns and does it make sense at some point to drop the low take cracker interest into the MLP.
Yes, so when we think of the opportunity there to put the put the ethylene or ownership of the ethylene unit for low T and of the unit.
Certainly possible the issue as you noted is really having the right valuations and the capital access. So there is an opportunity to do that if we see the right valuations and the right access to capital.
Okay. Thank you.
Youre welcome.
Thank you so much.
Your next question comes from the line of Duffy Fisher of Goldman Sachs. Your line is now open.
VC Duffy are you there.
Yes can you hear me yes.
Yes, I can now okay, sorry about that when you look at the vinyl chain chlorine EDC DCM into PVC, you see significant shifts in the relative contribution between the steps as we go forward this year.
Yes.
We looked at the economics Youre right, they do move up and down the chain right.
Right now the touring value is very high so the chain value is more on the chlor alkali business spot downstream PVC, but that could change also.
Fair enough.
And then one of your large competitors in our proxy has talked about doing some pretty significant restructuring of their assets.
At <unk> for about a year as you look at it you have the right footprint.
Oxy or do you think you need to do some significant restructuring of your asset base as well.
Yes suddenly.
We are new to the proxy business and have an ownership for year, we find an opportunity to improve and as we go forward.
Or trying to improve our positions.
Great. Thank you guys.
Youre welcome.
Thank you so much.
Our next question comes from the line of Steve Byrne.
Bank of America. Your line is now open.
Good morning, this is actually Matt on for Steve.
So.
Just kind of looking at.
Talk a little bit to the Chinese coal prices softening up here a bit.
And I know there was an expectation that perhaps China.
<unk> has some capacity.
PVC because vinyl margins are pretty weak, but if we think about the competitive positioning that in Asia right now with maybe a softer.
Feedstock market do you expect.
We expect that maybe just goes to some margin relief for those producers and prices will stay kind of.
Kind of where we are or do you see this as deflationary for global prices.
Do you think the demand can you kind of got up yesterday.
That's a very good question.
I think China double control on a couple of emissions and run until.
Impact per dollar of GDP, they generate is still.
Much.
Concerned by the government at implementing double control.
And with the PVC, 80% of Chinese PVC.
Produced from the KOL based carbide process.
And the non integrated producers, who are not integrate coal mines with.
With low PVC price cannot really compete or losing money. So there could be.
Quite a chunk of Chinese.
No inquiry to producers being getting other business.
But it doesn't mean that there is also still.
Expansions announced by the integrated producers, so we'll see how those dining.
Dynamics play out, but it should improve the global economy when Chinese.
Coal based PVC producers shut down or phased out.
Okay.
If I look at the U S vinyls like vinyl derivatives, PVC and just merchant chlorine market.
Is there room Chinese markets to absorb further chlorine prices should caustic weekend and we see the coin.
Core inside of the Eastern U push.
Push further.
Yes.
That's a good question I think.
Today U S exports of around 34%.
All this PVC already.
The caustic wise, we export about 20 odd percent so.
<unk> new capacity added all will also be accessing the export market, which is very volatile it can be good can be bad.
So from a price perspective, and that the implied margins that were dealing with in PVC.
Do you see a world, where you can kind of push further calling prices into this market or do you think theres going to be by a pushback.
Well, if youre integrated selling this margin to be shared.
Integrated then depending where we're.
Were to change you have and the biggest user of flooring in the U S still.
PVC, so if youll have chlor alkali, but no PVC it would access that market and vice versa, If youll PVC and Chlor alkali you Couldnt get a margin.
And I think Westlake.
The best integrated producer in the U S or in the.
World.
Okay. Thanks, Tom.
You're welcome.
Thank you so much. Our next question comes from the line of Matthew Blair of BPH. Your line is now open.
Hey, good morning, Albert and Steve.
The volume improvement of nine 6% quarter over quarter appears quite strong, especially in light of just the weak construction market are you able to break this out into one what is just the normal seasonal.
In Q1, two what was the impact of less Destocking.
Then three what was the impact of just underlying demand improvement if any in this segment.
Yes. Good morning, Yes, I think it's probably a large part.
<unk>.
The impact of reduction of Destocking.
Because of the sharp interest rate increase.
Last year and.
Sure.
Mortgage rates higher mortgage rates that people really.
Reduced home purchases and I think.
Many of the.
Build us.
In a cautious and destocking use of older products.
The inventory.
But even then still compared with first quarter 2022.
But maybe at a high high peak.
Infrastructure business is still at 21% reduction in volume so it's it's.
Quite a dramatic.
Reduction despite that compared with fourth quarter last year it was improvement.
And the second quarter, usually is the strongest quarter in construction as we said earlier and hopefully we.
As we read that.
Some of the homebuilders.
Had incentives and everything else to increase demand and we've had.
Recently, they have reducing those incentives because the demands coming back the 10 year average treasure.
Treasury rate is coming down.
4% is down to three 4%. So it is a benefit from the mortgage interest rates.
So we are seeing signs of improvement, but it's still a bit early.
We don't know how the economy will pan out second half of this year, but I think most people are reading that housing will be poor this year compared last year to improve 2004 and 285% sequentially.
Great. Thanks for that and then it looks like southeast Asia caustic prices are down about 20%.
Versus Q1 levels.
Is that mostly a function of weaker industrial demand.
How likely is it weaker.
Weaker Asia prices will flow into the U S market.
Yes.
As.
Asia was exporting <unk>.
Exporting PVC to have more excess caustic.
And coupled with a weak economy generally speaking the Asia.
Caustic price came down we believe that.
Export or Asia coffee prices bottomed out.
And we're seeing signs of improvement and also the economy in Asia.
Improving.
Gradually, especially China that will help.
So we think that.
The demand will absorb some of those excess capacity.
Thank you.
Youre welcome.
Thank you so much and our next question comes from the line of Ireland Viswanathan of RBC capital markets. Your line is now open.
Okay.
Great. Thanks for taking my question.
Congrats on the quarter.
So I guess first question is you guys commented on some improving trends in.
PVC and epoxy could you just elaborate on those.
And I guess is that.
No.
That continue on and maybe accelerate with.
Thanks.
Yeah.
Well.
PVC demand should be improving.
Sure.
<unk>.
Fourth quarter level and into the first quarter and second quarter.
Not at all.
I think some of the consultants.
Chemical market analytics, saying that they foresee the rest of the year pretty much flat and prices.
It shows that this is a domestic use case.
And they are looking at.
Somewhat improving prices for next year. This is forward looking.
So I think people will believe that we've seen the bottom of fourth quarter last year and things will improve gradually.
As demand improves.
Okay, great. Thanks, and then maybe you can just update on your thoughts on caustic as you move through the year.
We still expect declines has there been any stabilization there. Thanks.
Yeah again.
Caustic price.
Already reached.
Very high levels.
Firstly.
End of last year early this year and the forecast by <unk>.
Consultants are saying the price of oil will decline gradually throughout the year and stabilize by the end of the year next year.
Sure.
Well it depends again on the U S industrial economy, because cost is used very broadly.
Many areas.
Pulp and paper right now is a bit weak, reflecting the economy, but.
What else things are improving.
Alumina.
Okay.
Dominion.
That is increasing.
The infrastructure construction is increasing and also mining.
Lithium mining other kind of mining's, increasing so demand in caustic.
Could improve we don't know but.
As we said earlier in the call that caustic and chlorine prices are very very.
Very high levels, and we are benefiting from those with lower <unk>.
Power costs and <unk>.
Natural gas prices. So we are benefiting from the margins.
Thanks.
Thank you so much welcome.
Our next question comes from the line of David Begleiter of Deutsche Bank. Your line is now.
Good morning.
Albert bodies, we've seen Brent oil price dropped from the high <unk> low 70 as in last three weeks.
Think about that drop and impact on both the U S cost advantage you have in your own ethylene chain profitability.
So definitely.
It would have some impact as you know most of the world probably.
Probably two thirds or so.
Using naphtha as feedstock for the ethylene cracker.
As oil price drop.
Naphtha price job or they improve their economics, but.
Especially in Asia.
NASA based.
Ethylene polyethylene producers had been losing money.
Selling polyethylene based on the naphtha price so.
This was helped them improve the economics.
But we are still very competitive with ethane cracking caused us to really.
Ethylene is lowest among other feedstocks and.
That is still a wide margin apart from naphtha cracking.
Very good and just on U S polyethylene prices I don't believe the April contracted sales yet how do you how do you think about.
Q2 U S polyethylene pricing trended in the quarter.
Yes, I think the polyethylene price for April has.
Being flat chamos settled at flat.
<unk>.
Okay.
I think again some of the consultants are looking pretty much flat price.
Through the rest of the year.
Industry has announced <unk> upon price increase for April and push it to me.
So the industry believes that the.
The demand is improving the.
Prices being low compared with last year Thats dropped sharply since the second half of last year.
We deserve some.
<unk> margins.
Time will tell whether the <unk> can be.
Part of it can be realized in may on second half second quarter of this year.
Thank you very much.
You're welcome.
Thanks, So much. Our next question comes from the line of Alex da for months.
Of Keybanc your line is now.
Good morning, everyone.
Albert.
Can you talk about your utilization in the U S. PVC assets Chlor alkali assets you can provide any comments about your levels and also relative to industry averages.
Yes.
Yes.
There are some turnaround going on in it.
Our plan to outages I think the Chlor alkali running of ADL percent and PVC is in the mid eighties operating rates and.
Also reflecting the supply demand dynamics globally.
Thanks, Albert and Spain was P C.
Do you see domestic market to try to break it down in terms of demand between.
Housing R&R.
Our structure.
If you do know the kind of the rough percentage of it between those three buckets.
Hmm.
The infrastructure is the smallest component.
And housing.
The largest component as we show in our.
Our hip.
Separations, we show the sales of our.
Housing and infrastructure segment them part of the segment and within.
Housing probably two thirds.
All the sales are related to.
Repair remodeling in general.
And new homes. This one third.
Lots of loss I don't know how many homes.
Close to 100 million homes out there.
And we're talking about $1 5 million $1 4 million new home construction.
And depending on the repair and modeling what they use whether it's siding PVC window roofing, so on and so forth. So they use fair amount of PVC.
And repair modeling that in new construction Baidu construction is still a big part of it.
And for Westlake, We're about 50 50 with our capacities of.
<unk>.
And our hip business.
Our sales split about 50 50, 50% goes into new construction homes in the 50% go to repair and modeling.
And you could say that in the first quarter repair and remodeling was fairly resilient, even though we saw some continued concern in the new start levels, but you could see that repair and remodeling in the first quarter was resilient.
There are forecasters that would continue to suggest that repair and remodeling will continue to grow this year, probably at lower rates than last year, but nevertheless remain resilient through 'twenty three.
Thanks, a lot.
You're welcome.
So much.
Our next question comes from the line of Hassan Ahmed of Alembic Global Advisors. Your line is now open.
And Steve.
Question around polyethylene.
You talked a bit about.
The pricing dynamics.
Obviously, theres a fair bit of capacity coming online this year.
But as I sort of sit there and look through the different grades of polyethylene you guys have any sort of exposed to the LDP side of it and it seems that the capacity growth.
On the LTE side is far more decade than the other grades so should we sort of expect to see divergent sort of pricing trends between the different grades.
Well this is Albert.
Good morning.
Good question, we always felt that LDP should be.
Separately priced and so as we get a low and high density <unk> defend L polyethylene, but it doesn't serve different segments, but somehow our industry altogether.
Said OLED capacity and those haven't started yet but.
Completion, but having difficulty starting up those are primarily high density and linear low density and.
LDP I think the ODP has already started.
But nevertheless.
It has impact.
All the industry to take lumped together in the pricing ups and downhaul linked together.
Understood understood.
I want to make is that the margins even the price will have adult together the margins. The LDP is far better than the <unk> margins.
For the making polyethylene over the entity or high density.
Fair enough.
<unk>, yes, okay.
So now on the epoxy side of hotel.
Yes.
Commentary sounded incrementally positive so is it fair to assume that.
Potentially Q4 and Q1.
The trough and sort of things start cycling up from there and if that is the case.
This inflect.
Inflection will this be primarily sort of demand driven with sort of China.
King up end of life or will it be partly demand driven and Barclays supply driven as well.
In that in that sort of positive commentary you were making and maybe some capacity rationalization in the marketplace, maybe less disruptive pricing you talked obviously about China exporting less now so.
Just trying to think about supply and demand wise, what you guys are seeing that.
Yes, its very good question.
I think for PVC.
Youre right that Chinese demand, increasing pressure to real estate, which is a big component of the economy and the government try to stimulate that part as well that they measure increase of less export and pricing should improve and so those coffee on the policy side a bit different.
Not.
I thought that the base business and the Chinese are building booking for the wind mills and and windmill suggest getting back in China.
New construction to suddenly everybody needs a renewable energy at lower cost. So it takes time for that coming to this place and Meanwhile.
As one of the earlier questions that they have in exporting.
The amount also overseas.
As the year progresses, and next year I think next few years definitely the demand for proxy globally will increase improve but this year, it's still a.
Maybe it's.
Bottom of the cycle year.
Very helpful. Thank you so much.
Youre welcome.
Thank you so much and again to ask a question. Please press star one on your telephone and wait for your name.
Our next question comes from the line of Andrew Celia of Morgan Stanley . Your line is now open.
Hi, This is Turner henricks on for Angel I was wondering if you could give us a little more color on your <unk> business results, specifically, how they compare to <unk> 22 last year and <unk> 22 of last year as well and as part of that would you say.
<unk> business is gaining share in the market or how is westlake position evolving in light of the ongoing imports from Asia and strategic moves by one of your peers.
So good question. So the market was meaningfully stronger than the first quarter 2022, and so you certainly have seen.
A change in market dynamic in terms of demand from first quarter of 2022.
I'd say that with the energy power circumstance that we have let's say in Europe European a pox. He is in a much better position to be able to compete but youre right. There is still imports of Asian paucity into the European market, though is the Asian markets begin to rebound less so in terms of the.
<unk> of our policy resins into that market.
When you think of the domestic market for our proxy resin as Albert noted earlier, it's a stronger stronger position that we see there in terms of overall market demand and so I would say that the.
Troughs that we saw in fourth quarter as everybody was destocking across all product chains.
And you saw that really come to an end at the end of the fourth quarter and so I would say that we see sums.
Recovery as we get into 'twenty, three with 24 and beyond being stronger markets as we see greater demand for wind energy in windmill contracts being let in 'twenty, two 'twenty, three and 'twenty four and beyond and those will take time before those.
Windows are constructed and the demand really gets much stronger. So I'd say 23 is one of those years are as CA.
A strengthening of the market, but not fully back by any means back to the levels that we saw in 'twenty one in first quarter 'twenty two.
Thank you so much that's great color. Another one could we get a little more color on the export mix picture or PVC and <unk>, respectively, and can you give any comments on your domestic and export sales mix and mix shifts relative to levels seen in the industry.
Yes. This is Albert.
The industry.
Exports for polyethylene is about 41% in March.
Year to date about 42%.
PVC, it's about 34% for March at 38% year to date.
And for Westlake, we export less than industry average in general.
Alright, thank you so much.
Youre welcome.
Thank you so much.
There are no further questions at this time session.
Session has now ended I would like to turn it back to Jeff for closing comments.
Thank you. Thank you again for participating in today's call.
We hope you will join US again for our next conference call to discuss our second quarter 2023 results.
Thank you for participating.
The Corporation's first quarter conference call as a reminder, this call will be available for replay beginning two hours. After the call has ended.
Can be accessed via Westlake website.
Goodbye.
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