Q3 2023 Westlake Chemical Corp Earnings Call
Our average selling prices.
Meanwhile, infrastructure product sales of $181 million in the third quarter of 2023 decreased $16 million from the second quarter of 2023, primarily due to lower average selling prices and sales volumes and our compound business.
The overall higher segment sales in the third quarter of 2023, along with lower materials cost drove an improvement in EBITA margin to 29% from the 22% in the second quarter.
As a result hit segment EBITDA increased $83 million from the second quarter to $327 million in the third quarter.
Turning to our performance in our central materials segment third quarter 2023 sales for $2 billion.
With EBITDA of $339 million.
When compared to the third quarter of 2022, EBITDA fell by $222 million due to lower average selling prices, particularly for performance materials. In addition to lower sales volume largely in epoxy driven by weak global demand and increased competition from Asian imports.
<unk> segment EBITDA of $339 million in the third quarter decreased $96 million from the second quarter of 2023 is improved sales volumes, particularly for PVC resin and polyethylene were more than offset by a combination of lower average selling prices, particularly for caustic soda.
PVC resin and our policy.
Higher feedstock and energy cost and certain charges.
Net sales in our <unk> segment in the third quarter were 8% lower sequentially as volume gains over the second quarter were more than offset by price declines.
Which coupled with certain charges drove a decline in segment earnings.
As the quarter progressed, we saw modest improvement in pricing in some markets such as PVC and polyethylene, while other markets continue to face pricing pressure.
Our <unk> segment is globally competitive with a well invested vertically integrated position processing of low cost feedstock as we continue to grow our specialty and differentiated product offerings.
Shifting to our balance sheet as of September 32023, cash and cash equivalents were $3 1 billion and total debt was $4 9 billion with a staggered long term fixed rate debt maturity schedule.
For the third quarter of 2023 net cash provided by operating activities was $696 million, while capital expenditures for $245 million, resulting in free cash flow of $451 million, which reflects our strong cash generative business model.
We continue to look for opportunities opportunities to.
To strategically deploy our balance sheet in order to create long term value.
Now let me provide some guidance for your models.
Based on our current view of demand and prices and taking into account.
Typical seasonality, we expect fourth quarter revenue in our housing and infrastructure product segment to between $875 million to $975 million with EBITDA margins in the mid teens.
We also expect to achieve the $95 million to $110 million of savings in 2023 that I previously mentioned.
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 of run rate.
For the full year of 2023, we now expect our effective tax rate to be approximately 21%, which we will continue to expect our cash interest expense to be approximately $160 million.
Now I'll turn the call back over to Albert to provide our current outlook of our business Albert Thank.
Thank you Steve.
Entering the fourth quarter.
Backdrop.
<unk> challenging.
The rate of inflation remains high and mortgage rates at the highest level in over 20 years.
These inflationary and affordability pressures.
Legally impacting consumer and housing demand.
This volatile economic backdrop combined with ongoing geopolitical turmoil.
In a normal seasonal decline in demand leaves.
Leaves us to expect challenging conditions to continue throughout the fourth quarter.
The uncertain macroeconomic outlook makes it difficult to predict demand trends over the next several quarters.
That said, we believe that customer inventories are much lower today.
Then they will at this time last year.
Combined with the recent pricing momentum in some of our key products.
Should reduce the degree of customer destocking activity in both our <unk> and hip segments.
Relative to what we experienced in the fourth quarter of last year.
As we head into 2024.
Our leading market position with a broad product portfolio and strong brands.
Combined with our globally advantaged low cost position.
Enable westlake to respond to evolving market trends.
While executing our business strategies.
Westlake has demonstrated a solid cash generative generative nature of our business.
Resulting in $2 6 billion in cash flow from operations on a trailing 12 months basis.
We will continue to maintain a strong balance sheet and invest in our long term strategic priorities, while continuing to return capital to shareholders.
Notably.
Quarterly dividend has doubled over the last five years.
As a testament to our commitment to returning value to our shareholders.
We're also reaffirming our commitment to our broader stakeholder community.
To improve the sustainability of our products and operations.
We continue to introduce new products into the market.
To meet customers' sustainability requirements.
In September we were pleased to introduce our pivotal line of one tenant solutions.
This innovative portfolio of products.
Incorporate up to 45% post consumer recycled material into resin pellets.
With properties comparable to that of Virgin resin.
The product line has already achieved Green circle certification.
Which independently validates our post consumer recycled content efforts.
We're seeing increasing interest from our customers for this more sustainable material.
Separately I am pleased to announce that we achieved an 18% reduction in our scope, one and scope two C O two emissions intensity since 2016.
Moving Westlake closer to our goal of a 20% reduction by 2000 2030.
As we continue to achieve significant progress.
We will look for opportunities to increase our emission intensity reduction goals.
Before we open the call to questions.
I want to provide some closing thoughts on the third quarter and our outlook.
Our third quarter results highlight the benefits of our vertical integration.
And downstream diversification strategy.
A key component of the strategy.
Is the goal to reduce volatility earnings and cash flow all maximus maximizing growth potential.
Recognizing that profitability can shift up or down the value chain.
Depending on economic conditions.
We believe that it's important to have a broad product portfolio.
With strong brands supported by a manufacturing culture focus on low cost operational excellence.
In the third quarter. This strategy proved very beneficial.
Profitability moved through our downstream businesses.
Through the investments that we've made in our hip segment in recent years.
We're able to capture this value shift to enhance the stability of our EBITDA margin and cash flows.
As we look forward, we seek additional ways to broaden our business through organically and through acquisitions to further this strategy.
Thank you very much for listening to our third quarter earnings call I will now 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 is available on our website and a replay of this teleconference will be available.
Starting two hours. After this call has ended Maria we will now take questions.
Thank you at this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile our Q&A roster.
Our first question comes from the line of.
Patrick Cunningham from Citi. Your line is now open.
Hi, good morning, what drove the pricing declines in the hip segment for the quarter was it broad based or are there any specific areas of pricing pressure to highlight and sort of any sort of outlook into <unk> and into next year would be helpful.
Yes, so when you think about some of the pricing decline we saw certainly we're seeing certainly.
Pockets in some of these portfolio offerings, where there is pressure certainly you can see when you think about the quarter compared to second quarter. We certainly had nice volume volume pick up 7% volume pick up over Q2, but certainly as we all know affordability is an issue in the housing sector and so.
Certainly to continue to be performing very solidly as we did in fact record results. There is some pressure in certain segments within that portfolio within him.
Got it and then just a similar follow up and I. Appreciate your sales and EBITDA guide for the hub segment. The narrower <unk> sales range seems to point maybe towards the bottom end of your previous range is this some indication that business might be more challenged beyond just what you would expect from typical seasonality or is.
Are there any other negative trends to point to there.
Well it is a combination Patrick of both seasonal play plus we've seen certainly the compounding effect of interest rates.
And impacting affordability, but certainly it's a combination of both that impact of rising interest rates for our mortgages and certainly a seasonal play. So that's really the two primary drivers within the guidance that we've provided.
Great. Thank you.
Youre welcome.
One moment, while we compile our next question.
Our next question comes from the line of Frank Mitsch from Fermium Research. Your line is now open.
Hey, good morning.
If I could follow up on obviously very impressive.
EBITDA margins of 29% in the third quarter.
And based on your guidance it looks like the year is probably going to come in close to like 22% or so for the full year, which is up.
200 bps from last year, how do you think about normalized EBITDA margins.
In hip.
As you look out.
I went to 24 and beyond.
Yes, Frank.
Good question and certainly I think you see from the strong portfolio offering that we had and the acceptance by our broad customer base that we continue to perform even very well in a period of rising interest rates and so I think the portfolio. We offer does provide an ability to deliver really strong and compelling EBITA margins in this business.
It is a combination of what I would call exterior building products of course, our infrastructure products going into some of the infrastructure markets that we're seeing both pipes and fittings and of course, our portfolio adds compounds, which goes into a variety of applications, whether it is building wire or other applications in automotive or medical so it is a.
Broad portfolio offering and I think the portfolio offer attractive I think that kind of good margins that you see even in the face of these strong headwinds we've seen given.
Given interest rates and some of the pricing pressures. So I do believe that it's performing incredibly well and we expect it to continue to be strongly performing.
That's helpful and good morning, Yeah, Hi, Yeah go ahead. Please.
I just wanted to.
Two.
Comment that I think Steve in the past and has a wholesale.
<unk> for the hip business EBITDA margin is the high teens.
Can go up and down depending on the time of the <unk>.
Season, usually it's a maybe higher second and third quarter lower first in the fourth quarter.
Understood and then obviously then this does appear to be somewhat of an anomaly anomalous year.
Just trying to get at that but I also think that the cost improvement that you've talked about you've raised your target for the year.
Fairly significantly you did $80 million year to date, how much of that cost improvement is coming from the hip segment versus Perm.
It's actually well well across the portfolio everything from procurement opportunities on both <unk> and <unk> as well as logistics opportunities. So it really is across both segments roughly let's say equally so.
Interesting.
Okay. Thank you so much.
Youre welcome.
Thank you one moment for our next question.
Okay.
Okay.
Our next question comes from the line of Alexi Marathon.
From Keybanc capital market. Your line is now open.
Great. This is Ryan on for <unk>. Thanks for taking my question.
My first question would be around the current dynamics and.
In Chlor alkali have have recent capacity reductions by some of your peers had a positive impact on the market. Thus far and are there any areas, where you're seeing incremental demand for your product.
Yes.
Yes.
And we know that.
Following the biggest user of chlorine is for PVC and the biggest user of PVC is construction.
And as Steve mentioned, not only we are impacted by the high interest rate high voltage rate impacted affordability, our all new housing and also on the.
Repair and remodeling activities, but also seasonality is impacting it so I think.
The operating rate churn tends to go down for both PVC and for calling in <unk>, especially in the fourth quarter and maybe even part of the first quarter.
Helpful. Thank you and then can you just talk about what Youre seeing in your proxy market seems like there might have been some stability in prices here in October.
Albeit it is at a low level and it seems like costs are kind of continuing to margins. Just any commentary you can give us there would be much appreciated. Thank you as always yes.
As Steve mentioned that our proxy business impacted by imports so both Asian imports to Europe, and Asia imports to U S and the prices both in Europe and U S have dropped very close now to the important price. So we see some stability, even though the margin is pretty cool.
Wonderful thank you.
One moment for our next question.
Okay.
Our next question comes from the line of <unk> <unk> from BMO capital markets. Your line is now open.
Yes. This is Bob.
John Good morning, Albert and Steve.
Congrats on the quarter and the continued outperformance on the hip segment.
If I compare your performance in this year versus last during the quarter. So volumes are roughly flat and your margins are up 8% year over year.
Is that all price royalties cost is an element of changes in the product mix of what you are selling.
So when you think about year over year results of course, Youre right volumes are flat, but I would say that given the headwinds we've seen related to affordability driven by higher rates. It really is I think a testament to the strength of the portfolio offered obviously, we've seen some pressure on price either quarter over.
Quarter of year over year, but nevertheless, I think the the strength relative to the year over year with 22, a much stronger year than 2003 is a testament to really the strength that we have with our customers and the offerings that hip does provide.
I think if you think about the performance we had quarter over quarter.
Nice pickup in volume of 7% from <unk> to <unk>, which tells you even in this market that we've seen we're right where rates are at 8% plus for 30 year mortgages still strong performance from a volume perspective in the portfolio and our hip business.
Got it and then a question on the <unk> market here. So we are seeing international prices move higher in line with the feedstocks and pretty heavy volumes going from the U S into exports in general how do you see the mix going ahead and any color on your outlook for pricing year.
Yes.
The U S. This industry exporting into high 44% in polyethylene.
And with new additional capacity coming up.
Our U S local demand domestic demand cannot absorb that capacity.
So I think as the new capacity that comes up.
More export.
More volume to be exported.
Which cover the lower price of course.
Thank you.
Sure.
One moment for our next question.
Okay.
Our next question comes from the line of Matthew Blair from Tpa. Your line is now open.
Hey, good morning, Albert with $3 1 billion of cash could.
Could you assess the M&A landscape.
What kind of areas would you be interested in adding in and is it fair to think that if you did make an acquisition, it's more likely that would be in hip and Pam.
Matthew It's Steve I would say that as we look across the landscape. We look equally hard at both the material side in our <unk> segment as well as in our building products space.
Looking for opportunities, where there is compelling value good compelling synergies are immediately accretive to <unk> to the bottom line.
And so as you've seen we're willing to invest where we find the right opportunity as we have over the last year or two that we're looking for opportunities in both segments not necessarily focusing on one or the other but those that will really drive real value at the bottom line and while we do have cash on the balance sheet. It doesn't compel us to really go out and do just to trans.
<unk> two.
To spend that cash it's incredibly easy to spend the cash it's it's always more challenge to get the return and as you know we're really focused on that return basis. So that's where our focus will be a synergistic opportunities at either the hip or the <unk> segment, and we'll continue to look for those.
Yeah.
Sounds good and then Steve you mentioned, the raw material tailwind in hip.
Would that be a PVC and and if so are there any other roles that will help you out in the quarter and also were there any one time boost and hip.
The impact on the one time items, where are the period items, where really all in perm.
And as it relates to the reduction in input it was really vinyl we've seen actually that being the biggest input that had.
A benefit to the contribution of <unk>.
Margin expansion in the hip business.
Thank you.
Youre welcome.
Thank you one moment for our next question.
Our next question comes from the line of Michael Sison from Wells Fargo. Your line is now open.
Good morning, Mike are you there.
Maria maybe we put Mike back in the queue and let's take the next question, we'll do one moment for that next question.
Okay.
Our next question comes from the line of Arun Viswanathan from RBC capital markets. Your line is now open.
Arun are you there.
Maria do we have a connectivity issues.
Not that I am seeing I am.
Everything looks clear do we want to try to go onto the next person.
Yes, let's put it rune also in the next Q and let's go to this next question. Please.
One moment for that question.
Okay.
Our next question comes from the line of David Begleiter from Deutsche Bank. Your line is now open. Thank you can you hear me.
Yes, David we can thank you well thank you.
So you mentioned some impact from one time.
Packs in the quarter, how much were they and so there will be a tailwind into Q4 and are there any other one timers in Q4.
David Ive seen known at this stage in terms of impacts in Q4, and I would say these all were attributable to the <unk> segment and this was a $20 million item that we called out.
Good.
And Albert Steve walking.
Looking at 2040 of our early view on hip volumes next year, given the weakness youre seeing in North American construction.
We expect.
The hip general housing industry to still be impacted by the high mortgage rate high interest rate.
So until the fed start lowering rates, we don't see any recovery in housing demand.
Building related.
Demand.
So would you expect your volumes to be down next year.
Possibly.
Thank you.
Thank you one moment for our next question.
Our next question comes from the line of Duffy Fischer from Goldman Sachs. Your line is now open.
Yes, good morning, guys.
Question around for Oxy.
With the oversupply, we are seeing largely out of China, which of your end markets are being impacted by that which are not and have you seen kind of a change in global trade flows for epocrates.
Okay.
I think the coatings generally the largest market for oxy.
And as well as.
Areas, such as composite and wind Mills I think generally.
China is the largest capacity in the world.
Biased by a big stretch over the next producer and the economy in China really has not.
Recovered, even though Goldman has putting several.
Step solving centers.
Again, we're heading into the winter season, and things are slowing down in China as well.
So.
I think it's the impact it is across the board in global proxy activities.
Okay.
When do you think the industry, if we <unk> roughly stay at these levels because you talked about construction may still struggling next year does the industry need to do something strategic.
Meaning are people running kind of below cash breakeven do you think in some parts of the world or is this just something we're going to have to wait out until we get some demand rebound.
Okay.
I think generally speaking if you're talking about just chemical industry or.
I'm, sorry, your proxy proxies in Genesee.
Yes.
Yeah as I said in one of the question earlier was where we're seeing prices in a suspension that prices pretty much has dropped.
Dropped in both the U.
European markets to meet imports and were seeing the imports to start slowing down as well.
Because of the cost pressures oil price going up and.
And the economy is not great and even companies in China are curtailing production or some of the plants are not running so we are seeing.
Paul are taking actions to reduce production reduced losses.
All across the world So I think.
Phew.
Fox are people, we know are making any money.
Great. Thank you guys.
Youre welcome.
One moment for next question.
Okay.
Our next question comes from the line of Kevin Mccarthy from vertical Research partners. Your line is now open.
Yes, good morning.
Albert I'd appreciate your.
Updating view of PVC resin prospects moving into 2020 for the U S contract price seems to be trending about flat but.
It seems also that theres a lot of supply length in China against the backdrop of just.
Located property sector. There. So how do you see that playing out would you anticipate rationalization of capacity or throttling back or what is your view on PVC for next year.
I think.
At least in the U S market PVC demand will.
Impacted by <unk>.
Both domestic housing construction.
And as well as the global economy as you know about a third of the U S production DTC are exported.
And it's been there at that ratio for quite a while so and.
The U S. This is the lowest cost.
To produce previously in the world.
Benefited from low cost natural gas for generating power for <unk>.
Making chlor alkali and low cost natural gas for.
Producing ethane, which is predominant feedstock for U S ethylene producers.
And it will have a PVC is.
So ethylene and habits flooring.
And so we have the lowest cost producers in the world to produce PVC and we can export anywhere in the world and compete the.
The issue then is margin.
And China when things going on is that the Chinese government are moving less and less.
In the car by about 80% of the Chinese capacities are carbide coal based which has a high cost and high polluting.
Process and the Chinese government, having <unk>.
Curtailment of any new capacities in carbide process in the switching to ethylene based PVC production.
Which comes at a higher cost because ethylene you China is all based on.
NASA, which comes from cracking refining oil.
So the cost base is higher and so they are less able to compete on a global basis.
I'll stop on that sense again, our U S base of producers up much.
Better positioned to compete globally against even Chinese.
Exports so.
And as the global economy in China.
Activity is a big part of the Chinese economy, and is really going through the recessions right now so until the construction and housing activity in China improves.
Going to see improvements in.
Profitability in vinyl business in China, either closure impact the rest of the world as well.
Thank you for that.
And then Steve I had maybe two housekeeping ones for you I apologize if I missed it but how did the 50 million FIFO headwind that you reference.
The split between your segments and also curious do you have any fourth quarter maintenance turnarounds planned.
Yes, and so.
About three quarters of that is in Perm.
Kevin and I.
And your second question was tell me again.
Do you are you planning to turn around any of your manufacturing plants in the current quarter.
In the current quarter only.
Small activity from maintenance level perspective, our bigger activity will be in 'twenty, four and when we have a ethylene turnaround in 'twenty four but otherwise in the fourth quarter, it's really small maintenance activity not attributable to any significant turnaround levels.
Okay. Thank you very much.
Youre welcome.
One moment for next question.
Our next question comes from the line of Josh Spector from UBS. Your line is now open.
Hi, Good morning, everyone, It's Chris Perrella on for Josh.
Just following the guidance for hip for the fourth quarter.
What what's causing the halving of margin sequentially is that higher raw material costs and is that vinyl headwinds now what are the moving pieces I guess up in the third quarter on the margin and then down in the fourth quarter.
Sequentially there.
Yes, a big piece of that.
Headwind is really attributable to seasonal slowdown and saw diminished demand level. We're also seen since we're a FIFO reporter some of that cost will also roll through that well.
Roll through in the fourth quarter in terms of some of the feedstock cost will come through as well.
And of course, the compounding of interest rates that we've seen will continue to be a headwind in terms of affordability. So it's a combination of those factors.
I appreciate that Steve and then just one quick follow up on the caustic soda.
Albert and Steve I'd, just like to hear your thoughts on the caustic soda market as we move through the year given the weaker.
The weaker demand outlook for PVC.
Yeah.
Caustic soda generally.
Global demand.
Correlates well with global GDP growth.
And global GDP is really not doing that well so so.
So this year we have.
Or is the bias declines almost every months of the year.
I think at least the consultants are saying that after the price erosion of this year I think they are expecting another $20 for November and December withdrawal, but next year there'll be more stable and more price increases coming up.
All of these subject to global economic demand is hard to forecast these days.
No I appreciate that thanks for the time this morning, you're welcome.
Thank you one moment for our next question.
Our next question comes from the line of Hassan Ahmed from Alembic Global Advisors. Your line is now open.
Good morning, Albert and Steve.
I wanted to revisit one of the earlier questions around Chlor alkali supply demand fundamentals.
Particularly as they relate to your views on what you know.
You see your pricing and margins will do on a go forward basis.
Look I mean, you know the issue pricing and margins have obviously come down over the last couple of quarters, but one of your larger competitors.
Over the last few years has shut down a fair bit of capacity and has recently announced the.
Temporary idling of some capacity as well and they were very vocal in saying that by the second quarter of 2024 do you expect to see a positive inflection.
On the issue of pricing and margin side of it. So are your views in agreement with that.
Yeah.
Yes, generally speaking we agree.
The Westlake because of our.
Our historical strategy of being more fully integrated.
We have downstream of manufacturing of core into PVC and it also further integration to a hip businesses. So we have a lot more channel to sell products, both domestically and export along the whole vinyls chain, which help us to moderate our operations everything else.
So as we explained earlier.
The last quarter the value chain really has moved down to the downstream business.
And things.
Things, we have as mentioned.
Price declines for caustic throughout this whole year and comes out of the forecasting much more stable and actually improving prices for next year.
We are expecting things to get better at all this is subject to global economic conditions, We don't know what's going to happen with high interest rate, we are still seeing feeling the impact.
Up high interest rate, which.
And until that reverses.
We'll have a.
Detrimental effect on demand both.
In the U S and overseas as well.
Fair enough fair enough and as a follow up Albert.
I mean it seems.
It seem to be living through unprecedented times.
You know the destock across a variety of sort of chemical product chains, including yours has been quite severe 2022 onwards.
And if we were to Simplistically sort of.
Put that into historical context, obviously, a massive destock cycle like the one we've seen.
Followed by a pretty impressive restock cycle, right, but I mean.
Is it fair to assume that.
On a go forward basis, we may actually eventually see a pretty impressive restock cycle or now with rates, where they are with housing doing what its doing with China doing what it's doing.
Are we in a new sort of paradigm shift.
Absolutely.
I think as you mentioned, we've been seeing destocking pretty much through the whole year.
And I think most companies who mentioned earlier.
Destocking activities over the question is.
What is the true demand.
And people are really because high interest rate high inventory costs are expensive to carry our people are really.
Sure.
Ordering what they need.
Issue is there any changes.
So they don't know.
They're very short term oriented now.
So as demand came down we have more ability to serve as you know back in 2022.
If our hip business we have.
Backlog of over a year of certain products and that's not good for our customers. So now by and large most of our businesses. We are ready to serve our customers and whether the short notice. So we as a producer we carry more inventory to serve our customers.
And which also benefits from the import.
Competition in the businesses, but having said that is that we don't know customers don't know what is the true demand and we are ordering their ordering as holiday need and we're supplying them.
As you said, where the market turns.
They want more of a reasonable higher level inventory than it will be a.
A multiplier effect, if that's you could say that to production in the future, but kudos when that market term will be on the housing side generally speaking springtime, which stopped probably.
February March.
When people are seeing benefits of the weather at the start though.
Putting stakes in the ground and all that so where should we see some signs of improvement on housing in February March related.
But who knows but time will tell.
Very helpful. Thank you so much.
Yes, Eric welcome.
Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
One moment, while we prepare our next question.
Our next question comes from the line of Michael <unk> from Wells Fargo.
Your line is now open.
Hey, guys can you hear me.
Yes, we can Mike good morning.
Okay. Good.
What do you think we're going to run your Chlor alkali facilities in the fourth quarter in terms of the operating rate in <unk> and how do you think about that as you head into next year.
If demand continues to be sort of challenged.
Our operating rate pretty much follows the industry operating rates and as mentioned earlier generally the demand goes down.
The fourth quarter and first quarter saw industry operating rate tends to go down and picks up again in the second and third quarter.
And this is a general pattern of thoughts as Steve mentioned, we have not only seasonality, but also the impact of high interest rates.
The demand for construction activities. So those are compounded the effect.
Got it and then if if.
When you think about PVC demand in 2024, if if.
If demand if demand weakens as you head into 'twenty four.
How do you think you run your facilities.
Just sort of compensate for that.
Pull back some some capacity or just sort of run it hasn't.
Yes, the industry has pulled back we have pulled back by capacities, where the demand is out there, but as I mentioned that.
And the vital industry, we are all fully integrated companies going for all the way from making ethylene and chlorine down to making types of windows and sidings and compounds and the further you go down the more easy for you to reach out.
<unk> customer base.
And for PVC resin, we don't export much hip business, but PVC resin as mentioned the industry exports about a third 35% of production and we are the lowest cost producer in the world for PVC.
<unk> America.
Final producers so so on the <unk>.
Margin is good enough in our industry will export PVC and will also benefit the upstream.
The ethylene side.
Okay.
Got it thank you.
Youre welcome.
Thank you one moment for last question.
Okay.
Our final question comes from the line of Arun <unk>.
From RBC capital markets. Your line is now open.
Great. Good morning, Thanks for taking my question Cup, you're all well.
So I guess my first question of two questions. So first question is on.
When you I think are discussed this segment in the past you've noted kind of a 15% to 20% EBITDA margin range.
You've done very well in executing here and.
Do you think thats still the appropriate range to consider.
And could you potentially go well beyond that range and in a higher volume environment.
I'll start with that.
Yeah. So arun when we think about the demand environment, we've been in we've been guiding to kind of.
Upper teens and you see that we've exceeded that in a couple of quarters. This quarter was record quarter with 29, but I think in a much stronger demand environment. Given the fact that we've got a very broad product offering there is a potential for that but I think as we've seen here, we've got to see a much stronger demand market.
To be able to then move.
Margins and pricing up.
Got a very strong headwind currently with seasonality coming into play and with mortgage rates, 8% plus for 30 year mortgages, that's quite a bit of a sticker shock for most homebuyers and so to be able to get a better tighter.
Tighter market, if you will we need a much better backdrop in terms of affordability and a more constructive macroeconomic outlook. There's a lot of uncertainty in the market. These days and thats, causing a lot of people to be cautious about deploying personal capital into repair and remodeling and other construction, but yes.
There is potential, but we need a better macroeconomic backdrop.
Okay, Thanks, Steve and just on Pam.
As well another question I had was.
Thank you touched on the footprint on our core alkali.
You know your operating rates kind of following the industry, but what about epoxy I mean do you think that those further rationalization.
Required there just given the weakness that we've experienced over the last couple of years.
What's it going to take to really.
I see a better market there understanding that China appears to be the biggest driver.
There also will be from <unk>.
With reductions on your part that would that accelerate.
Yeah.
Yes, that's a good question.
As we discussed earlier that there's overcapacity in the world I think China build oil capacity for their anticipation of demand for both EV light weighting caused windmills.
<unk> the renewable power.
So that's the reason why China is pivotal capacity, but for whatever reason the EV demand is that theyre going to strong I think adoption is still takes takes while globally.
China is exporting hebei costs around the world and meeting competition.
Same time to.
Renewable power the windmill blades.
The various activities going on even in the U S and Europe, all people to do it but the cost increases.
All of these issues are impacting the pace of further development in wheat mills.
It will come.
And the Westlake, we have technology that can make.
Over 100 meter long played a longer blades are better the property's efficiency healthy we mills.
It just takes time and I think China and some of the older plants in China adult integrated plants.
Running low rates are shut down.
So just like anything.
It'll be rationalization going on and it takes time, but I think the demand for a proxy globally is still very strong.
Especially in the U S you have infrastructure.
Rebuild bridges in it or ship and so on and so forth and they all need coatings car. These coatings.
And.
The <unk> mill plates, and our proxies in electronics, so the global demand for our proxy we're very optimistic on the long term demand I think short term. We have this issue to go go through and I think the industry will go through that.
Okay.
Thank you at this time the Q&A session has now and then are there any closing remarks, Jeff.
Thanks. Thank you again for participating in today's call. We hope you'll join US again for our next conference call to discuss our fourth quarter and year end 2023 results.
Okay.
Thank you for participating in today's Westlake Corporation third quarter Conference call. As a reminder, this call will be available for replay beginning two hours. After the call has and then the replay can be accessed via Westlake website Goodbye.
Okay.
[music].
Okay.
Yes.
[music].
Yes.
[music].