Earnings Call: Q4 2020

Feb 23, 2021

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation 4th Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. After the speakers' remarks, you will be invited to participate in a question and answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, February 23, 2021. I would now like to turn the call over to today's host, Jeff Holly, Westlake's Vice President and Treasurer. Sir, you may begin. Thank you, Joelle. Good morning, everyone, And welcome to the Westlake Chemical Corporation 4th Quarter 2020 Conference Call. 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. The conference call agenda will begin with Albert, who will open with a few comments regarding Westlake's performance, followed by a current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments and we will open the call up to 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 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. Actual results could differ materially based upon many factors, including the cyclical nature of the industries in which we compete Availability, cost and volatility of raw materials, energy and utilities governmental regulatory actions, Changes in trade policy and political unrest global economic conditions, including the impact of the coronavirus industry operating rates Impacts of extreme weather events, the supply demand balance for Westlake's products, competitive products and pricing pressures, Access to capital markets, technological developments and other risk factors as discussed in our SEC filings. This morning, Westlake issued a press release with details of our 4th quarter results. This document is available in the Press Release section of our webpage at westlake.com. We have also posted a presentation on our website to review the Q4 and full year results as well as provide an outlook into 2021. A replay of today's call will be available beginning today, Domestic callers should dial 855-859-2056. International callers may access the replay at 404-537-3406. The access code for both numbers is 308 9,728. Please note that information reported on this call speaks only as of today, February 23, 2021, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage atwestlight.com. Now I would like to turn the call over to Albert Chao. Albert? Thank you, Jeff. Good morning, everyone, and thank you for joining us to discuss our Q4 and full year 2020 results. Before we get into our results, let me provide some context as to how we approach dealing with the challenges in 2020. 2020 was clearly an unprecedented year and one where our priorities were to protect the health and safety of our employees, Deliver on our commercial commitments and strengthen the company. I'm very appreciative of employees We'll continue to work day in and day out, particularly those in our plants and production facilities. Our facilities are a crucial component of the infrastructure that provide key products to our customers who assist in the pandemic response, keeping essential goods and services flowing in support of our economy. We have also made progress this year developing products and solutions for a more sustainable future While protecting and investing in our people, we look forward to further discussing these products with you later this year. These initiatives reflect our commitment to being a responsible corporate citizen. Let me now turn to review the results. In this morning's press release, we reported net income for the Q4 of 2020 of $113,000,000 or $0.87 per share and full year 2020 net income of $330,000,000 or $2.56 per share. Before Steve goes through the Q4 and full year results, Let me provide some insights into the year. The effects of COVID-nineteen weighed heavily on the global economy early in 2020. But starting at the end of the second quarter, we saw the beginning of a strong global Demand recovery for PVC, polyethylene and our downstream building products. With a strong rebounding demand, We're able to capitalize on the increasing price environment that drove improving product margins for PVC, polyethylene and our downstream building products. In August October, 2 major hurricanes made landfall in Southwest Louisiana. While our plants weathered the storms well, there was extensive damage To the power and utility infrastructure in the Lake Charles area, once utilities were restored, We worked tirelessly to restart operations. In spite of production constraints Caused by the hurricanes, we worked diligently to serve our customers. I'm particularly thankful to our employees For the dedication, we're also impacted by these hurricanes while working to restore our operations. While we did experience production constraints in the second half of the year due to the hurricanes, we're able to benefit from the continuing growth In global demand, this translated into strong sales volumes for most of our products, driven by strong demand from pet packaging, housing and automotive sectors. This was especially true As new housing starts, repair and remodeling activities generate robust demand in our downstream building products business. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the Q4 and the full year. Thank you, Albert, and good morning, everyone. I will start with discussing our consolidated financial results and then go into a more detailed review Our Vinyls and Olefins segment results. Let me begin with our consolidated results. Westlake continued to benefit from the improving market dynamics For most of our products beginning late in Q2 of 2020, with strong demand and increasing prices for most of our major products, The effects of the 2 hurricanes, including the idling of our facilities, impacted our business beginning late in Q3 due to lower production and sales volumes and increased maintenance expense as a result of the hurricanes. For some units, these outages stretched into November. While we have fully resumed operations following the hurricanes, we estimate the impact to our 4th quarter pre tax earnings From the lost sales, increased costs and higher maintenance expense resulting from the storms to be approximately $120,000,000 or $0.96 per share. Of this $120,000,000 estimate, approximately 75% was related to our Vinyls segment with the balance affecting our Olefins segment. The full year impact of both storms on our results was approximately $220,000,000 For the Q4 of 2020, we reported net income of $113,000,000 or $0.87 per share compared to net income of $72,000,000 for the Q4 of 2019. These results are inclusive of the hurricane impact of Approximately $0.96 per share from the hurricanes I just mentioned. The $41,000,000 4th quarter year over year increase in net income It is a result of higher sales prices and margins for polyethylene and PVC resins and higher earnings resulting from robust demand in our downstream building products Partially offsetting these increases were lost sales and lower production volumes and other costs related to the 2 hurricanes we previously mentioned as well as lower sales prices for caustic soda. 4th quarter 2020 net income increased by $56,000,000 from Q3 20 Net income of $57,000,000 The increase in net income was largely attributable to higher Margins for polyethylene and PVC resin as well as lower restructuring charges. Offsetting these increases were lower sales volumes resulting from the impacts of the hurricanes, lower caustic soda prices and higher fuel cost. Our utilization of the FIFO method Accounting resulted in an unfavorable pre tax impact of approximately $18,000,000 or $0.11 per share compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited. Let me now move on to review the performance of our 2 segments starting with the Vinyls segment. Throughout the Q4, we saw strong global demand For PVC anchored by increasing global construction activities. Our downstream building products businesses continued to see strong consumer demand driven during the Q4. This robust PVC demand was driven by global residential construction, automotive, medical and appliance industries. While the effects of the hurricanes impacted our production of PVC and limited our PVC sales, we benefited from strong margins during the quarter. For the Q4 of 2020, vinyl's operating income of $166,000,000 increased $98,000,000 from the prior year period, primarily as a result of higher sales and margins for PVC resin and higher earnings in our downstream building products business, which were partially offset by lower sales volumes and the lost production resulting from hurricanes, lower sales price for caustic soda and higher fuel cost. For the Q4 of 2020, vinyl's operating income increased $124,000,000 From the Q3 of 2020, primarily as a result of higher sales and margins for PVC resin and lower restructuring cost, partially offset by lower sales volumes resulting from the hurricanes, seasonally lower sales in our downstream building products business And higher fuel cost. Now let me turn to our Olefins segment. In our Olefins business, robust global demand for packaging and nondurable Products expanded our margins in polyethylene. As the effects of the hurricanes limited our production and sales volumes for both ethylene and polyethylene, Our Q4 2020 operating income of $22,000,000 decreased $27,000,000 from the Q4 2019. For the Q4 2020, Olefins operating income decreased $29,000,000 from Q3 2020, primarily due to lower sales volumes as hurricanes and was partially offset by higher sales prices and margins for polyethylene. Next, let's turn our attention to the balance sheet and statement of cash flows. We generated $1,300,000,000 in 2020 in cash flows from operations, resulting in cash and cash equivalents of $1,300,000,000 with capital expenditures and other investments of $509,000,000 in the business to strengthen the company for the future. We completed the refinancing of the GoZone and IkeZone revenue bonds lowering our debt cost and drove our average interest rate to 3.5%, extending our weighted average debt maturity to 14 years while strengthening our strong investment grade balance sheet. This solid liquidity position coupled with long dated debt maturity schedule allows us to operate confidently in today's environment. Now let me address some of your modeling questions. Our effective tax rate for the full year of 2020, excluding the effects of the CARES Act, was approximately 20%, and we expect 2021 to be approximately 22%. For 2021, we expect cash interest expense to be approximately $130,000,000 and our capital expenditures to be between 700 $800,000,000 We are planning for a turnaround of our Petro II ethylene unit to begin in September. The turnaround and associated outage is expected to last approximately 60 days. Last week, Extreme winter weather across much of Texas and Louisiana caused widespread power outages and disrupted feedstocks, Raw materials and utilities to many plants in our industry, including some of our plants. As a consequence, several of our facilities Expenses are approximately $120,000,000 Approximately $100,000,000 will impact our Q1 2021 results with the remainder falling into the Q2. With that, I will now turn the call back to Albert to make some closing comments. Albert? Thank you, Steve. As we look ahead, the strength in global demand in polyethylene and PVC that was prevalent in the second half of twenty twenty is continuing into 2021. We're also seeing continued Strength in our downstream building products business driven by repair and remodeling spending as well as new housing starts. The highly integrated nature of Westlake, which extends from natural gas liquids and salt feedstocks through to consumer building products, Combined with our operations sitting on the lower end of the global cost curve enables us to drive Long term value throughout the business and investment cycles in our industry, our business fundamentals remain very strong An improving economy should also have a positive impact on our business into 2021. In our Vinyl segment, the PVC market continues to experience strong demand from our customers, especially in the residential construction, automotive and appliance industries. The robust residential construction market is also driving strong durable goods demand, benefiting Our full product offering in our downstream building products business. In our Olefins business, The chain margins reflect a significant benefit, which has been driven by the rising polyethylene prices we have earlier discussed. We foresee the solid demand for polyethylene that we experienced in the second half of twenty twenty to continue into 2021. This is driven by continued end use demand in the essential everyday products such as consumer products packaging, healthcare, hygiene And Foodservice Markets. During the last two years, we expanded PVC capacity by approximately £800,000,000 which positions us to meet this growing global PBC demand in 2021. Westlake remains focused on the priorities we value, namely to protect the health and safety of our employees, deliver on our commercial commitments, We strengthened the company in all aspects. We are confident that Westlake is well positioned to serve the growing needs of our customers, while maintaining financial discipline, which combined with the strong fundamentals of our business enable us to deliver Long term value to our shareholders. Thank you very much for listening to our Q4 2020 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 you that a replay of this teleconference will be available 2 hours after the call has ended. We will provide that number again at the end of the call. Joelle, we will now take questions. Thank you. Please stand by while we compile the Q and A roster. Our first question comes from Bob Koort with Goldman Sachs. Your line is now open. Yes. It's actually Mike here sitting in for Bob. Just had a question around the PVC Margins, it looks as if the EBITDA margin leaving the 4th quarter mid single digit I mean low Sorry, mid double digits. I was just wondering how do you see that playing out for the first half of twenty twenty one? Yes. According to IHS in the report, since June of 2020, The industry is able to increase prices in 2020 by $0.20 a pound in PVC. And in 2021, industry pass grew price increases of $0.04 a pound in January and $0.03 a pound in February And also price announcements made for March with a price increase of $0.07 a pound. So this represents Not only the growing domestic demand but also export demand and actually export prices since June has increased even higher than domestic demand and today's export price netback is higher than domestic prices For some customers. So we see as a really a global demand strength for PVC. Okay. Thanks. And just as a follow-up, you mentioned the supply demand outlook is pretty tight right now for PBC. Just in terms of outlook, when do you see that perhaps loosening up? Does that carry through the first half or perhaps longer into 2021? Well, so long as interest rate continues to stay low and so long as consumers have money, The housing demand, 50 year average residential housing construction is about 1,500,000 units a year. And since the housing meltdown in 2,007, 2008, last year we were close to Climbed back to 1,400,000 units a year and this year we hope to average above 1,500,000 and that's just the 50 year U. S. Residential housing construction average for 50 years. So long as, as I said, economy is strong Interest is low, I think the demand continues to increase. Okay, thanks for the color. You're welcome. Thank you. Our next question comes from Steve Byrne with Bank of America. Your line is now open. Revenue that's approaching the olefins segment, are you considering Splitting that out as a new segment and or bolting on some more Businesses into that end that Building Products Services business. Yes. Steve, we've been very pleased with the performance The strength that you've seen in the overall market and as I mentioned a strong performance by that downstream products building products business. And we'll continue to assess the opportunities to get more clarity in that space. But you're right, it has performed very, very well. And as you can see from our We expect to continue to see it continue well and we'll continue to assess the ability to give more clarity to everyone about It's abilities, but it is certainly an area that we want to continue to grow. And would you consider bolting on some downstream products That are sourced from polyethylene, such as PEX. The reason I bring it up PVC pipe in Home Depot sells for about $1 a pound, not too much different than resin. But those fittings are as much as $10 a pound. And I don't know whether you're capturing that margin or it's Home Depot Capturing that margin, but it's really healthy. Yes, Steve, it's not been an area that we've looked at and our continued area of focus has We've been on the downstream vinyl side as you see us continue to add businesses that have been very constructive to the strength of that business and We continue to see the ability to add bolt on opportunities as opportunities present themselves, and we find that an interesting area of focus. Yes, Steve, just want to also add that we are one of the few companies in North America that sell pipe and fittings together. So we have a very well known brand and our fitting business is doing quite well, as you said. And any plans to Do more debottlenecking in your chlor alkali business? Well, We always look at opportunities to grow in all our businesses. And as we mentioned, we had last 2 years about £800,000,000 of PVC capacity. And with that also certainly we need more chlorine and chlor alkali and in our downstream business since business So strong in construction, we're also looking at debottlenecking our capacities to serve the needs of our customers. Thank you. You're welcome. Thank you. And our next question comes from Jeff Zekauskas with JPMorgan. Your line is now open. Thanks very much. You disclosed the trend in Chlorine prices through the year, you quoted IHS and it seems that they ticked up in the 4th quarter. What do you make of that? And is there a trend there? Certainly. As you know, Half of PVC is feedstock is chlorine, the other half is ethylene. So as PVC demand is strong globally, The draw on chlorine is very high and hence chlorine price that chlorine also go to other Finished products not necessarily PVC but in water treatment, in TiO2 and urothing and many other applications. So chlorine because of the high value of chlorine into PVC, chlorine price also increased to reflect the strong demand for the product. Okay. And your operating cash flow as a percentage of EBITDA was more than 100% 2020, maybe it was above 90% in 2019. Historically, it used to be As a percentage in the high 60s or 70s or low 80s, why is the percentage so much higher now? And how do you see that going forward? Do you have a target for operating cash flow as a percentage of EBITDA? Well, Jeff, it's certainly operating leverage, which has really leveraged that growth in cash flows. And certainly, as we look at Opportunities to continue to build on the business, we'll continue to look for opportunities that provide that kind of operating leverage. As Albert noted, we'll look at opportunities across the spectrum, but we don't have a particular target Per se, but you can certainly imagine we're focused on opportunities that provide a high degree of operating leverage that allow us to do so with minimal investment of capital. Should you have a positive what's your estimation of the deferred tax benefit in 20 The deferred tax I'm sorry? What's your estimate of the benefit From deferred taxes to your cash flows in 2021. Yes. I'm not going to quote you a number, but certainly there'll be some Significant benefits as we see moving forward and certainly we had as you may recall and I made reference to this throughout 2020, We did also have some benefits because of the CARES Act. And because of our large investment in LACC, we also were able benefit from the net operating loss. So a variety of opportunities to leverage our tax positions be they the NOLs or the deferred taxes. Okay, great. Thank you so much. You're welcome. Thank you. And our next Question comes from John McNulty with BMO Capital Markets. Your line is now open. Hi, good morning. This is Bhavesh Bada for John. Good morning, sir. Good morning. So regarding the disruptions caused by the Texas fleet, clearly unprecedented event. So when you compare that to typical weather events or say hurricanes, could you help us with how different is the process to bring the plants back online? And what is the risk of negative surprises which could end up kind of extending the downtime for the industry? Well, hurricanes sometimes cause more damage to equipment and buildings than the freeze. Freeze is usually instrumentation boiler that can be more readily fixed. The risk is when plants go down, Sometimes, hot crash, hurricane, you know it's coming, you prepare, you shut down orderly. But the freeze, sometimes you're caught off guard, your boiler got The tripped and you're out of steam and the plant is crashing down and some of those plants will have suffered equipment damage From the heart crash and you only know more about it when you restart the plant to find out something is not working properly. That's the risk of unknowns out there. Got it. And then Your estimate for the $120,000,000 hit from lost sales, does that assume prices for the commodities stay at current levels? And if so, Roughly how much of that will be offset if the industry gets the nominated $0.14 price hikes over the next couple of months? Yes. And so it does contemplate the price environment that we're in and it also includes not only a lost Margin on sales, but also some repair cost as well. And so we'll just have to see if we're successful in Some of the price nominations we made for February and for March and how that sustains itself through the course of the rest of the quarter. You can see that a big portion of this will impact the Q1. We said $100,000,000 for an impact 1st quarter and the rest of it will impact Q2. Got it. Thank you. You're welcome. You're welcome. Thank you. Our next question comes from David Begleiter with Deutsche Bank. Your line is now open. Thank you. Good morning, Albert Steve, just on polyethylene, it looks like February will likely go through or is going through on the $0.07 How are you thinking about the March Increase and the prospects of that increase? Well, several of the polyethylene producers announced the $0.07 price increase with the tightness, But not all the producers have announced price increases. So time will tell whether the $0.07 will be For sure. The issue now with all the freezers, 100% of Texas as of yesterday, 1 100% of Texas ethylene plants are offline and 75% of total U. S. Ethylene plants are offline. So the availability of ethylene As well as mentioned earlier, the risk of restarting may impact availability and prices to ethylene, which will impact prices of polyethylene as well. So we don't know yet to what extent the ethylene shutdown has will impact prices for polyethylene going forward. Very good. And just on the $100,000,000 forecast for the weather impact in Q1, how many weeks of production lost Does that assume and how much production does that assume as well? So David, we expect that we'll have those operations up Here over the course of the next several weeks, I'm not going to quote a number of pounds, but over the next several weeks, we expect to have ourselves more fully restored. Thank you very much. You're welcome. Thank you. And our next question comes from Mike Leithead with Barclays. Your line is now open. Great. Thank you. Good morning, Albert and Steve. Good morning. I guess I did want to follow-up on that last point about restarting. And I just want to get a better sense of maybe where you are in the Is it largely just on right now Westlake restarting its facilities? Or are you Kind of waiting either for suppliers or logistics. Are there any kind of gating items that are preventing you from starting up at this point? Yes. I think depending on the plants and locations, some plants are running. We have not declared force majeure for polyethylene Some other industry companies have and just depending on location, the sites And how much inventory you have to serve your customers. Got it. Okay. And I did want to change topic. I wanted to ask on caustic soda. It feels like obviously that's been weak for a couple of quarters now. I want to get a sense if you feel like we're at or near bottom here or just what your outlook for cost of soda would be over the next, It's a couple of quarters, yes. That's a good question. Usually PVC, because of its Vast connection with construction industry with low interest rate. So PVC usually is a leading economic indicator on the cycle coming back And usually caustic is either concurrent or a little bit lagging indicator. So as the economy improves, caustic demand will increase more And hence the price will improve. And looking at both domestic and international prices, we see that The caustic prices are starting moving up from the bottom. We saw early end of last year and early this year. So We believe that we've seen the bottom of caustic prices. Great. Thank you. You're welcome. Thank you. Our next question comes from Mike Sison with Wells Fargo. Your line is now open. Hey, good morning guys. Sorry, Cleveland weather made it down to Houston. But, hey, when I take a look at The vinyls EBITDA margin in the 4th quarter, 21%, pretty close to what you guys are seeing in 2017 2018. If you think about the price increases that IHS is forecasting and then kind of margins for the year, should the rest Of 'twenty one be kind of in that level or higher excluding the impact of the Q1 winter storm Yuri hit? Well, certainly we would like to see those margin at those levels. As you know, the Vinyl business has impact Pretty severely with the COVID-nineteen downturn earlier in 2020. And we mentioned also Our integrated nature into building products and with the strength in building products that has really helped also our vinyls margin improving. The weakness as Steve mentioned in his remarks is that our improvements in earnings offset by the weakness in caustic. And as I mentioned earlier, we believe we hit the bottom in caustic and hope the question then is how fast, how soon caustic will improve. So that will be another tailwind in helping the business recovery. Okay. And then one just quick follow-up on vinyls. Once your facilities are up and running, Given what you've mentioned in terms of demand, do you think you'll be running effectively full out for the remainder of the year? Yes, we were running throughout before until we had problems. But Everything we see today that only U. S. Demand is strong, but global demand is strong. As I said, export price is higher than domestic prices. So long that COVID-nineteen is the worst is over hopefully for the world economy And with the increased vaccination rates around the world, we believe the economy should improve and with the government stimulus package Would help construction infrastructure and definitely will help PVC business and related business. Great. Thank you. You're welcome. Thank you. Our next question comes from Frank Mitsch with Fermium Research. Your line is now open. Thank you so much and good morning gentlemen. Good morning, Frank. Look, I want to follow-up on D3's Your impact of $100,000,000 in Q1, dollars 20,000,000 in Q2, how are you thinking about that between the two And the $20,000,000 negative for 2Q, I'm assuming that you guys are fully back up and running by Number 1, is that not a right assumption? Is it lost sales from not being able to build inventory? If you could just explain a little bit more about how you came up Those numbers. Yes. Frank, I would expect it will be up well before then. And from an impact perspective, I would say that in the impact Is on a vinyls basis, it's about 80% of that impact is in the vinyls segment and 20% of that is in the olefins segment, Both for Q1 and for Q2 in terms of how they split out between the two segments for the 100 and for the remaining 20 In the Q2. And the $20,000,000 for the Q2, is that your Inability to build inventory, how do we think about that? Yes. And so as I say, the second quarter, let me just clarify that when I said 80% vinyls, That's in total. The impact in the second quarter will be all vinyls. It's really the flow through of PVC resin and further downstream into our Vinyl's Building Products Businesses. All right. Very helpful. And thanks for calling out the Petro II turnaround in September. Can we infer that there is no significant turnarounds that you're anticipating to hit the 2nd quarter? Yes, that's right. We call out those that are more impactful. And so certainly with all the many units we have both In PVC, caustic, chlorine and polyethylene, those are spread throughout the course of the year. So I only call out those that are really More impactful, which are the ethylene units. And so that's the only reason for calling that specific one out. All right. Terrific. Thanks so much. You're welcome. Thank you. Our next question comes from Arun Viswanathan with RBC Capital Markets. Your line is now open. Great. Thanks for taking my question. Hope you're doing well. I guess I just wanted to get your thoughts on The disruptions that are going down in Texas, how do you see that kind of impacting the industry longer term? I know that operations are now starting back up, Do you see inventories kind of where they already at low levels and so this is going to exacerbate the production a little bit more or maybe you can just Your thoughts on the evolution here in the next couple of months? Yes. With most of the plants down in Texas, Inventory will be coming down and produced inventory are quite low now. So when the plants come back, they will have replenished inventory first. And so they will curtail sales whether it's export domestic in order to build inventory back to a reasonable level. And then as far as feedstocks go, do you see any pressure in the next, Say 6 to 12 months from potentially higher ethane cost or you see ethane is remaining relatively flexible? Well, it depends on who you look at. If you look at IHS forecast for ethane, they are looking at 2021 in the mid to high $0.20 per gallon. But then if you look at the future prices and 2021 is more of Low to mid $0.20 a gallon range or mid $0.20 a gallon range. So they do not forecast a Ramp up in ethane prices. And then if I can just ask one more follow-up. In the vinyls business, One of your main competitors has changed strategies a little bit and is potentially moving off index for caustic pricing. Has that had any effect, I guess, on overall industry dynamics and the way that you think about Maximizing ECU value for your vinyls business? Thanks. Yes. The caustic business It's very competitive. There are quite a few large and small producers and because of the big demand for chlorine, Every pound of chlorine you produce, you produce 1.1 pound of caustic. So the demand is when demand for chlorine strongly produces a lot of caustic, The economy is not picking up the demand for caustic at the same pace as PVC or as chlorine Then you have excess caustic and it shows the weakness in price. As I mentioned earlier, as the economy improves that weakness will be absorbed. So it's a very competitive business. Thanks. You're welcome. Thank you. Our next question comes from Hassan Ahmed with Alembic Global. Your line is now open. Good morning, Albert and Steve. Good morning, Tom. Question around polyethylene sort of supply demand fundamentals and Pricing, I mean, obviously, we were all pleasantly surprised by the strength of utilization rates in 2020. They continue to be Strong. And there are obviously a variety of moving parts there, the sort of Strength from the non durable side of things and then oil obviously pleasantly surprised and now you have maybe some impact From the weather related outages and we're going into a pretty heavy turnaround season as well. I mean, my question is, how are you guys As it pertains to 2021, what are you guys seeing in terms of the sustainability of this tightness, in terms of the sustainability of these high levels of pricing? I mean, and I guess the question really is that would it be a tale of 2 halves where we see extreme strength in H1 and maybe we see potential cracks In pricing in the second half of the year as a lot of these turnarounds are behind us. Well, one thing we do know is that a lot of things we don't know. We didn't predict the freeze. We didn't predict the 2 hurricanes that we spent of 2 months. So a lot of things could happen. But I think the fundamental supply demand, global supply demand, certainly there's a fair amount of Polyethylene capacity added globally and but the pandemic with this great demand for Internet sales and packaging and with PPEs and also with The increased demand for solar panels, so a lot of the polyethylene LDP plants has shift to making EVAs for solar panels. So then the rest of the packaging LDP demand supply has been reduced. So all these Changing dynamics is impacting demand side. On the PVC side, very little capacity added around the world In the last few years, we have as mentioned, we have added about £800,000,000 capacity last 2 years and now Some of our competitors announcing new capacity expansions in facing the global demand increase and yet globally Very few capacity in PVC has been added or being announced. So if you see the global demand dynamics and then with the supply, There you can conclude where prices will go. Now month to month, sure, it will gyrate depending on the inventory supply demand, weather And many other things, it will go up and down. But I think when people are spending 1,000,000,000 of dollars building new plants, It's a bolder confidence that our business in the long term should be better. Fair enough, Albert. Very helpful. And as a follow-up, on M and A, how are you guys thinking about M and A in this market? I mean, obviously, there There are some chlorovinos assets up for sale. And A, what are your broader thoughts about M and A? And alongside that, How are you thinking about prioritizing between the two segments? I mean, would you have a preference if you were to indulge in M and A on So Hassan, as you well know, we've grown the business both organically and through acquisition over time and we'll continue to look On the acquisition side, we look at opportunities obviously directly in our space, but we'll also look at adjacencies. You've seen us continue to And we'll look even beyond those that make sense to us. And so we'll look at those, but it's Always about finding the right fit, the right synergistic opportunity is the kind of thing that we're always looking for. Perfect. Thank you so much. You're welcome. Thank you. Thank you. Our next question comes from Jonas Oxgaard with Bernstein. Your line is now open. Thank you. Looking at your downstream PVC business, I was kind of wondering how much of the benefit you got was driven by margin enhancement from the outages Or from the shortage, I should say. And how much was volume gain from the economy restarting, etcetera. So I was hoping you could help me deconvolute that Certainly. As we mentioned earlier, early part of last year, When the pandemic hit, many of the municipalities shut down construction. So we had to shut down Production of our products, so both the vinyl business and some of the plants impacted as well as Building products, but as soon as the municipality opens up and as you know, most of the constructions outdoors, Then the demand came back and as well there is a movement from urban to suburban Areas and constructions, so single family homes, the construction demand start to increase and also Repair and remodeling people at home with money they are spending, traveling or vacationing And they are spending money in the home. So building construction products demand has increased. So our building products, We are practically sold out all the way when the demand is starting to improve. And as Steve mentioned, 4th quarter Typically, seasonally, because of the cold temperature and snow, then the sales into construction, especially outdoors will slow down That's normal and we build up inventory during that time period ready for the spring and now spring back is coming back and the demand is very strong. Okay. Well, I guess the question though is how much The boom in Q4 was temporary versus The boom actually continues starting from, Let's say May or June, just keep on every month is improving. Actually Q4 demand sales in the building products Slow down because the seasonal weather issues typically for the construction business. And then the Q1, Q2 is a Strong season for the building business and but you're seeing on a long term basis as mentioned the U. S. Residential construction, 50 year average, about 1,500,000,000 units. We went from the high Of 2007 or 2006, with a housing meltdown in 2008, it dropped from 2,300,000 units or so to 400,000 and from 400,000 we climbed back to about 1,400,000 units average Last year in 2020, the 50 year U. S. Residential construction average, 50 year average 1,500,000,000 units. So we just got back close to the 50 year average. And if you believe that with low interest rate and demand continuing to be strong, population in the U. S. Okay, thank you. I was also wondering, the losses that you got from the hurricane and the projected losses here from the deep freeze Are quite large in relation to your overall EBITDA. Will any of this be recouped by insurance? Well, some of the certainly some of the our damages can be recouped, but Paul, let's Steve answer that. Yes. Thank you for the question. Yes, we certainly do have insurance. And so certainly as we work through those claims, we'll be Able to recover a majority of that damage claim from the hurricanes. And so certainly those are the big issues on the freeze. We'll still be assessing that and see if there's an opportunity for insurance claims on the freeze. Okay. Is it like a magnitude of how much you expect to With open and then type in the comments? Yes. On the freeze, it's obviously lost margins. So it's very little property damage. On the hurricanes, it was more property damage than it was Necessarily lost margin. So there are different kinds of claim provisions here. So on the freeze, I expect less recovery. On the hurricanes, I do expect Substantial recovery. Wonderful. Thank you. You're welcome. Thank you. Our next question comes from P. J. Juvekar with Citi. Your line is now open. Hi, good morning. This is Eric Petrie on for P. J. Hi, good morning. Could you just talk, Albert or Steve, about how demand in China following Chinese New Year's held up. It looks like PVC prices are above $1200 per ton. How do you see that going forward? And Caustic soda has been pretty range bound. So any thoughts on those 2 molecules? Certainly. Yes. I think after the Chinese New Year, as you may have heard, the government discourage people travel to their home This is for the gas workers during Chinese New Year. And so demand has been very strong. And since Chinese New Year, Demand has come business has come back, demand has returned and actually I think polyethylene price is going up by $0.07 a pound 1 week after the return of Chinese New Year holiday. So it's quite strong. The caustic soda price as mentioned, We believe that bottomed and we see some signs of improvement even though by a small margin increases, But at least it's improving in Asia as well. Okay, helpful. And then secondly, on ESG, Many chemical companies are investing in recycling technologies or utilizing green or low carbon electricity. Could you just talk a little bit about what Westlake is doing in that area? Certainly. We are very much Concerned with ESG issues and we are part of the Alliance and Plastic Waste and Other Industry Sustainability Associations and Activities. As we mentioned earlier, hopefully later on this year, we will Discuss more of the initiatives we're taking on areas that will support ESG. Thank you. You're welcome. Thank you. At this time, the Q and A session has now ended. Are there any closing remarks? Yes. Thank you, Joelle. The management team needs to switch over to the Westlake Chemical Partners LP call. So we encourage anyone who has not had time to ask a Thank you again for your time And we hope you'll join us again for our next conference call to discuss our Q1 2021 results. Thank you for participating in today's Westlake Chemical Corporation 4th Quarter Earnings Conference after the call has ended and may be accessed until 11:59 p. M. Eastern Time on Tuesday, March 2, 2020. The replay can be accessed by calling the following numbers. Domestic callers should dial 855-859-2056. International callers may access the replay at 404-537-3406. Access code For both numbers, it's 308,9728. This does conclude today's conference call. Thank you for participating and you may now disconnect.