Earnings Call: Q3 2020

Nov 3, 2020

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Westlake Chemical Corporation Third Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen only mode after the speakers present 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. November 3, 2020. 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, Justin. Good morning, everyone, and welcome to the Westlake Chemical Corporation Third 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 then 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 were 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, the supply demand balance for Westlake's products, competitive products and pricing pressures, access to capital markets, technological development and other risk factors as discussed in our SEC filings. This morning, Westlake issued a press release with details of our third quarter results. This document is available in the press release section of our webpage at West lake.com. We have also posted a presentation on our website to assist in the discussion of our results. A replay of today's call will be available beginning today This replay may be accessed by dialing the following numbers. Domestic callers should dial 855-859-2056. International callers may access the replay at 4045373406 The access code for both numbers is 189,658. Please note that information reported on this call speaks only as of today, November 3, 2020, and therefore, you are advised that time sensitive information may no longer be accurate at the time of system that can be accessed on our webpage at westlake.com. Now, I would like to turn the call over to Albert Chao. Albert? Thank you, Jeff. Good morning, ladies and gentlemen, and thank you for joining us to discuss our third quarter 2020 results. In this morning's press release, we reported net income of $57,000,000 for the third quarter of 2020 or 0 $0.45 per diluted share. If we'll see it goes through the 3rd quarter results, Let me provide some insights into our results for the quarter. Throughout the third quarter, we saw solid demand for our products with global economic conditions improving as many countries relax the stay at home mandates and business restrictions that had been put in place early in the second quarter due to the COVID-nineteen pandemic. Westlake captured this demand growth in the 1st 2 months of the quarter with sales volumes in both our olefins and vinyl segments, which were either comparable with or higher than the prior year period. As a result of this robust demand that accompanied the recovery in global economic activity Starting in June, we saw an increase in price environment for many of our products, especially for polyethylene and PVC. However, in late August, Hurricane LoRa made landfall in Southwest, Louisiana as one of the most powerful storms to reach the US Gulf Coast in the last 40 years. While our plants weather a storm well, there was extensive damage to the electrical and utility infrastructure in the Lake Charles area. Once power and utilities were restored, we're able to begin the process of restarting operations. The extensive repairs to power and utility infrastructure caused many of our facilities in Lake Charles, which is approximately 1 third of our global chemical production capacity to remain idle throughout September resulting in lost productions and sales volumes in the third quarter. This catastrophic storm also severely impacted any of our employees. I would like to say a special thank you to our dedicated employees who worked tirelessly to restart our facilities while also dealing with the hurricane impact to their own homes. In early October, as we were completing the startup process following Hurricane Laura, hurricane Delta make landfall in the same area, further delaying us from restarting our plants. I'm happy to report that opportunities have resumed operations. I would now like to turn our call over to Steve to provide more detail on our financial and operating results for the third quarter. Thank you, Albert, and good morning, everyone. I will start with discussing our consolidated financial results, followed by a detailed review of our vinyls and olefin segment results. Let me begin with our consolidated results. Westlake saw a solid rebound from the second quarter lows resulting from the COVID pandemic with strong demand and increasing prices for most of our major products. As Albert just outlined, the effects of Hurricane Laura to the electrical and utility infrastructure in Southwest Louisiana as well as logistic constraints in the area hindered our ability to quickly resume operations which led to lower production and sales volumes as well as increased maintenance expense and other costs associated with lost production. We estimate the impact to our 3rd quarter pretax earnings from the lost sales and increased costs resulting from the storm to be approximately $100,000,000. Or $0.66 per share. Of this $100,000,000 estimate, approximately 60% was related to our Vinyls segment with the remainder affecting our Olefins segment. In September, we announced the closure of a nonintegrated standalone PVC facility in Schopal, Germany. In connection with this restructuring of our European operations, we incurred charges of $34,000,000 or $0.19 per share in our Vinyls segment related to the impairment of certain These 2 discrete events Hurricane Laura and the closure of the Skokal facility totaling $134,000,000 Offset the results we otherwise would have reported from these strong markets for our products that Albert mentioned in his opening comments. For the third quarter of 2020, we reported net income of $55,000,000 or $0.45 per share, compared to net income of $158,000,000 for the third quarter of 2019. The $101,000,000 decrease net income as a result of the impacts hurricane laura and the restructuring charges just discussed as well as higher ethane and ethylene feedstock cost in both our vinyls and olefin segment. Partially offsetting these effects were higher earnings in our Vital Building Products businesses and lower fuel cost. 3rd quarter 2020 net income increased by $42,000,000 from 2nd quarter 2020 net income of $15,000,000. The increased net income was largely attributable to higher prices for major products, especially with the strength in PVC and polyethylene prices. As well as higher setting these increases were impacts from Hurricane LoRa and the higher restructuring costs associated with our European vinyls business. Our utilization of the FIFO method of accounting provides a benefit in periods of rising production costs compared to what earnings would have been reported on the FIFO method. As discussed, the impact of Hurricane Lauren in the Gulf Coast led to a large amount of industry ethylene capacity be offline during September. As a result, ethylene at the end of the third quarter more than doubled in price when compared to the end of the second quarter. The effect of this increase in ethylene prices led to a favorable pretax impact of approximately $46,000,000 or $0.30 per share compared to what earnings would have been reported on the LIFO method. This is only an estimate and hasn't been audited. Now let's move on to review the performance of our two segments, starting with the Vinyls segment. Throughout the third quarter, we saw strong global demand for PVC with industry consultants reporting domestic contract pricing increasing over $0.10 per pound export pricing in the U. S. Increasing over $0.17 per pound from the end of the second quarter. We also saw saw strong demand in our downstream vinyl products businesses from especially robust demand related to home construction, repair and remodeling, improving demand related to the automotive and appliance industries. However, the effects from Hurricane Laura impacted our production of PVC late in the quarter which limited our ability to of $42,000,000 decreased $111,000,000 from the prior year period, primarily as a result of impacts resulting from Hurricane LoRa and the restructuring costs in our European operations, which were partially offset by increased earnings in our downstream vinyl products businesses, and lower fuel cost. Now turning to our olefins segment. Our olefins business continued to see strong global demand for polyethylene which when combined with low industry inventory levels led to reported domestic price increases of $0.15 per pound from the end of the second quarter. As well as strength in export prices. As the effects of Hurricane Laura limited, our quarterly production and sales volumes for both ethylene and polyethylene our third quarter 2020 operating income of $51,000,000 decreased $41,000,000 from the third quarter of 2019 due to the hurricanes. Next, let's turn our attention to the balance sheet and statement of cash flows. At the end of third quarter 2020, with cash and cash equivalents of $1,200,000,000 and total debt of $3,700,000,000. In June of this year, we issued $300,000,000 tenure unsecured notes at a rate of 3.375 and used a portion of these proceeds to refinance $254,000,000 of 6.5 percent Gozone and IX Zone revenue bonds. $100,000,000 of the refinancing took place in August with the remaining $154,000,000 being completed yesterday. With this refinancing, we now have a debt maturity profile with a weighted average life of 14 years at an average interest rate of 3.5 percent. This solid liquidity position coupled with a long dated debt maturity schedule allows us to operate confidently in today's environment. Looking forward to the rest of 2020, as Albert mentioned in his opening comments, the effects of Hurricane Morris threat through September into early October. As we were beginning to resume operations, we had to idle our facilities in Lake Charles a second time due to the approach of Hurricane Delta in the same area. While Hurricane Delta caused minimal damage, it delayed our recovery a few weeks. While we have now resumed operations, we estimate the effect of the 2 storms to impact the 4th quarter results by approximately $120,000,000 given the current price environment due to the lost production in sales as well as higher maintenance costs we incurred. We expect 2020 full year CapEx spending to be approximately $550,000,000. We expect our effective tax rate for full year 2020 sweating the effects of the CARES Act to be approximately 15%. With that, I'll now turn the call back over to Albert to make some closing comments. Albert? Thank you, Steve. 2020 has been a challenging time for not only Westlake, but for all of us. The outbreak of COVID-nineteen late in the first quarter, which was quickly followed by the associated state at home orders and business restrictions, significantly curtailed global economic activity. As we progress from the spring lockdowns, we have seen a broad based economic recovery that drove a strong increase in demand for many of our products, especially those more directly tied to the end consumer. While this economic recovery may continue to be uneven among the industries we serve, we remain optimistic in our outlook. The pricing outlook remains favorable with industry consultants noting that demand continue to be ranked strong while inventory for PVC and polyethylene remain low, supporting the momentum we have seen as we enter the 4th quarter. In our vinyl segment, supply constraint for PVC continue while strong demand from our customers especially in the construction, auto and appliance industries has created tight market conditions. As industrial production has slowly began to recover. Demand for caustic soda in the third quarter improved from the lows seen in the second quarter. In our olefins business, we expect the firm demand for polyethylene that we have seen throughout the year to continue. This demand is driven by high end use demand in the consumer products packaging, healthcare, hygiene and food service markets. Similar with PVC supply constraints have created tight supplydemand balances with low industry inventory levels. We will continue to remain focused on operating safely, delivering superior operational performance and reducing our costs. While we are monitoring the increasing cases of COVID-nineteen around the world, we are cautiously optimistic in the improving business dynamics for the balance of 20.20 and into 2021 as industry indications look constructive We are confident that Westlake is well positioned to serve the needs of our customers while maintaining financial discipline which combined with the strong fundamentals of our business will enable us to deliver long term value to our shareholders. Thank you very much for listening to our third quarter 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 is ended. We'll provide that number again at the end of the call. First question comes from Bob Koort from Goldman Sachs. Your line is now open. Thank you Ed. Two questions, if I could, Albert. First, I think you mentioned maybe the supply chain seems a little bit lean. Could you give us some quantification and whether you think that could maybe provide some resistance to typical slowing in the 4th quarter And then secondly, I was just curious what your latest thoughts are on regionalized differences in ethane costs as we head into the first quarter? Thank you. Certainly. Because of the planned outages we've seen in the polyethylene and PVC industries, people are now coming back in operation and building up inventory back again. So we believe that the inventories among producers are quite low. I think inventories among the consumers are low to average. And until the producers build up adequate inventory, we will not see oversupply of polyethylene or PVC. Even into the fourth quarter. And demand for polyethylene and PVC globally remains strong. So the demand, will continue, we believe, as global economies recover and demand will remain strong into 2021. As far as ethane is concerned, there's bulk suddenly, that with less oil production, less associated gas production, that's ethane available and also with new ethane terminals coming back operations that export demand will be larger, but it time will tell because the oil and gas balance may or may not have ethane export demand, as we've seen in April, May of this year, when oil price dropped a lot of the ethane exports has dried up. If you look at the future prices for ethane, they're still hovering in the low 20s to maybe low 30s for next year. So we are confident that there will be ethane available, to supply the U. S. Domestic demand for years to come. Very helpful. Thank you. You're welcome. Thank you. And our next question comes from Frank Mitsch from Firmium Research. Your line is now open. Hey, good morning, gentlemen. I wanted to get a yes, good morning. I wanted a little more clarification, or some more color. I believe Steve, you mentioned that the 4th quarter would be negatively impacted by $120,000,000 due to storms. Could you break that down a little bit further? I mean in terms of where and how you're seeing that? And so Frank, yes, that's right. $120,000,000 is our guidance for the impact in the fourth quarter related storms. And of course, excuse me, of course, that relates really to both combination of loss margin and some repair expenses. Obviously in a higher price environment that we've seen, continued from September into October, obviously the impact of BlueJeans production and sales impact that to a greater degree than it did in 3rd quarter, which as I said, the guidance was $100,000,000 to our 10th 3rd quarter. All right. So basically what you're saying is that the fact that margins have picked up, prices obviously are ending ended the 3rd quarter higher than they started at least on polyethylene certainly in PDC, that's why you're going to see that greater impact 4Q than you did in 3Q, correct? That's right. And you do have some costs that flow through into cost of sales in third quarter flowing into quarter. So that's also part of the contribution of the impact in Q4. Okay. All right. Very helpful. And then, you obviously took the step to shut down one of facilities in Germany on PVC, you took the $34,000,000 charge. How do we think about all else being equal? The fact that you're running those other assets there, because you're not losing any volume, right? You're going to run your other assets there at higher levels. How should we think about the financial impact after next year beyond all else being equal? Well, you're right. As you may call, we did expand facilities in Germany and so we can accommodate this reduction of production in scope out. And so there's no change in our ability service to customers. So no change in volume capability as a result of this shutdown of this plant and scope out. So as we think going forward, we think we're very well positioned now running more integrated assets at higher rates, which certainly is a very constructive way to run the businesses. So being able to really pull that unintegrated facility out of the portfolio will be additive to the overall business. We expect that given the strength that we've seen so far, we hope that we see that continue into 2021. Got you. Thanks so much. You're welcome. Thank you. And our next question comes from Mike Leehead from Barclays. Your line is now open. Great. Thanks, and good morning, guys. Good morning, Mike. Good morning. I guess first, can you give us a bit more color on the strength of the Building Products businesses in the quarter and how you think how sustainable this demand is? And relatedly, do you intend at some point to give the financial community more details around the business given the level of growth that's seen in differentiation for maybe the more commodity chlor alkali assets? We'll take that into consideration as we think about this business and you're right, we did see and I spoke to the strength that we've seen in the business that was across the board in our compounds business and our pipe business and our exterior siding businesses. So all of them were very nice contributors to the overall EBITDA of the quarter. And I say, we don't give specific breakout guidance, but all three were nice, very solid contributors and we continue to see that repair, remodel, and new construction mark continue. So we're very, very excited about the robust strength we've seen in all three of those pieces of the business. Great. That's helpful. And then question on natural gas. Obviously, prices moved higher in October. And I assume because of your flight book, counting, you'll still be rolling through some of that lower cost September gas in your 4Q results. So could you maybe just give us an early framework how to think about that 4Q flight will benefit or maybe just an overall sensitivity, how we should think about natural gas prices? Well, you have seen it's not only the FIFO is not only natural gas, of course, it's feedstock. So ethane and ethylene and you've seen an increase in pricing of ethylene from 2Q to 3Q. And so certainly it's a combination of gas ethane and ethylene coming into the coming into the FIFO calculation and carrying through. Those higher costs will flow through into our fourth quarter And so certainly will be some headwinds as we see it. It was a headwind as I noted in my in my comments in third quarter. And a pretty significant headwind both in price and in volume for those feedstocks. But they will continue to be a headwind if prices continue. And it's a function of really ending Q3 and the Q4 price at the end of the year will really be that way to benchmark what that impact is. And our next question comes from Alex Yefremero from KeyBanc. Your line is now open. Thank you. Good morning, everyone. Could you tell us where pricing is for building products relative BDC in the third quarter or maybe year to date. Is there an opportunity for building products to enhance margins further in Q4 or maybe next year by raising prices? Yes, building products, have been increasing prices to reflect the PVC raw material price increases. And with a strong demand even into the winter season, we will see that the prices will be maintained. At this level. And, depending on, again, economic conditions in the springtime, typically springtime It's a strong building season. But as people are building inventory now, in the winter season, and depending on the economic condition, we'll see when what price levels will be at a time. Thank you, Albert. And you recently announced a price increase in chlorine, a fairly significant one. At the same time, IHS Markit Index increased over the last 2 months, but much more modestly. Can you maybe tell us how your merchant chlorine pricing works to what extent it's tied to IHS versus freely negotiated? And also maybe explain this seemingly large difference between the nominations for merchant chlorine that are out there and what IHS says, the pricing actually is. Certainly, certainly, we have to reflect market conditions that we sell on merchant chlorine. But as we said, We are vertically integrated to our PVC business and the PVC demand is very tight. So we want to make sure that our PVC productions impacted because of Hurricane, LoRa and Delta, a large part of our PBC, our Vinyl feedstock lake Charles plants have been impacted. So we're now building that inventory, for INOS and CTC and EDC. So, but any contractual sales on the on growing related products, we had to reflect market prices. And thank you. And our next question comes from Hassan Ahmed from Alvic Global. Your line is now open. Good morning, Albert and Steve. Good morning. Morning. You know, just wanted to revisit the chlorine price I side of things. Obviously for the last couple of years chlorine pricing has been fairly steady and cognizant of the fact that we've seen some outages over here. We've seen some outages out in Brazil as well. But it seems that capacity is slowly coming back online. So, the question I have is, how sustainable do you feel this recent sort of chlorine price hike is, be it as one sort of goes into Q4 and then 2021 as well with obviously the backdrop of what seems to be a pretty tight sort of PVC market as well as a relatively sort of healthy housing market? Yes. That's a very good question. As I said earlier, we are building integrated PVC and PVC is the best margin for all the chlorine derivative markets and merchant chlorine sales probably is among the lowest margin for the chlor alkali business. So we are trying to maximize, our, proiling assets and hence, we have announced a pretty large price increase for crowing. But I said earlier that we had to reflect the market conditions and there are other producers. They have different needs for their chlorine pricing. And, so we have contractual areas that we had to reflect market prices. Understood. Understood. And now sort of moving on from certain product areas, just as I take a look at your balance sheet, seems pretty healthy. It seems that the worst of the demand side of things and pricing side of things is behind us. Q2 seems to look like a trough and it seems that market conditions have improved quite nicely thereafter. Now, and as that's happened, it seems M and A seems to have picked up again. And on the chlurovinal side, there is an asset that's available. You know, so how are you guys thinking about the near term side of things as it pertains to M And A, particularly on the chloride vinyl side of things. So, Hassane, we always are interested in at opportunities in our space. And so I would say that as we assess opportunities, we'll look and see do they fit to other compelling synergies and have the value propositions compelling there. When we look at our balance sheet, we think that we have a very strong balance sheet, but of course, we never want to overstress a balance sheet. So we'll also take those issues into consideration. You saw that when we made the acquisition back in 2016, we quickly paired down the debt So our focus is maintaining strength of financially as well as being able to build on the business and grow the business. So we'll assess all the opportunities that are in our space. And if they're compelling, have good synergies and a good fit, then they become increasingly more interested. And then it's a function of can we run those assets effectively and integrate them into our business and provide the synergy that we think we can. So it's really about value creation at the end of the day. Very helpful. Thank you so much. You're welcome. And our next question comes from Steve Byrne from Bank of America. Your line is now open. Hi, it's Matt Deo on for Steve. Volumes were down 18% in olefins and only about 2% in vinyls, particularly despite the maybe 60% headwind from the storm also being on the vinyl side. So, why was the vinyls business seemingly less scathed on the volume side? Is that just a function of building products? Can kind of fill out a couple of blanks there? Yes. And so, certainly as, certainly, the Lake Charles facility is certainly have both vinyl and olefins assets of course. But to your point, we had a strong contribution by our downstream building products businesses. Those business continue to work very well. You may recall that we also declared a force majeure or in many of those products to make sure that our customers fairly dealt with and that affected our downstream products as well. But certainly as we saw the strength in our downstream products business in seen that both in housing starts and housing permits. And I spoke earlier about the strength we've seen both in compounds pipe and fittings and exteriors. Really spoke to the strength we've seen in our vinyls businesses. Matthew, it's fun. I want to add also that end of last year 2019, We added more capacity in our PVC business. So we had more production. We had more inventory. So this was sales and our production. So we sold from inventory level and hence, we spoke earlier about rebuilding an inventory back as well. Okay. And then the $120,000,000 in outages in 4Q, is that kind of be the same sixty-forty mix across segments that we saw in 3Q or does it change for some reason? I would expect that same mix to be appropriately correct. Thank you. And our next question comes from Kevin McCarthy from Vertical Research. Good morning. I was wondering if you could comment on supply demand dynamics in caustic soda. You mentioned that you saw some sequential improvement in the third quarter. Where do you think demand is currently relative to normal? And then related to that, on the supply side, we saw one of your major U. S. Competitors declare force majeure at 2 different locations over the past 3 or 4 business days. What is your read on the supply side of caustic and how tight or not that's become recently? Certainly, as we speak, even though the global economy has recovered from the low in the second quarter, We are by no means returning back to pre COVID 19 levels. Manufacturing economies are still, recovering and GDP's many countries are still negative for this year. So until GDP recovers, coffee demand will not return to its health before COVID 19. And same time, as we mentioned, a lot of construction and especially in the U. S. Building remodeling repairs are going very strong. People are staying home and they have a lot of disposal income, they're not spending, traveling or entertaining vacations. So they want to fix their homes and also they want to move to single family homes in suburbs. So demand for PVC is very strong demand for chlorine very strong. As you know, every pound of chlorine produced, you produce £1.1 of caustic. So the supply has the plant coming back from operations and force majeureaus on production problems, you will see more supply or caustic. So that's the imbalance between PVC and caustic And hopefully next year, when the pandemic is subsides or behind us, the global economy will return in a stronger position and cost of demand will return to its healthy, position as in the past. That's helpful. And then secondly, Albert, I wanted to ask about your recent experience in polyethylene pricing. A couple of the consultants have marked the price in October as the outlook for low density versus linear low at this point? Certainly. Low density demand has been very strong. I think year to date reported that, loadings demand has increased over 4% compared with year to date of 2019. And usually, low dense demand, growing at most 1% to 2% a year. And this is domestic demand. So So it tells how strong the domestic demand is for LDPE. But you're right, I think the industry consultants and the market reflected that we had, about $0.40 a pound of price increases in the last since June and October now prices held flat by the market. And our next question comes from David Begleiter from Deutsche Bank. Your line is now open. Thank you. Good morning, Albert on the same question. How much price erosion do you expect to see over the next few months in both polyethylene and PVC given you've gotten 20 odd cents of price increases since about May and both products? Yes. I misspoke, ODP was $0.19 much dollars. If you look at IHS, IHS looking at prices to reduce November December, and as well as January, but then in March increases again. But the outlook for IHS that Next year, 2021 average price is higher than this year 2020's average price. So they are seeing improvements in demand as well as the prices for polyethylene. For PVC, that's the $0.20, price increase in stream and it was all the way to October. And then IHS looking at, $0.04 decrease in December. And starting increasing pricing in February again. So time will tell, but we believe that with the low interest rate, And we believe there will be a continued monetary and fiscal and stimulus to the economy for the employed And with the over time with all the work being done on vaccine development and therapeutic drug development, we will get a handle on COVID-nineteen and the economy will recover. Hence, we believe, and I think general people consensus believing that next year GDP will bounce back, from the low of this year. Very good. And just lastly, what's your outlook on styrene as there is some capacity coming on stream in China over the next period of time there? Right. Yes. Stiring is an interesting business. As you know, we have a small Stiring business. Is doing, I've been doing quite well. It's the newest and smallest sign plan in the U. S. Started in the 1990s. So you can tell there's no new standard capacity in the U. S. And because, as you mentioned, the capacity in China I think it's a Cyren business. It's really a combination of ethylene price and benzene. Benzene goes up and down with oil. And U. S. Has enjoyed a low cost ethylene price solution export ethylene nut not related to China, but to the rest of the world, and U. S. Has been doing quite well. I think U. S. Continue to have its cost advantage But as you said, with new capacity in China, the, export markets will be reduced Thank you. You're welcome. And our next question comes from Arun Viswanathan from RBC Capital Markets. Your line is now open. Great, thanks. Good morning. I guess I just wanted to go back to caustic soda and the outlook there. It sounded like, you were making the point that construction looks pretty strong and should look to remain that way for a little while, and potentially outpace industrial production I guess with that backdrop, maybe you can just give us your thoughts on caustic soda in the price evolution over the next little while, we will go into a period of maintenance here and maybe lower operating rates. So do you expect caustic soda to kind of start moving back up over the next couple of months, especially just given the recent outages And, we've gone through a period of price declines here. So do you think that will reverse in the next couple of periods? Well, industry consultant IHS is projecting caustic soda to because of the strength of PVC and chlorine and also going to the winter months caustic soda will continue to slowly weaken and then recover in prices in April next year. This is their projection. That's helpful. And then, I guess I just also wanted to get your thoughts on the olefins side. I mean, you've really grown your your vinyls business over the last several years through acquisition. And otherwise, Do you have any thoughts on potentially growing the olefins side of the business as well? There's been a couple of recent transactions there. There may be some others that become available, is that an area of potentially inorganic growth, for Westlake? Yes. And we've spent a fair amount of capital last year in investing in olefins. We spent significant capital investing in the LACC joint venture to bring more ethylene into the equation. So again, it's always about really where the opportunities reside. And if we can see and you've seen that our portfolio has performed well with the large contribution from the low dincing, especially the specialty in the cracker we made with our partner last year is one of those very low cost opportunity to bring up additional ethylene in the portfolio. And so we think that investment in olefins was a very smart one and a nice timely one from an investment basis perspective. And certainly as we think about other investments in the olefins business, it really is about opportunity to add and grow value. So our interest there is to do so and if there's opportunities to do so, as you've seen last year in 2019 when we made that investment, we'll continue to do so. Great. Thanks, Steve. And then lastly, if I may. Could you just give us a rough estimate of maybe how much of your portfolios geared towards infrastructure And if there is a sizable benefit, if we see an infrastructure bill past in the next year or so? It depends on what you mean by infrastructure. We are not in a concrete or steel business, but in water pipe, a lot of U. S. Water supply, outdated and corroding as you've seen in many municipalities. So, water sewer with the 2nd largest PBC pipe manufacturer, in the U. S. And we have special technology can replace a liquid on pipes without digging up on the top because through tunneling methodologies. So if U. S. Municipalities will replace outdated and corroding board and sewer pipes will be a big supplier to that market. And second part is the high voltage transmission systems. You can see the bias caused by a shortening of high voltage, wire causing wildfires, if those will be coated with PVC to be insulated there should be another infrastructure investments that we could benefit from the initiatives. You're welcome. Thank you. And our next question comes from PJ Juvekar from Citi. Your line is now open. On your comment on lean inventory levels, typically in cycles, you see converters building inventory ahead of price increases. So what's the difference this go around? Is it just a producer not being able to produce that level of demand or could you help size industry outages for both PE and PVC this year? And do you expect more normal mid single digit outages in 2021? Well, nobody wants to have unplanned auditors other than planned turnaround. And usually, they are associated more with upstream, like ethylene and BCM and those activities. And those outages tend to be longer than polyethyleneal PVC outages tend to be much shorter in time. And or with all the price increases, I'm sure the converters are very careful how much inventory they will keep, which also sell into the tightness when they are unforeseeing outages, it will make the producers inventory tight and converters inventory even tighter. Okay. And for my follow-up question, you know, granted both PE and PVC chains have been impacted by the pandemic and hurricanes. Are you more bullish on sequential earnings growth in PE or PVC? Well, I think we've seen an incredibly strong rebound in the construction and repair and remodeling side of our business. That's certainly, it's been many, many years since getting back to the housing starts and permits that we've seen in that space. And certainly our investments that we have both in resin as well as in our downstream products really lend themselves to being able to leverage off that strong robust demand growth. I think also when you think of and so that's obviously, as you know, the largest component of our business. When you also think about what we've the packaging demand that we've seen in, over this pandemic over the last many months, then very, very strong demand, both in hygiene and consumer product packaging as well. So the performance that we've seen, especially in our low density polyethylene packaging applications have been I think very highlight really the importance of that business and the specialty nature of that business. So I'm actually, I look forward to really being able to continue to serve the construction and repair and bottoming business. And as long as the packaging industry continues to see the strength, I think the olefins business continue to participate well in Thank you. And our next question comes from Mike Sison from Wells Fargo. Hey, guys. How are you doing? Hey, Mike. How are you? The $100,000,000 in the 3rd quarter and $120,000,000 in the 4th quarter, do those negative impacts come back in total in 2021, assuming you don't have any on hurricane issues next year? Well, certainly that's lost sales and production and some repair costs. And so certainly we hope that we are spared hurricanes as we think about 'twenty one. So certainly with the demand strength that we've earlier spoken to, both in the olefins and vinyl space, the ability to get traction and see that should be part of the outlook that we certainly have. Got it. And then if I add back that $100,000,000,000 to EBITDA in the 3rd quarter, your EBITDA margin would have been 20% roughly. So is that sort of the run rate type of profitability you're seeing now? And does that technically go up excluding the 120 in fourth quarter? Given you've got more pricing and maybe volumes return? Well, of course, certainly the strength of seen in both segments of the business continue to be, of course, there's some seasonality in various segments of the business as well. But as we look forward, we've seen and you've heard us speak to this today, a pretty good backdrop in demand both in the vinyls as well as in the opens business it's hard to speak to any particular guidance we give. We don't, as you know, give guidance. But I would say that the backdrop that you're seeing in strength and demand is supportive of what you've seen in pricing. And certainly as we look forward, that strength in demand continued to be very, very good as we look forward into rest of this year and into 'twenty one. And our next question comes from John Roberts from UBS. Your line is now open. Is there 4th quarter force majeure affected the Partnership as well or is all of the impact Westlake repair costs and downstream operations? So, John, the benefit of the ethylene sales agreement we have in the offtake arrangement for 95% of the production really provides strength to the partnership. And so we've been very fortunate to really see the strength and the robustness of that ethylene sales agreement. I'm not going to give projections again for the partnership, but I think it speaks volumes and very clearly about how well structured that ethylene sales agreement is for the partnership and the degree of protection that that cash flow and earning stream has in the operating company and therefore the partnership. Thank you. And our next question comes from Matthew Blair from Tudor Pickler Holt. Your line is now open. Hey, good morning, Albert and Steve. Hi, Matthew. Good morning, Matthew. Maybe just to stay on that point. So, right, so Westlake LP reported that forty $41,000,000, essentially like a take or pay, benefit. How should we think about that from Westlake C Corp's perspective Is this the case where you paid in Q3, but you'll recapture some of those volumes later down the road? Well, certainly, you know, as we think about the demand that, that the partnerships saw implicitly through the ethylene really is an illustration of the strength that we've heard us talk about today. And so while we didn't produce because of some of the hurricane related outages, We certainly see that demand strength in our ethylene derivatives, both PE as well as PVC. And so that integrated result that you saw us report today for Westlake Chemical is inclusive of course of that $41,000,000 buyer efficiency payment you saw in the Park ship. And so as we think forward about the strength that we've seen in the ethylene derivatives, it speaks again volumes to the expected demand pull that you'll see from Westlake from the operating company OpCo. So as we said earlier, the ethylene sales agreement that OpCo has is quite strong in terms of its protections of cash flow and earnings. And I think that integrated relationship between the partnership Postlake Partners And Westlake Chemical remains robust and strong. Okay. Sounds good. And then, it's kind of surprised to see that your inventory levels actually held pretty steady in Q3. I mean, only down a little bit Is there an opportunity or were you able to perhaps sell down a little bit of your inventory in October to potentially mitigate some of that some of the downtime headwinds? Well, certainly as you would imagine, we've sold and met as much of the as much of our customer needs while we do have force majeures for many of our products out. We have been able to meet most of the demands that we've seen from our customers both domestically Certainly, there have been some impact in some of our customers in some of the export markets, but certainly as we've tried very hard to really meet all of the customer demand And as you come you saw from my comments earlier, we weren't able to meet all of it because there was some lost sales as a result of the outages, both in third quarter and the guidance I gave fourth quarter. And our next question comes from John McNulty from BMO. Hi, good morning. This is Avess for John. Good morning. Good morning. So we're looking at certain areas in Europe going back into into lockdowns. Are you seeing any early signs of demand impact to your export market? Or on the other hand, are you impacting higher demand from customers' potentially restocking higher? Yes. We see that generally speaking, Asia is doing quite well and demand for polymers is quite strong. And So the demand globally export price actually has been going up, especially for PVC going up quite a lot. It's also the shortage unlike polyethylene, there's very little PVC capacity added in the world. Demand is still a very strong U. S. Has been the main export of PVC to the global market. And when U. S. Supply situations reduce it is with drive up PVC export price among the world. Got it. And then as you go through some of these repairs in your assets related to the hurricane, are there any changes to your turnaround timing or cost for next year? And how should we think about just general CapEx for next year? Yes. As we finish the budgeting plan for 2021, we'll give more guidance in terms of our capital spending. The only turnaround we had scheduled for a major unit was our ethylene cracker And at this stage, there is no change in guidance. But as we finish our 21, budgeting plan, we'll talk about that later as we finish that process. And that'll really be into early 'twenty one once the board approves it and we can then speak about the approved plan for capital spending and major maintenance. Got it. Thank you for your time. At this time this Q And A session has now ended. Are there any closing remarks? Thank you again for participating in today's call. We hope you'll join us again for our next conference call to discuss our fourth quarter and full year results. Thank you for participating in today's Westlake Chemical Corporation Third Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after this call is ended and may be accessed until 1159 Eastern Time on Tuesday, November 10, 2020. The replay can be accessed by calling the following numbers. Domestic callers should dial a 55 8592056. International calls may access the replay at 4045373 406. The access code for both numbers is 186958. This concludes the call.