Earnings Call: Q2 2020

Aug 6, 2020

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Second 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, August 6 2020. I would now like to turn the call over to today's host Jeff Hallum, Westlake's Vice President And Treasurer. Sir, you may begin. Thank you. Good morning, everyone, and welcome to the Westlake Chemical Corporation Second order 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'll open the call up to questions. During this call, we refer to ourselves as Westlake Chemical. Any reference to Westlake Partners that's through our master limited partnership, Westlake Chemical Partners LP, and similar references to OpCo refers 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 belief 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 COVID 19 pandemic, industry operating rates, the supply demand balance for Westlake products, competitive products and pricing pressures, access to capital markets, technological developments, and other risk factors discussed in our SEC filings. This morning, Westlake issued a press release with details of our second quarter results. This document is available in the press release section of our webpage atwestlake.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, 2 hours following the conclusion of this call. This replay may be accessed by dialing the following numbers. Domestic callers should dial 855-859-2056. International callers may access the replay at 404-537-3406. The access code for both numbers is 514-5968. Please note that information reported on this call speaks only as of today August 6 2020, 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 could be accessed on our webpage at westlakedot 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 second quarter 2020 results. The COVID 19 pandemic has impacted people's lives and weighs heavily on global economic growth, resulting in a significant impact on Westlake's financial results Our first priority in the quarter has been the health and safety of our employees. I'm very appreciative of our employees We'll continue to work day in and day out, particularly those in our plants and production facilities which are a critical component of the infrastructure to provide key products to support the pandemic response and keep essential goods and services flowing in support of the economy. We remain focused on cost reductions operational efficiencies, management of working capital, and CapEx Spending. In this morning's press release, we reported net income of $15,000,000 for the second quarter of 2020 or $0.11 per diluted share. Before speed go through the 2nd quarter results, let me provide some insight into our results for the quarter. In our polyethylene business, we saw strong demand in our differentiated applications, such as food packaging, as more individuals consume packaged food and everyday items from the grocery stores. The significant drop in oil prices early in the quarter led to sharply lower global polyethylene average sales prices. We also experienced margin pressure due to increased ethane feedstock prices. Margins began to improve at the end of the quarter as oil prices rose from their lows early in the quarter, and polyethylene prices start to strengthen. In our vinyl segment, our PVC and vinyl products businesses had a very strong start in the first quarter of 2020. Early in the second quarter, we saw broad based declines in PVC and downstream vinyl products demand due to the impact of the pandemic. Decrease demand and low oil prices like to lower average PVC sales prices. These broad based decline, reduced demand for chlorine, causing the caustic supply demand balance to tighten, leading to a series of caustic price increases during the quarter. Later in the second quarter, as we saw stay at home borders and business operation restrictions related to the pandemic relax PBC and construction related downstream vinyl products demand significantly improved. And several of our non integrated vinyl plants that have been idled or operating a reduced output have resumed normal production. I would now like to turn our call over to Steve to provide more detail on our financial and operating results for the second quarter. Thank you, Albert, and good morning, everyone. Throughout West Valley, we took actions to address a rapidly changing demand picture in the quarter. Always keeping our teams well-being at forefront while improving financial strength and flexibility. 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. For the second quarter of 20 20, we reported net income of $15,000,000 or $0.11 per diluted share compared to net income of 119,000,000 for the 2nd quarter 2019. The $104,000,000 decrease in net income from the prior period was primarily due to the global economic impact from COVID 19 and the significant drop in oil prices, which reduced our global feedstock competitiveness and associated margins. The impact of reduced demand resulting from the pandemic drove lower sales volumes in our Vinyls segment and lower oil prices led to lower global sales prices for many of our major products. Although we began to see the impact to our business from COVID 19 in Asia in January and in our European vinyls business in February, the full impact to our operations were felt in the second quarter of 2020 as the pandemic heavily impacted the Americas. 2nd quarter 2020, net income decreased by $130,000,000 from the first quarter 2020 net income of $145,000,000. The decrease net income was primarily due to lower production and sales volumes for cost soda and PVC resin in addition to lower sales prices and margins for polyethylene and PVC resin. Resulting from the impacts of COVID 19 and lower global demand. Second quarter of 2020 did benefit from lower operating and selling and general administrative expenses as a result of our cost cutting initiatives. For the 1st 6 months of 2020, net income was $160,000,000 or $1.24 per share, a decrease of $31,000,000 from the 1st 6 months of 2019. Sales prices for our major products, driven by lower oil prices and lower sales volumes in our Vinyls segment stemming from the impacts of COVID 19. The 1st 6 months of 2020 benefited from lower feedstock, and fuel cost, reduced operating and SG and A expenses as well as lower costs associated with planned turnarounds, restructuring, transaction, and integration related activities. Net income further benefited a tax rate resulting from the Cares Act and a carryback of the federal net operating loss of $68,000,000. Our utilization of the FIFO method of accounting resulted in a favorable pretax impact of approximately $6,000,000 or $0.05 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. Now let's move on to review the performance of our 2 segment starting with the Vinyls segment. In the second quarter of 2020, our Vinyls business experienced lower global sales prices and volumes for many of our major products as compared to the second quarter of 20 19, driven by the sluggish global economic activity brought on by the impact of COVID 19. Vinyl's operating income of $20,000,000 in the second quarter of 2020 decreased $109,000,000 from the prior year period primarily as a result, the lower global sales prices for our major products and lower sales volumes for caustic soda and downstream vinyl products. The decrease was primarily offset by lower ethane feedstock and fuel costs, reduced operating expense and lower costs associated with planned turnarounds. In the middle of the second quarter, oil prices started to rise caused many of our global vinyl competitors that use NASA based ethylene to raise PVC prices. Thus, the PVC and downstream vinyls product market began to improve later in the second quarter as demand in June improved, over May's levels resulting in an increase of $0.03 per pound for PVC in June. Further increases of $0.03 per pound for July 4¢ per per pound in August have been announced. The improvement in finals demand has the which began in the middle of the second quarter has continued as industry consultants reported operating rates in June at 84% versus rates in the mid fifties just a few months ago. Now turning to our Olefin segment. For the second quarter of 2020, Olefin's operating income of $25,000,000 deep increased by $57,000,000 in the second quarter of 2019 as a result of lower sales prices and margins for polyethylene. Which were primarily offset by higher polyethylene sales volumes. The tight polyethylene supply demand balances combined with rising oil prices up from their lows in early second quarter, combined with higher feedstock costs, drove a $0.04 per pound increase in June, and industry consultants are projecting a 5¢ per pound increase in July. Industry producers also announced a 5¢ per pound increase in August due to continuing tight market conditions. Before concluding our olefins review, I would note that we expect the turnaround for our Petro2 ethylene unit discussed in previous calls to be in the first half of twenty twenty one. Now let's turn our attention to the balance sheet and statement cash flows. At the end of the second quarter 2020, We had cash and cash equivalents of $1,100,000,000 in total debt of $3,700,000,000 or net debt of 2,600,000,000. Net debt at the end of the first quarter of 2020 was $2,900,000,000. The $259,000,000 reduction in net debt and cost reductions, management of our working capital, and reductions in CapEx. In line with our focus on cash generation, we improved our financial and operating strength and flexibility throughout the second quarter. We generated cash flow from operations of $448,000,000 in the second quarter, and fully repaid our draw on our $1,000,000,000 revolving line of credit and issued $300,000,000 of 10 year unsecured notes at a rate of 3.375 percent per annum. We used a portion of the $300,000,000 of the newly issued 10 year note proceeds to to retire $100,000,000 of 6 a half percent notes on August 1st, and we will also retire an additional $154,000,000 of the 6.5% notes on November 1st. This refinancing reduces our expected run rate of interest expense by about $6,000,000 per year and maintains our long dated and strategically staggered debt maturities, which now have an average life of approximately 14 years. With an average interest rate of 3.5 percent. This solid liquidity position coupled with a long dated maturity schedule allows us to operate comp in today's current demand while being well positioned to react to the changing market environment and meet the needs of our customers. As we previously announced on our last quarterly call, We have decreased our level of capital expenditures while continuing to safeguard our employees and our operations. We are maintaining a revised 2020 capital expenditure guidance of $500,000,000 to $550,000,000. With the previously mentioned tax benefit of the Cares Act, we now expect our 2020 effective tax rate to be approximately 11%. With that, I will now turn the call back to Albert to make some closing comments. Albert? Thank you, Steve. The second quarter of 2020 was a difficult time for the global chemicals business. The outbreak of 2019 late the first quarter of this year followed by the associated stay at home and business operation restrictions reduced global demand. We first focused on the health and well-being of our employees worldwide, while operating opportunities in a safe and reliable manner. And capital tensions are improving our financial strength and flexibility, while also staying close to our customers, to manage through this challenging time. With these products that are essential to everyone's lives, from polyethylene for food packaging, to PVC resins and compounds used in medical applications and equipment, construction infrastructure and to chlor alkali products. Used in the production of water treatment, disinfectants, paper tissues, and cardboard packaging. Team for its disciplined execution to deliver these essential products and we'll continue to work to grow our value chain. Let me close by sharing some views on our outlook. We are seeing continued demand improvements for all of our major projects that the gain in May and continues through to the present. CDC demand, as well as pricing for polyethylene, PVC and caustic, a continued increase and the oil and gas spread has more than doubled from the lows in the second quarter. With considerable ethane available for current and future use. For polyethylene, operating rates continue to remain strong with many polyethylene producers announcing price increases in July August totaling $0.10 per pound. We'll continue to remain focused to offer safely, deliver superior operation performance, to reduce costs while creating value over the business cycle. The prudent management of our business through this pandemic combined with the solid fundamentals of our business will allow us to deliver long term value to our shareholders. We are cautiously optimistic for improving business dynamics for the balance of 20.20 as industry indications for constructive. As always, we will continue to operate safely along with being good stewards of the environment and the communities in which we live and work. Thank you very much for listening to our second quarter 2020 earnings call. Now I'll turn the call back over to Jeff. Thank you, Albert. Before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available 2 hours after the call is ended. We will provide that number again at the end of the call. Josh, we will now take questions. Our first question comes from Odette Badell with BMO Capital Markets. You may proceed with your question. Hey. Good morning to you. This is Alex for John. Good morning. So so we alright. So so we are now hearing it from some of the fears about the crisis, price increase, for caustic soda in in 3Q from the 2Q level, which is a bit counterintuitive given the rising previous demand, and its impact on chlorine and caustic supply as you have discussed. And I understand there is always contract, you know, the discount that's coming to play for for pricing. And and demand probably is also strong. So from from Westlake's perspective, what's your outlook on your realized caustic soda prices for for t PT. As we speak about the strength in the vinyls business, we continue to see strength in vinyls, but it's been really in the PVC space. As I noted in my prepared remarks, we've seen continued strength in price nominations in PBC. For for through June into July, and now we've got nominations into into, August. So certainly as we more pull on chlorine that will certainly put more cost in the market. So as we look into the third quarter, a lot of the answer your question is highly dependent upon how we see the manufacturing in our industrial markets begin to kind of recover. I think we've seen strength in certain segments of that space, whether it's been in some of the paper and containerboard, but clearly areas like cut sheet paper have been weaker. Some of the aluminum markets have been weaker, but other markets in the turgence and disinfectants have been stronger. So it's really a function of how we see the industrial strength recover later this quarter. But certainly, we think that we're very well positioned as we see the markets begin to rebound. Yes. I know that, the industry from February to April announced a series of price increases totaling between $160 to $195 for short term. And I think IHS recognized about 75 of those price increases per ton has been in effect. And as you know, some of the contracts are quarterly based, so this price increase will carry over in third quarter. On the other hand, some other contracts are on a monthly basis, will reflect through pricing. And as Steve said earlier, it really depends on, the industrial economy and demand for our products, not only U. S. But globally. We saw a price increase during the second quarter, both domestically U. S. And export. But as each country reacts differently to COVID-nineteen, their demands and needs to be different. So as I said earlier, that some of the quarterly pricing that the price increase of carrying the 3rd quarter but monthly pricing will be depending on supply demand for that month. Oh, because that's that's color. And then in terms of in terms of cash flows, so we obviously saw a great, like, solid free cash flow generation in the second quarter. Similarly from lower working capital. Can you share some thoughts how you think the rest of the year shapes of free cash flow and working capital in particular? Thanks. Certainly. So as you've seen, we've seen nominations of price increases, both in PBC, nominations for caustic and nominations for polyethylene. So with the demand picture that we're seeing today across the space and improved pricing dynamics, that will certainly translate into earnings and, therefore, in the cash flows. But certainly, we've not taken our foot, off the gas and trying to keep our cost low and our operating cost and expenses low as well. So as always, we keep a very close eye on our operating costs, but also we see a very improved market relative to earlier in the second quarter through into the now 3rd quarter of demand. And we've seen a series of price nominations across all of our major products. So that should improve and improve earnings and improve cash flows. Thank you. Hello? Thank you. Our next question comes from Hassan Ahmed with Atlantic Global. You may proceed with question. Good morning, Albert and Steve. Good morning. Good morning. You know, question around, the capacity side of things. One of your sort of large competitors talked about how on the ethylene side, as much as 11% of of capacity may be vulnerable because it's sort of relatively weak economics right now. So my question to you guys is that, are you guys seeing similar sort of things? And if you are, I mean, what are your expectations in terms of sort of curtailments or maybe even permanent closures going forward? Yes. That's a good question. As you know, at Westlake, we are net buyer of ethylene by about £1,000,000,000 or depending on supply demand of our derivative products. So, So our ethylene plants are running, as we said, normal operating rates and supply our downstream and we buy additional ethylene. Now if the ethylene produces, they are more merchant ethylene, then depending on their downstream customers, the demand, they may or may not have all the full needs of the ethylene requirements. So depending on the the producers. Very safe. Okay. And moving on to the feedstock side of things, two part question. One is, obviously, we saw a bit of a rally in ethane pricing through the course of the quarter. And there was some choppiness in terms of NGL pricing well. So on the near term side to say it in terms of Q2, what did your feedstock mix look like And on the slightly longer term side of things, what are you guys' views in terms of ethane pricing and ethane supply demand balances? Yes. As you know, our ethane has, by and large, I think the low, the low, fixed cost for, ethylene in the US. And I know when oil price went negative, then suddenly naphtha based ethylene cracker had a a better economics for a little while. But, as you know, the naphtha hyperactivity in the US is very limited, but 80% of US ethylene capacities are all ethane based. So, it's ethane price has has come up from the low, but it's stabilized in the $20..22 a gallon range. And the outlook, even though oil production went down with lower oil prices and some of the oil while shutting But as oil prices move back again, we are seeing more production, especially the Permian area. So the associated gas, which are rich in handling. Natural gas liquids are in back in production. So we are seeing more of a stable ethane prices from now to the end of the year. And even longer term, at least the future prices are still seeing reasonable stable ebbing price going forward. Very helpful, Albert. Thank you so much. You're welcome. Thank you. Our next comes from Kevin McCarthy with Vertical Research. You may proceed with your question. Thanks. Good morning. A question on capital deployments for you. You know, you noted that you took out 259,000,000 from your net debt balance during the quarter. And I guess depending on where EBITDA settles out, perhaps you're ratio of net debt to EBITDA will be 2 turns or or perhaps slightly higher. My question is, do do you foresee a point in time when your cash flow, will be dedicated more toward, some combination of M and A or share repurchases, relative to, de leveraging. And and when might that be? And so, Kevin, you know, when we think of the waterfall or use of cash, you know, when we think of the ability to use those funds, of course, to maintain and run the plan reliably. And safely, you can see that we've got, I think, a a reasonable level of capital expenditures plan for 'twenty. And as we get into later in the year, we'll talk about our plans for 'twenty one as we finish our capital budgeting. But our focus really is, is to make sure the plants are running reliably and consistently. We have no current large, expansions announced. And so the opportunity to deploy that capital and the value added opportunities always is there. If you look at how the business has grown over time, it's into organic growth. It's been through debottlenecks and, in some cases, new plant expansions as well as through acquisitions. So we're constantly on the horizon looking for value added opportunities and deploying the capital that way as part of use of that capital. But certainly looking at rewarding investors with dividends as well as share buybacks is also part of that profile of cash flows as well. So we think it's a very important avenue to reward shareholders, but at the same time, grow those, grow the value stream for those shareholders by investing capital it grows the underlying value of the business. So there's a balanced effort. Great. Thank you for that, Steve. And then secondly, It's obviously been an unusual season for construction activity. Can you talk about, where PVC industry operating rates were in 2q, how you would expect them to trend into 3q, and and how your own rates, might have compared to the industry. Yes. I think IHS reported that 2Q industry operating rate PD team in the U. S. 73% and they're looking at 78% for 1st quarter. But, what we are seeing, both in our PVC demand in the US and globally, as well as our downstream drilling products demand, our PBT demand and building product really strong. And hence, we have the price increases announced the $0.03 and it's the $0.73 became a $0.02 reality and then it's a $0.04 out there for August. And we currently have price increases like this. And export price went from below 500 in April, to now the mid 700s and even going higher. So post domestic and export PDs price have been going up, and you can't have price increase like this without strong demand. And as we understand, inventory levels are producers in the US quite low, and some of them are impacted by, plant problems, some producers. So we should see stronger operating rates in PVC in the third quarter. Excellent. Thank you very much. You're very welcome. Thank you. Our next question comes from David Begleiter with Deutsche Bank. You may proceed with your question. Thank you. Good morning. But some of the recent polyethylene price strength has induced strong US exports. How do you expect US exports to trend in the back half of the year as we are gonna see some new have become online with Shire. Oh, that's a good question. We understand Chinese demand is quite strong for polyethylene. And some some of the reasons are that Iranian used to export the amount of polyethylene, especially LDP to China. And because of the sanctions, the Iranian export has slowed down or stopped, hence China has been importing more products. So But on the other hand, we read that the U. S. Demand industry demand for polyethylene domestic demand has grown pretty sharply, especially ODP for the 1st 6 months of this year with the report indicated that domestic demand for LDP runs up 7.4%, which is unusual, usually LDP demand increase between 1, 2% a year. So it shows that, because of the COVID nineteen and consumers are buying more packaged good and packaged food, the demand, especially ODP, has really strengthened. And at the same time, export LDP decline because there's only so much LDP to supply, and we had this increase on that demand. We had to reduce exports. But having said that, I think Linear loan high density export has also gone up a lot, reflecting the new capacities that we added in the U. S. And as well as the U. S. Recovering competitive feedstock advantage that today, I think as the lowest cost feedstock in the U. S. To produce ethylene as of July 30th report from IHS. Yeah. But get given that strength, how are you feeling about the August, 5th gen increase for polyethylene? Everything is quite strong, and the fact that that's just the beginning of August, a lot of things happened between now and August. But, I think IHS indicated the 5¢ to go through, whereas, I think, CDI says it won't go through. So We don't know. Maybe somewhere in between. Thank you very much. Take care. You're very welcome. Thank you. Our next question comes from Mike Susan with Wells Fargo. Can we proceed with your question? Hey. Good morning. Good morning. The, just curious on the all of on the polyethylene price increases. Well, well, those all flow through to the bottom line. I'm just curious because I think July, maybe some of the costs went up and And what do you think? How much of the 5¢ could flow through if if you get that achieved? So, Mike, as you know, the increase is typically for some of the larger volume buyers typically have some delay before they actually hit the bottom line. But nevertheless, if you look at where ethane is, we think, as Edward earlier noted, it's in the low-twenty 22, 23, 21 in that range. And so having a having some of these increases as we did, announced in July August will translate into improved results and bottom line, but obviously on a bit of a 1 month lag basis, in some cases. Got it. And then in terms of these in terms I I know you mentioned demand for PVC looks strong. On a sequential basis, how strong do you think your PVC business will be on a top line basis versus second quarter? Well, you certainly saw a a pullback because of the stay at home orders in the second quarter. And so operating rates were quite low as as you've seen published in some of the industry consultants publications. And so as, as Albert noted, and I noted we've seen operating rates get, get much more elevated and remain very strong as we see demand today. We've got price announcements to say in July, there was, implemented a $0.02 increase in July 3 since it was announced to when implemented. And we've got, an announcement for August as well 4¢. We'll see what, what gets implemented is is, we all know it's early August, but demand looks very, very firm. So with with that said, operating rates remain elevated, and it looks like a good market. Great. Thank you. You're welcome, Mike. Thank you. Our next question comes from Alex Zestamo with KeyBanc. You may proceed with your Thank you. Good morning, everyone. Good morning, everyone. Thanks. Do do you see opportunities for for bolt on acquisitions in your building products business, is is this a a good time to accelerate your roll up strategy? Well, Alex, I think as you know, we've looked at a number of opportunities and the last year took the opportunity to invest in NAKAN, a PVC Compounding business as well as midyear da Vinci roofing business. And so we do look for value added opportunities downstream in our business and to the extent that we find those and they make sense. They're nice additions. Both have performed very nicely since the transaction. And certainly, we look forward to finding opportunities, but it is always a balance of trying to find a balance between value, and just bolting on for both on-site, which we do not do. So the answer is we'll look. And if there are some value added opportunities as we found last year, we'll act on those. Thank you, Steve. And, you mentioned you're you're realizing solid price increases in the PVC resin. In in your building product, should we think about how should we think about pricing they are relative to to PUC? Demand as as as you might imagine in the DIY or repair and remodeling space has been very firm. And we've also seen, and you probably haven't seen this from some of the home builders that they've also seen strong results. And so when our pipes are fittings or sidings, businesses have all seen solid demand. And we certainly see pricing capability in all of those downstream products. And certainly, we're acting on that everywhere we see an opportunity to act. Thanks a lot. You're welcome. Thank you. Our next question comes from Jim Sheetsha with Through security, you may proceed with your questions. Good morning. Thank you. Good morning, John. So could you comment on how the pandemic is the fact that you're thinking about doing drop downs into Westlake Chemical Partners? So, Jim, as you know, there are 4 levers that we have available to us. 1 is the drop down that you mentioned, and we still have a very significant portion that can be dropped. We have also acquisitions. And as you know, we acquired a portion of the LACCF lean cracker last year. Our partner of OT has the other half. And so that could be an acquisition target. We've got an ability to think about debottlenecking over time and certainly that new cracker appropriate time could be considered. And of course, margin expansion. So those 4 levers are the ones that we can contemplate. It's really looking really looking at the kind of risk reward we get. And so as we take on the opportunity to look at growing the capabilities of the partnership through a drop down of the other three levers. It's all about debt growth in earnings and cash flows. We've demonstrated over the last 6 years. The partnership is incredibly predictable in terms of its earnings and distributable cash flow. The issue is if we're getting the appropriate reward, we can act on any one of those 4 levers. Thank you. And it looks like there are some ethylene assets in the US Gulf Coast that may be changing hands. Are you an acquirer of ethylene assets And if not, how do you see the competitive landscape changing as a result of those asset sales? Well, I can never obviously comment on anything that we might be looking at or might not be looking at. But what I would say is is that the competitive landscape is one that is by definition competitive. And so as we look across the spectrum, we always are willing to work with, the market and our customers, and should there be new entrants in the market. So via we think we're very well positioned with our portfolio and think we're very competitive with the products that we produce and support we provide our customers. Yes. Just one point, Steve mentioned, last quarter, first quarter of last year, 2019, we acquired, 30 odd percent 38% of the LACC for $800,000,000. So we did disacquired it. Thank you. You're welcome. P. J. Juvekar with Citi. Who may I proceed with your question? Hi. Good morning. It's Eric Petrijon for TJ. Hi. Good morning. Your earnings in your olefins and vinyl declined less than your peers. So I'm wondering if you could give some color on that. Is there a better cost position better fixed cost absorption or product mix experience? Well, Eric, I think when you look at our space. And I think, Albert mentioned this, we're very well positioned in the low density space and some of our differentiated products. And so certainly in applications such food packaging and coating materials, with everyone going to the grocery stores and buying packaged materials. I think we're very well positioned with the autoclave technology that we have. And I think the specialization that's specialty end of that product, wheel has has demonstrated the strength in this setting. In our vinyl space, we have the ability to really be well positioned not only in PVC resin, but also further downstream into, vinyl products. I fitting, citing a wide variety of downstream products as well as servicing others with our resin in that market. And so I think the integration strategy hear us talk about has served us well and being able to service the export market with resin, the domestic market with resin and of course, the construction and repair and remodeling markets with our downstream products. And I think that has helped us with the ability in this very dynamic market. Thank you. Our question comes from John Salazar with Bernstein. You may proceed with your question. Well, thank you. I was wondering. The in the last couple of months, there's been a lot of, news around hydrogen. And given that you guys are one of the largest operators of electrolyzers in the world, is this an opportunity you're looking into either as a a producer or as an operator of hydrogen assets or others. Well, it'll be very interesting. We'll be reading a lot about it. You are right, with electrolysis, with power and with water, rather than, salt. And Brian. So we are all ears. And, anybody interested to talk to us, we'll be pleased to talk with them. It's not something you're looking into directly. Well, we we don't have right now the hydrogen economy. It's both hydrogen, I think, is made from natural gas. So it's not quite the, the green hydrogen, I think it's called the green hydrogen or whatever And to be truly incredibly costly, you'll need the green, which is using the renewable power from solar. And winged and, so there's no CO2, production from that. And we tied on to, hydrogen pipeline and also need a consumer end and building hydrogen filling stations, which are very few, much less than the the electrical charging stations, which are people are building more of those. So I think we're still, several years away from it, but we are very interested looking into it. And as I said, anybody will talk to us. We'll be pleased talking to him. Okay. Thank you. You're welcome. Thank you. Our next question comes from Ben Isaacson with Scotiabank. You may proceed with your question. Thank you very much. Just one question actually on, so alkali, can you just talk about where you think we are in the cycle given, how demand has changed as a result of COVID and, subsequent cancellations or deferrals of new projects, Do you see, tightness in the market getting pushed back 1 year, 3 years, etcetera? Can you just talk about where where you're on the cycle? Well, as as Steve said, qualified demand really follows industrial production. And as you know, that, starting along 2018, with the trade war between US and China, a China led with a decline in industrial production, which kind of impacted the rest of the industrial world And, even, I think by the end of last year, we saw some signs of improvement with the, the phase 1, tariff reduction with U. S. And China up, and then we have COVID 19. And as you also know that, unlike the olefins business, the original new capacity added on the world in chlor alkali. And the US is the best place because of the the low power You have a lot of salt domestically, and you have a big caustic market. So, you're right. The COVID nineteen is pushed back probably the the peak of, caustic, but then half off, the peak will be away from us. We don't know depending on the really the global GDP covery. The faster cover, the the faster the caustic and nail increase. Thank you. Our next question comes from pricing. With Birmingham Research. You may proceed with your question. Good morning, gentlemen. Good morning. Long thing. I was struck by, you know, some of the, some of the cost actions that you took, in the second quarter, obviously SG and A came down and that was something that you highlighted in terms of delivering the results that you did. And I was just curious if you might be able to size what our expectation should be in the second half of twenty twenty. And would you describe these cost actions as being structural that would continue into the future, I. E. 21 or really more reactionary to you know, the, the unusual circumstances we have with the pandemic. Yeah, Frank. I would I would guide, you know, that the 1st 6 months run rate of SG And A is something that you could realistically think that might be deliverable in the second half of of twenty. Many of the actions that we took will be sticky. But I think at the same time, remember, we've got commissions built into that G and A line. So that as business continues to improve, as we continue to see volume, there certainly be some elevation of that. But I think directionally that that kind of run rate number for the first half of the year, should be reasonable to consider for the second half of the year. I know that the Westlake salespeople are appreciative of that commission line. And with July already in the books, I was wondering if there might be the size of volumes that you saw in July versus June or versus the second quarter however you want to term it or at least give us an idea and you'll in the vinyls business? Well, certainly in the olefins business with the stay at home orders and so much, food being sold off grocery store shelves, operating rates were consistently pretty elevated all throughout the, second quarter. And so that was, I think, kind of a hallmark, all throughout the, the quarter and everybody that has been living through this pandemic and knows that. As you get into the vinyls business, a lot of this went into certain construction industries. And so certain some market here in the North American market, did not designate, the construction industry as a critical portion of infrastructure. And some export markets, in Asia, India, shutdown. And so export for residents, some cases, were greatly reduced because of the export markets backing up and some construction markets not being allowed to operate during some portion of the quarter. So operating rates, as I mentioned, got quite low, but we certainly have seen a strong rebound as many states and provinces in North America opened up, and, of course, those export markets opened up as well. So operating rates have come, come back. I mentioned at the end of June, there were about 84 set for the industry. Thank you so much. You're welcome. Thank you. Our next question comes from Glenn with Tudor Prepared Home. You may proceed with your question. Hey. Good morning, Aldrin, Steve. So it looks like benchmark natural gas prices in Europe have come down quite a bit. Is that something that you've been able to take advantage of in your European ECU plans. And then also, has that lowered the, I guess, flattened the cost curve? Has that affected you know, your your US caustic, either, I guess, profitability or or or volumes on on the export side? Well, we're we're up, obviously, buyers of the neck natural gas in markets in Europe and in North America. And so certainly as we see prices move, we've been able to take advantage of that. And so when you think of the quarter over quarter results. We've seen lower, lower fuel costs, which are natural gas costs. And so that's that has been an advantage and sat that's very true also year over year. And so as prospectively, we look at markets in North America and in Europe, we've seen some recent uptick in natural gas here in the last few weeks. But I think with the comments that Albert made you heard him talk about higher oil prices and we've seen producers come back into those fields. And begin to produce. And so we'll take a look, at gas and see if, see how things play out. But certainly, we believe there's ample gas, but we can certainly see where that's has been moving a little bit very recently. Thanks. I'll leave it there. Thank you. Thank you. Our next question comes from John Roberts with UBS. You may proceed with your Good morning, guys. Kathleen glycol was pretty weak during the quarter. Does that have any bearing on the operating rate at LAC or the allocation of ethylene? No. No. In fact, it does not, you know, as I say, we invested, as Albert noted, we invested in the venture to really get nearly 50% ownership at the end of the 4th quarter. And certainly, we're pulling on our pro rata share of the ethylene and that did not have an effect on operating rates at LACC. Okay. And then earlier Steve, you mentioned all the different options you have for the MLP. Its price has doubled off the low that it had earlier in the quarter there. Does it need to go higher before you exercise any of those options? It's certainly it's still yielding in the 10% range. And certainly, I think investors would like to see it, appreciate greater than that. We think the underlying strength of the cash flows demonstrate the ability to ride through all kinds of challenges. And this pandemic is probably the biggest challenge we've all faced So I think that the stability here is an illustration that valuation still need to be higher than where it sits I certainly think that it it is a very well performing, partnership. Thank you. You're welcome. Thank you. At this time, the Q and A session is 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 3rd quarter results Thank you. For participating, today's Westlake Chemical Corporation Second Quarter arrange conference call. As a reminder, this call will be available for replay in beginning 2 hours after the call has ended and may be accessed until 11:15 9 pm Eastern time on Thursday, August 13 2020. The replay can be accessed by calling and following numbers. Domestic callers should dial 855-859-2056. International callers access the replay at 4045373406. The access the access code for both numbers is 514-5966.