Earnings Call: Q4 2019

Feb 18, 2020

Welcome to the Westlake Chemical Corporation Fourth Quarter and Full Year 2019 Earnings Conference Call. During the presentation, all participants will be in a listen only As a reminder, ladies and gentlemen, this conference is being recorded today, February 18, 2020. I would now like to turn the call over to today to today's host, Jeff Holly, Westlake's Vice President and Treasurer. Sir, you may begin. Thank you, Andrew. Good morning, everyone, and welcome to the Westlake Chemical Corporation Fourth Quarter and Full Year 2019 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 is to our master limited partnership, Westlake Chemical Partners LP and similar references to OpCo referred to our subsidiary Westlake Chemical OpCo LP, which owns certain olefins facilities. Today, management is going to discuss certain topics that will be forward looking 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 which we compete availability costs and volatility of raw materials, energies 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 developments and other risk factors discussed in our SEC filings. This morning, Westlake issued a press release with details of our fourth quarter and full year results. This document is available in the Press Release section of our webpage at weslake.com. We have also posted a presentation on our website to assist in the discussion of our results. A replay today's call will be available beginning today 2 hours following the conclusion of this call. The replay may be accessed by dialing the following numbers. Domestic caller should dial 855 8592056. International callers may access the replay at 4 4 5373406. The access code for both members is 84676 39. Please note that information reported on this call speaks only as of today, February 18, 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 conference call is being broadcast live through an internet webcast 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 fourth quarter full year 2019 results. Westlake's focus on operational excellence cost management and prudent investments proved to be an advantage as our market stealth with trade uncertainty that caused a slowing global industrial manufacturing activities and drove prices lower throughout the year, particularly lower in the export markets. In this morning's press release, we reported net income of $72,000,000 for the fourth quarter of 2019 or $0.56 per diluted share. For the full year of 2019, we reported net income of $421,000,000 EBITDA of $1,400,000,000 cash flow from operations of $1,300,000,000 and achieved record sales volumes in 2019. Our 4th quarter profitability was impacted by lower global demand for our products as economic uncertainties caused many of our customers to remain cautious reducing the inventory levels and tightly managing their ongoing purchases. The impact to prices was smoked most significantly in the export market. In our vinyl segment, industry experts reported that caustic soda export prices fell $130 per ton and reported domestic caustic price indices were down $85 per ton. Both of these decreases were from the fourth quarter of 2018 to the fourth quarter of 2019. Primarily in the U. S coupled with declining oil prices, which lowered our overseas competitors costs put pressure on polyethylene prices and led to a reported polyethylene domestic price decrease of $0.14 per pound since the fourth quarter of 2018. Our drive for operational excellence and being positioned on the lower end of the global cost curve, which is the result of using cost advantage to ethane feedstock and gas based power coupled with our product mix among the factors that drove our ability to achieve record sales volumes in 2019. We also took steps throughout 2019 to rationalize some facilities around the world, which helped concentrate and optimize our production while lowering costs and we'll continue to keep that focus. Even in these uncertain market conditions, we completed our investments to strengthen our business. We have started up our previously announced vinyls expansions in both Germany and Geismar, Louisiana adding 1,000,000 of PVC production capacity. The expansion in Geismar provides us a higher degree of integration by consuming a greater portion of our chlorine into the production of PVC which broadens our global sales channels. The expansion Germany optimizes capacity and improves cost in our specialty PBC Business. We also increased our interest in the LACC ethylene joint venture with a lot of that chemical in October of 2019 to 46.8 percent. This £2,200,000,000 ethylene cracker in Lake Charles, Louisiana will lower our cost of ethylene feedstock in our vinyls business and reduce the amount of ethylene repurchase in the market. Which keeps us on the lower end of the cost curve. All of these initiatives increase our integration lower our costs and improve our global competitive position. I would now like to turn our call over to Steve to provide more detail on our financial and operating results. 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 olefins segment results Let me begin with our consolidated results. For the fourth quarter of 2019, we reported net income of $72,000,000 or $0.56 per share compared to net income of $123,000,000 for the fourth quarter of 2018. As Albert mentioned, the contraction in global industrial demand driven by the international trade uncertainties that persisted throughout 2019 led to lower prices and margins for In our Vinyls segment, the combination of significantly lower industrial activity and lower inventory carried by our customers impacted global demand and therefore significantly lowered prices for many of our vinyl chemical products. And our open segment new polyethylene production capacity has come online over the past 2 years leading to excess supply putting pressure on polyethylene prices. Our global low cost position on the olefins and vinyls cost curve provided a competitive advantage that drove record sales volumes in 2019. While we benefited from these record sales volumes, the lower prices and margins for our products experienced lower prices for our as many of these products serve the construction industry. Our utilization of the FIFO method of accounting resulted in a favorable pretax impact of approximately $13,000,000 or $0.08 per share compared to what earnings would have been reported on the LIFO method This calculation is only an estimate and has not been audited. Now let's move on to review the performance of our two segments starting with our vinyls segment. In the fourth quarter of 2019, our vinyls business saw sharply lower sales prices for caustic soda as compared to the fourth quarter of 2018 driven by lower global industrial manufacturing activity. Vinyl's operating income in the fourth quarter 2019 of $68,000,000 decreased $57,000,000 from the prior year period primarily as a result of lower sales prices for caustic soda that was partially offset by higher sales volumes for caustic soda PBC and downstream vinyl products. 4th quarter vinyls operating income of $68,000,000 decreased 85,000,000 from the third quarter 2019 as we saw higher ethane feedstock and fuel cost as well as lower caustic prices and the typical construction season slowdown that lowers demand for downstream vinyl products. In mid October, we increased our interest in the LAC ethylene joint venture to 46.8 percent which reduced our total cost of ethylene by providing additional ethylene at cost and reducing the amount we purchase at higher market prices. Now turning to our Olefins segment full year 2019 saw solid increases in global demand for polyethylene. However, the significant new ethylene and polyethylene production capacity that has entered the market has outweigh the increases in global demand, which coupled with lower global oil prices in 2019 push sales prices and margins lower. For the fourth quarter of 2019, Olefins operating income of $49,000,000 decreased 41,000,000 from fourth quarter 2018 as a result of lower plumbing sales prices that was partially offset by higher polyethylene sales volumes. Fourth quarter 2019 Olefins operating income of $49,000,000 decreased 43,000,000 from the third quarter of 2019 as we were impacted by lower sales prices, higher feedstock and fuel cost and higher cost from polyethylene turnaround activity when compared to the prior quarter. Next let me turn our attention to the balance sheet and statement of cash flows. At the end of 2019 we had cash and cash equivalents of $728,000,000 and total debt of 3,400,000 Cash flow from operating activities was $333,000,000 in the fourth quarter of 2019 $1,300,000,000 for the full year of 2019 helping to support our strong balance sheet and liquidity position. We completed the previously announced vinyl expansions in the United States and Germany during the fourth quarter which adds £750,000,000 of annual PVC capacity. These expansions along with our increased interest in the LACC ethylene joint venture increases the level of integration in our vinyls business to capture the margin within our product chain reduces our ethylene cost and further leverages our low cost footprint for our existing operations to reach markets around the world. We will invest prudently in opportunities to acquire businesses with leading technologies and in assets that further enhance the chain integration of our business which improves our cost position and capitalize on our globally advantaged feedstock position. Now let me address some of your modeling questions. Looking forward into 2020 as a result of our recent investments, we do not expect to be a cash taxpayer in 2020 and expect our effective tax rate for the 2020 to be approximately 23%. We expect cash interest expense in 2020 to be approximately $140,000,000 and our capital expenditures to be in the range of $650,000,000 to $700,000,000. We are planning for a turnaround of our Petro2 ethylene unit which could occur in September We will update you later in the year as we finalize our turnaround plan. The estimated maintenance cost of the turnaround is approximately will be amortized over a 5 year period. With that, I will now turn the call back to Albert to make some closing comments. Albert? Thank you, Steve. Recent trade resolutions such as the USMCA and agreement between the US, Mexico and Canada as well as the phase 1 agreement with China was a positive for global demand and we saw improvements in domestic and export prices for PVC and polyethylene. Housing starts in the US grew over 3% in 2019 and saw stronger growth in the fourth quarter. This improving trend should also bode well for domestic PVC demand and our downstream vinyl products business. However, with the outbreak of the coronavirus, We are taking a conservative view of 2020 and potential impact on global industrial demand which will be dependent on the time period it takes for the Chinese and global economy to recover from this contagion. We continue to optimize our operations and lower our cost position. These steps compared with the discipline we have shown in the past. Will guide our actions in 2020 and beyond. With our advantaged position on the global cost curve, combined with a strong balance sheet, we're positioned to continue to create value for the long term for our shareholders. Thank you very much for listening to our earnings call this morning. Now, I'll 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 will provide that number again at the end of the call. Andrew we will now take questions. And our first question comes from the line of Bob Koort with Goldman Sachs. Good morning. This is Dylan Campbell on for Bob. On caustic soda, there's price increases that have been announced for cost soda in January. Can you discuss in kind of a pine on those potential price increases and generally what you're seeing in the caustic soda market in regards inventory levels, producer outages, and maybe demand trends to give us a sense of kind of likelihood or chances for that price increase to actually go through? Sure. As you know that we reported caustic soda prices dropped both in export and domestic market in 2019. By large amounts and the industry Westlake and other company has made various price increases for the first quarter and between $35 to $40 of a dry short term and both are effective immediately as allowed by the contract. So we foresee because of the Lanova inventories from our customers with a decrease in price last year. We see channel for restocking by our customers and the increased demand, we believe that these prices will be put in place. Got it. Thanks. And then on PVC pricing, looking into 2019, some consultants had anticipated some nice pricing growth that then ultimately materialize in any meaningful form in 2019. And I think that's despite some nice demand trends that you talk about for PVC and construction. Can you give us a sense of kind of what prevented industry from gaining price in 2019? And then I guess looking into 2020, it looks like there's similar expectations for some nice pricing growth and give a sense of kind of the likelihood that that is to kind of go through as we look through 2020? Sure. With the weakness in export demand, export pricing globally in 2019, export size came down and which resulted impacted on the U. S. Domestic price. But with the increasing seasonal demand as well, we see a end up demand for PVC and downstream fabricated products. And industry including Westlake, we have passed price increase of $0.03 a pound for January. And there's we have announced another $0.03 a pound price increase pound price increase for February and time will tell whether the second $0.03 of pound price increase can be passed. But we see that export prices have moved up and the domestic price some prices have been higher than netback to domestic prices. So we believe the price increase momentum should improve. You're welcome. Thank you. And our next question comes from the line of Steve Byrne with Bank of America. Yes, thank you. Just continuing down this line of thinking, would you say that your chlor alkali operating rates have increased in the last couple of months in line with an improving demand and pricing for PVC? And does that represent maybe an increased differential between the demand for caustic and the demand for the chlorine side of the ECU and does that present any concern to you for caustic pricing moving forward? Certainly because of the 4th quarter demand for PVC generally is weak with a seasonal construction slowing down. So the member PVC and caustic production have also come down But as the market recovers and the building construction season starts, there'll be more production of PVC and caustic. And we'll see how industrial demand grows both U. S. And in the international markets. How will support price increases for cost see. And, Albert, you mentioned some of your customers continue to reduce inventory levels when you think about your largest end markets for caustic, are you seeing any signs of an inflection into those end markets, any anything that would suggest that that those end markets have meaningfully decoupled from global GDP growth? Well, caustic, as you know, are used broadly in many manufacturing sector not only in alumina, but also in pulp and paper refinery cosmetic consumer products. It's a very broad application. So it has a very strong correlation with GDP as well. And Time Hotel, we are concerned of the impact of the coronavirus potentially on just the general industrial activities around the world and time will tell how much they'll impact both production and demand because some of those plants that in China has been producing a lower rates or shutdown or they cannot ship. So not only sub demand could be down, but production costs will be down. So we'll Ton Hotel what's the impact of both capacity production and demand would be? Our next question comes from the line of Kevin McCarthy with Vertical Research. Good morning. Albert, just to follow-up on on the prior point, What is your preliminary assessment of the likely net impact of the virus on China's net trade position? Do you expect it to be a net negative or are there examples of a net positive for you when you take into account the reduced supply position in China? That's a good question. We're still trying to get information feedback. As you know, this is the issues just started less than a month ago. China does or did export fair amount of caustic the coastal regions. So with that plan, it's not able to produce or can't get ships to, load or unload the export market could be affected. On the other hand, we don't know what the demand for the export markets are for Chinese caustic. So that we don't can't tell yet. I think after months or so, we can get better information. Okay. And then secondly, I wanted to ask about your M and A pipeline. I think Westlake was mentioned in a Bloomberg article several weeks ago, as a possible acquirer of, Orbi in Mexico. Perhaps you can't comment on a specific deal, but in general, what would you say about your appetite for sizable acquisitions as the businesses approach trough conditions here? Well, Kevin, as you can imagine and you heard our comments earlier, we're taking conservative view as we enter this market. And so we're going to be cautious about any opportunity that might be in the marketplace. You're right. I can't comment about any particular activity that we might look at or any particular trend that we see in terms of assets in the marketplace, but we're going to take a conservative stance in terms of how we deploy capital in this business to make sure that we're creating real value to grow the business on a long term basis Understood. Thank you very much. Our next question comes from the line of Neil Kumar with Morgan Stanley. I think you mentioned some rationalization of your capacity around the world in your comments. Can you just give us some more color on that? This will kind of impact it had in terms of overall size and how will it impact your cost structure in 2020? Suneel, we took the opportunity to rationalize an asset in the UK and a same time added some capacity as you can see in Germany. So the net change was a mild net a nil net change in our production capacity in Europe, but it allowed us to really concentrate and reduce our cost structure by having a more centralized location to produce products there in Germany. So it allowed us to really reduce our cost structure and not have such a widespread footprint, but it didn't have a significant change in our production capacity. We've also taken the opportunity to rationalize some of our downstream vinyl products assets in the North American market and have shuttered a facility to make again that more a cost effective business and reduce our costs but still service customers well. That's helpful. And I think you mentioned a $13,000,000 positive impact from the FIFO method versus so. I was wondering if you could just give a little bit more color on that as it seems that ethane prices actually came down throughout the fourth quarter. So I thought it would be a negative. And just how are your feet out cost looking so far in the first quarter relative to the 4th quarter? Well, as we think about stocks during the course of 'nineteen, we saw that ethane did trend down, but certainly it still was fairly elevated at the end of the fourth quarter compared to the first quarter. And so we did have a positive benefit as you note since then we've seen ethane prices trend even further down. And so as long as we see that benefit, we'll have a similar outcome in the in the first quarter of 2020. All right. Thank you. And our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Curious, you know, it looks like polyethylene was able to, the industry was able to anchor percent increase in January. If I can just get your comments on that, you know, is that kind of within your realm of expectations? Do you expect further pricing as we move through 2020. How's your inventory is looking, I guess? And what do you think drove the increase there? Yeah, inventory was quite low going to the end of 2019 and with the price drop and with the improving export price and the end of middleendofDecember, So the industry announced the $0.04 which did not push through earlier was effective in January and some other company announced another $0.05 price increase for February and time will tell whether that would be able to put in place. But particularly LDPE, the inventory is quite low demand is quite strong and what time will tell whether that additional $0.05 can be put in place. Okay, thanks. And similarly on the caustic front, I know there's been a number of increases here by yourself and your competitors in the industry. Maybe you can just give us your chances of success there for the increase that have been announced in caustic soda as we move through the year. I guess I'm just curious what it would take, if there's anything that the can do outside of macro improvements or cyclical improvement or even coronavirus kind of selling. But how do you look at the caustic market right now? Yes, I think it takes both the U. S. And global demand increase for industrial manufacturing. As you know, the PMI index for manufacturing as of being below 50 many parts of the world. And so if we see signs of improvement that will help in increasing demand for caustic There has been some rationalization of capacities in caustic in the U. S. And as I said earlier, we don't know what the impact of the cost of manufacturing and sales in China will be because even though the demand we presume will be less but productions coming down a lot also. Okay, thanks. And just lastly, could you comment on your styrene business as well? I know that trends may have been a little challenging there. What's your outlook for that business? And you looking at it within your portfolio longer term? Thanks. Certainly, while against supply demand with the fall in oil prices, Bencing price comes down a lot as well. So that helped the cost position for starring. And the global demand for starring which depend in plastics and tires, again, depending on global GDP and industrial manufacturing, whether that would increase demand for that as well. But the starting, as you know, they know that China has added some starting capacities, but now with all the coronavirus, we don't know the impact or production of those facilities in China. So if those new capacities are not impacting global market that could change the dynamics of global market again. Thank you. And our next question comes from the line of David Begleiter with Deutsche Bank. You. Good morning. Good morning. Good morning. Just on good morning. Just on a CapEx forecast this year, what is maintenance CapEx in that number? And what are you spending on the growth capital for this year? And how should should we think about growth capital going forward over the next couple of years? So, David, the guidance I gave for CapEx this year in total was $650,000,000 to $700,000,000 and a little bit more than $500,000,000 is that ongoing maintenance capital component. As I mentioned earlier, we've been we have several other small small expansions or debottlenecks that make up the rest of that capital beyond that a little over $500,000,000 of maintenance capital. That we expect to complete over the course of the next year and a half to 2 years. We haven't given guidance for 21 CapEx and we'll do that as we get further into the year and look at our 2021 numbers. As we typically do, we give those numbers early in the new year once we finish our full budgeting process. Very good. And see, just saw you mentioned cash taxes. You expect to pay no cash taxes this year. What's driving that and is that sustainable going forward? David, the benefit of the investments that we've made of the bonus depreciation in the current year. And so the investments we made both in the U. S. Through our PVC expansion and of course the investment in the ethylene unit allow us to avoid paying cash taxes this year. And going forward do you think or but it will depend on how earnings play out in 'twenty one and beyond. We'll give guidance as we see how earnings develop. Thank you very much. Thank you. And our next question comes from the line of P. J. Juvekar with Citi. Hi, good morning. This is Eric Petrie on for P. J. China recently announced that importers may be able to import U. S. High density and linear low density at pre trade war duties of 6.5%. Do you have any read on that and how it could benefit the industry? Certainly as we understand on February 17, the new Chinese regulation has put has canceled all the punitive tariffs on US polyethylene exports to China or imports to China. Other than the normal tariffs. So I think U. S. Polyethylene can get back to normal to the pre trade war Arab polyethylene and other some other polymers as well. But again, we don't know what the demand for Chinese on polyethylene and China imports about 40% of its normal polyethylene needs, but today the needs could have changed. On the other hand, the production also could be hampered. So depending on the region of China, some region that does not cannot get local production that we have to import. Okay, helpful. And then secondly, how do you see supply demand balances caustic soda in Brazil, it looks like Braskem is now importing salts to Masseo? Yes. Well, the as we understand domestic economy in Brazil has not been that robust. So, demand for general polymers in Brazil has been slow. I think Brazil was coming back from its solve problems. And so I think that Brazil used to import an export caustic. So with the new dynamics, things could change a bit. Thank you. And our next question comes from the line of Hassan Ahmed with Alembic Global. A question on polyethylene. As I take a look at near to medium term supply demand fundamentals, They seem to be quite divergent depending on the grade I'm looking at. It seems LDPE isn't that much capacity coming online over the next year or 2, quite a lot of HDPE and LLDPE capacity. Coming online. Now obviously, historically, pricing for most of these grades moved in tandem, what are you guys' views about how sort of these divergent supply demand fundamentals impact pricing power going forward by grade? That's a good question. As you know that most of polyethylene, the 3 types polyethylene, that price movements are all intended. And there's been discussions that doesn't make sense that the dynamic supply demand for each products are quite different. As you mentioned, there are more capacity added in the year low high density than LDPE and also the LDP added in the U. S. Are all tubular, which are more the commodity grades. And whereas 80% of our grades are autoclave. So time will tell whether the industry would have bifurcate or trifurcate prices for all three different types of polyethylene. Understood. And as a follow-up, going back to the whole M and A side of things, I know you can't specifically comment on the Bloomberg article about Orbi. But just strategically thinking through things, I mean, as I took a look at the Westlake portfolio historically, I mean, you guys would run a pretty sort of integrated portfolio into building blocks and the like. Now you guys are net short ethylene. Just strategically speaking, how do you want the portfolio to be positioned going forward? I mean, are there certain building blocks that you want to be sort of net short do you want to be net long caustic PVC? I mean, just broadly speaking, what are the references and what how do you sort of see the portfolio evolving over the next couple of years? So, Asana, as you think about the investments that we have historically made and those that we're continuing to make, whether it be the recent investment in the ethylene unit with the Lotte or whether it be these PVC expansions using some of our merchant flooring to feed those into VCM PVC. You see the focus is continuing to build out that integrated chain. And so we find that to be a very valuable, strategic approach and being very cautious in terms of how we invest in new incremental chain integration. So we think that makes good logical sense and you can see over the course of 2019, we also extended that integration chain to include some additional downstream products with the addition of NAKAN and DaVinci in that portfolio. So we think that the means to further that integration is important. You heard us also speak to some of the rationalization steps that we took in 2019 to increase our footprint and reduce our costs. And so we think those integrated sites that bring us more value and lower cost the integrated integration model is I think very important in terms of how we think about the path moving forward. Thank you. And our next question comes from the line of Frank Mitsch with Fermium Research. Now. Hey, good morning, gentlemen. Robert, the press is reporting that, that you've had some production issues at Longview Texas terms of polyethylene. I was wondering if you might be able to comment on that. Is that something that we should be concerned about, the length of delay, etcetera, anything more broadly, on the operational front as we sit here in the first quarter? Yeah. Well, we do not report on specific plan operations, but we don't have any material operational issues along New Texas. All right. Thank you. And Steve, you said before, I think in response to the M and A question, what have you, just some of the conservative nature in terms of cash use, how should we think about Westlake's appetite for buybacks during 2020? So Frank, we still have ample authorization from the board to buy opportunistically and that's how we've operated to look for opportunities where we think the valuations are inappropriate and to take action accordingly. So the board's given a sample authority and certainly as we think about that, we'll act on those opportunities where we think evaluation proposition is favorable to investors for us to buy and return some of that cash back to shareholders. All right. Thank you so much. You're welcome. Thank you. And our next question comes from the line of Mike Leithead with Barclays. Great. Thank you. Good morning, guys. I think in your prepared comments are you made a comment that you want to be conservative on demand this year. I know you usually stick with the consultant guidance in terms of outlook, but is it fair to say you're taking a more conservative view than them with your 2020 outlook? Or how should I think about how you're thinking about the market versus some of the other consultants out there? Well, I think the impact of coronavirus on China and the rest of the world is really just the beginning and nobody has a crystal class on understanding what's going to happen. So time will tell. We just want to be cautious Got it. No, that's fair. And then you touched on some of the excessive weakness in the export market today. Can you maybe just give us a sense with all of this new capacity coming on in the market, how you think about your domestic versus export sales mix in your 3 key products poly in PVC and caustic? Thank you. Sure. I think the export weakness was primarily starting in 2019 with the trade tensions and slowing down in Chinese Manufacturing Economy And Global Manufacturing Economy So that costs much of the price weakness, both export market and in the US market. But with the the Phase 1 agreement, USMCA, the tone has changed at the in December and we saw price moving up and we are seeing continued price moving up especially in polyethylene PVC. Caustic I think is somewhat slower but we have seen some price increases also. So barring the commodity prices impact if it's only contained within China and China seems to be controlling the spread of the the sickness, then things will recover faster. If the convergence spreads to more countries or get worse in China, the impact could be worse So we could not tell how that will impact demand and pricing in the coming months. Thank you. And our next question comes from the line of Jeff Zekauskas with JP Morgan. Thanks very much. Early in the call, hi, good morning. Early in the call you spoke of a $0.04 per pound price increase in polyethylene, but I think the IHS guys said that they net transaction price for them some increase, but there were maybe some discounts that weren't factored in. Is it really a $0.04 a pound increase in January, will that benefit your margins in the first quarter or is it more subtle complicated? Yes. I think there were some, down market adjustments at the end of the year with contract resetting. So some of those penalties were impacted in the fourth quarter of last year. And so if you combine depending when those put in place if you combine the $0.04 and some people are saying that net net could be neutral or a little bit positive, but depending on the customers, but the $0.04 price increase as we understand was in effect in January. So does that mean that all things being equal, you're per pound more should be $0.04 higher sequentially or is it more complicated than that? There should be a positive impact in the 1st quarter earnings at least for January. Yeah. What were the cash taxes you paid in 2019? So, Jeff, we'll get we won't we'll get a refund of all the cash taxes we paid in 'nineteen because of those investments that earlier mentioned. The ethylene unit as well the PBC. So, while we were accruing and paying some small amount of taxes anticipation of that, those will all be refunded and so our net cash tax effect in 'nineteen will be 0. So what will your deferred so what can you forecast your deferred tax number on your funds flow statement? So, we will yes, our effective tax rate, the ETR will continue to grow it and we'll continue to accrue at a 23 percent rate, but from a cash tax perspective, both 'nineteen and 'twenty, I expect to pay no cash taxes. But as I said, we'll continue to show an ETR and effective tax rate of 23%. Okay. With all of the difficulties about the virus. Has your import demand for your Olefins business slowed down in 2020 so far or have you not detected any range. Import? I'm sorry, I bespoke export. So far we haven't seen much change actually demand being quite strong. Thank you. And our next question comes from the line of John Roberts with UBS. Thank you, Albert. The customers on the vinyl side globally in the construction industry, very labor intensive. And on the caustic side, we have a lot of large scale process industries that use caustic. So would think the virus is going to reduce demand for construction related materials more than it would reduce demand for caustic. And so, that should be a sort of a net favorable to caustic eventual outcome from this. Well, time will tell, but this is the construction season and also India is a big importer of PVC especially this is the dry season and globally weather's been quite warm. So construction seems start pretty early. So the PVC demand has been quite strong, hence the price increases. And, Steve, what was the impact from 2 months of LACC in the quarter? And are there any discussions to go higher in your ownership? And so, John, the impact, as I mentioned earlier, we expect between $20,000,000 $25,000,000 a quarter given the delta between producer economics and market prices for ethylene. And so we got a partial benefit in the 4th quarter, because our investment was made during the during the quarter, but on a go forward basis, it's in that range depending on where the market prices for ethylene are of course. And so certainly as we think about the ownership percentage. We certainly believe that the nearly 47% is a number that we are invested in today and certainly to the extent that we can raise that to something slightly higher to 50%. We'll continue to have those discussions with our partner. And any plans to put it into the partnership sometime soon? That's certainly an option that we consider as we move forward. It certainly is a qualifying income stream and could be could be structured to be in some of our manners or existing 3 units. And so certainly that's a consideration as we think about growing the partnership earnings potentials in the future. Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Hey, good morning, Albert and Steve. Good morning, Matthew. So your Olefins volumes were down 7% quarter over quarter. If I look back over the past 3 years, the drop was about 4% quarter over quarter. If I take that delta there, that 3% delta, is that a good approximation for the turnaround impact that you alluded to? And could you clarify, was that mostly on the PE side? No, the driver really was driven by some of the ethylene tow products and some of the styrene timing of vessels moving polyethylene continue to have good volume, during the period. We had we, as I say, it was mostly ethylene co products and just timing of stirring shipments. Okay. Sounds good. And then, Steve, are you planning any debt reduction in 2020? And in general, how are you feeling about a dividend raise later this year? So when we think about the balance sheet, we certainly have a series several series of go zone and eye bonds that could be considered later this year. They have a park haul opportunity and certainly we'll assess those and see what the right action is, on those bonds. And certainly as we think about the dividend, we'll have conversations with our board as we do every quarter about the dividend. You're welcome. Thank you again for participating in today's call. We hope you'll join us again for our next conference call to discuss our first quarter results. Thank you for participating in today's Westlake Chemical Corporation Fourth Quarter And Full Year Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and may be accessed until 11:59 pm Eastern Time on Tuesday, February 25, 2020. The replay can be accessed by calling the following numbers domestic callers should dial 8558592056. International callers may access the replay at 404-537-3406. The access code for both numbers is 846 7639.