Earnings Call: Q3 2019

Nov 5, 2019

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Third Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in As a reminder, ladies and gentlemen, this conference is being recorded today, November 5, 2019. I would now like to turn the call over to today's host Jeff Holy, Westlake's Vice President and Treasurer. Sir, you may begin. Thank you. Good morning, everyone, and welcome to the Westlake Chemical Corporation Third quarter 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 refer to a are a subsidiary Westlake Chemical OpCo LP, who own certain Olefins facilities. Today, management is going to discuss certain topics that 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 costs and volatility of raw materials, energy and utilities, governmental regulatory actions, changes in trade policy and political unrest, global economic conditions, 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 third quarter results. This document is available in the press release section of our webpage at westlake.com. We have also posted a presentation on our website to 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. The replay may be accessed by dialing the following numbers. Domestic callers should dial 855-859-2056. International callers may access the replay at The access code for both numbers is 7725119. Please note that information reported on this call speaks only as of today, November 5, 2019, 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 may 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 3rd we reported net income of $158,000,000 for the third quarter of 2019 or $1.22 per diluted share. In the third quarter, we benefited from lower feedstock and fuel costs and from the strong operational performance market uncertainty have caused customers to remain cautious and manage their inventories tightly. Yet we continue to see solid sales volumes in both our segments and our downstream vinyl businesses recovered volumes lost due to the cold and wet weather in the first half of the year. Over the past year we have remained focused on closely managing our costs and being disciplined with our capital expenditures. Despite the recent weakness in prices for major products. We remain constructive in the outlook for the Clorro Vinyl's supply demand balance and believe our PBC expansions in the U. S. And Germany, which was startup by year end, along with the increased ownership in our ethylene joint venture with Lotte Chemical will improve our competitive position by expanding our market presence PVC and lowering our operating costs. I would now like to turn the 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. Let me begin with our consolidated results. Or $1.22 per share compared to net income of $308,000,000 for the third quarter of 2018. Compared to our prior results, our results were primarily impacted by lower prices and margins for our major products, especially in the international export markets. While most of the North American ethylene producers use cost advantage gas based feedstocks, many of the Asian and European ethylene producers use nap and oil based feedstock. The lower oil prices we have experienced throughout 2019 have lowered the oil to gas ratio reducing our cost advantage. Slowing global economic growth over the past year resulting from the international trade tension uncertainties coupled with lower oil and gas ratio have led to lower margins in both our olefins and vinyls segment when compared to the third quarter of 2018. Compared to the second quarter 2019, we benefited from lower feedstock and fuel cost as higher operating rates in our vinyls segment following the completion of our normal spring maintenance turnarounds. Our utilization of the FIFO method of accounting resulted in favorable pretax impact of approximately $4,000,000 or $0.03 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. In the third quarter of 2019, our vinyls business continue to see lower sales prices for caustic soda, especially in the export market as declining global industrial activity and slower economic growth resulting from the ongoing uncertainty in international trade pressured prices lower over the past year. Compared to the third quarter 2018, vinyl's operating income of $153,000,000 decreased $98,000,000, primarily as a result of the lower sales prices for caustic soda. 3rd quarter vinyls operating income of $153,000,000 increased $24,000,000 from the second quarter 2019 as we benefited from lower ethane feedstock and fuel prices and we ran at higher operating rates following the completion of our spring turnarounds. Now turning to our olefins segment. Since 2018, the industry supply balance supply demand balance has seen significant new ethylene and polyethylene production capacity enter the market which coupled with the ongoing trade uncertainty and lower global oil price post sales prices and margins lower. For the third quarter of 2019, Olefins operating income of $92,000,000 decreased $70,000,000 from third quarter of 2018 as a result of lower margins from lower polyethylene sales prices. 3rd quarter 2019 Olefins operating income of $92,000,000 increased $10,000,000 from the second quarter 2019 as we benefited from lower feedstock and fuel cost when compared to the prior quarter. Next, let's turn our attention to the balance sheet and statement of cash flows. At the end of the third quarter, we had cash and cash equivalents of $1,400,000,000 and total debt of 3,400,000,000. Third quarter 2019 cash flows from operating activities were $501,000,000 while capital expenditures were 193,000,000 These capital expenditures were focused in our strategic debottlenecking investments to further integrate our vinyls businesses in the United States and Germany to capture the margin within our product chain, reduce our cost and further leverage the footprint of existing vinyls operations around the world. We expect to start up our previously announced VCM and PVC expansions in Louisiana and Germany by end of the year, which will bring more than £750,000,000 of PVC production per year. As announced last week, We have exercised our option to acquire an additional interest in our ethylene joint venture with Lotte Chemical, which will further integrate our vinyls chain and lower our cost. We seek to invest prudently in opportunities to acquire leading technologies and in projects that will further enhance the chain integration of our business which improves our cost position and capitalize on our global advantage feedstock position. As we look forward new NGL pipelines and the accompanying fractionation capacity will be starting up in the fourth quarter. These infrastructure investments will increase the supply of feedstock and ethylene to our industry and highlight the beneficial long term cost Advantage position enjoyed by North American Producers. For your planning purposes, as we approach the end of 2019, we continue to expect our effective tax rate in cash tax rate for the full year to be expenditures to be approximately $650,000,000. Albert? Thank you, Steve. We delivered a solid third quarter result in this challenging economic environment. Thanks to our advantage position on the global cost curve, driven by our gas based feedstock and our scale combined with a strong balance sheet, we are positioned to continue to create value for our shareholders. The current business environment demands cost discipline and prudent capital allocation. The startup of our expanded vinyls facilities in Louisiana and Germany along with the increased interest in our ethylene joint venture with Lotte Chemical are just a couple of examples of the many organic opportunities we have. To further integration of our business, lower our production costs and provide a compelling return to 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'll provide that number again at the end of the first question comes from John McNulty with BMO Capital Markets. Your line is now open. Hi, good morning. Good morning. This is Vanessa for John. Good morning. First, for maybe on the Lotte JV, like, could you comment on your decision to go ahead and add to your stake now versus a bit later? And then if you could also comment on just how the cost of the entire product came versus your prior estimates and just where do you see your returns on the product today, if you take into account the integration, and perhaps the lower cost of adding the option? Well, the project came in on schedule and on budget. And what I mean by that is about $2,000,000,000 for the £2,200,000,000 of ethylene. So our decision to invest was because we believe it provides a good return on this investment. So that's really the driving reason behind the decision to invest at this stage and increase our ownership. Got it. And then sort of a very solid quarter, regarding your windy segment in particular. Can you comment on the resiliency of this, the earnings of EBITDA, which it was up sequentially EBITDA I believe prices and volumes fell sequentially. Let's say if you could just discuss the moving pieces on what drives the sequential growth Sure. Well, sequentially quarter over quarter, of course, we benefited from lower ethane feedstock. It was lower over the second quarter by about 18% and fuel costs were also lower about 11%. And as we noted, we also completed our spring turnaround activity and so we benefited with the plants running at better operating rates because we completed those turnarounds in earlier quarter. So sequentially quarter over quarter, those were the big drivers behind the results. Great. Thank you for your time. You're welcome. Thank you. Our next question comes from Neil Kumar with Morgan Stanley. Your line is now open. Thank you. I was just curious when you look at the year to the underlying demand growth for the key end markets for caustic like Illumina paper and pulp and inorganic and organic chemicals. But would you say growth has lagged the most versus expectations? Well, I think the cost of the slowdown in the economic growth across around the world, especially in the manufacturing side, it has impacted on the on all the area, alumina, apartment paper, and general manufacturing. Okay. And then you mentioned in your comments that your focus on cost control in those challenging environment, could you use some examples of this and whether you have any specific initiatives in place going forward? Well, Neil, while we've not set public initiatives externally, I think you can see just in the most recent period that even our G and A was lower period over period. As we continue to focus on managing investments and managing our cost, we're going to continue to keep our eye very much in that area of focus And as I say, I point to just G And A as a clear example of that. Okay. And just last question. Can you just maybe also update us on the how the integration of NAKAN has been going? And what kind of contribution they had during the quarter? Well, we've not broken out the individual earnings contribution from any of our acquisitions. But I would say the integration has gone very well. We're very pleased with the acquisition. And as you know, it it expands both our product offerings in a wide range of applications, be it medical or auto or others. And gives us a much larger geographical positioning for our compounds position, which was largely focused in the Americas. This now takes us into Europe into Asia and strengthens our North American position. So we're very pleased with the transaction. Thank you. Appreciate it. Thank you. Our next question comes from Stephen Byrne with Bank of America. Your line is now open. Hi. I wanted to ask you about the mid year guidance that you provided for EBITDA. Here we are a quarter beyond that. Where would you say you're headed towards the lower upper end of that range at this point? Steve, as we said, and this was in the summer the first time we provided guidance and we indicated that it was an unusual event and we weren't going to provide guidance on a going forward basis. And that's kind of where we stand. Okay. Also wanted to ask you whether or not you're planning to another drop down into the MLP to raise capital for the your share of the Lotte cracker? Well, as you think about the partnership, we have the significant amount of inventory left, we have well in excess of 75% ownership of the operating company still to contribute This exercise of this option adds ethylene at Westlake Chemical, which could be converted down to OpCo at an appropriate valuation in time. So we still have plenty of inventory of the operating company contributing to the partnership and I would expect that we'd undertake a transaction in 'twenty But it need necessarily be that related to the low t cracker because we still have significant capacity left. Okay. Thank you. Our next question comes from Kevin McCarthy with Vertical Research Partners. Your line is now open. Yes, good morning. A question relates to your ethylene long short position. If I look through the Lotte option exercise as well as the PVC expansions that you referenced. It seems as though you're still be short more than a £1,000,000,000, perhaps 1,100,000,000, and so my question is, are you content to remain short that amount of ethylene for foreseeable future? Or do you see any appealing options beyond the Lotte exercise to bridge that GAAP and rebalance the ethylene position? Well, Kevin, as we think about the opportunities here, we've been on both sides of that over time, both long and short. And you're right, the balanced number that you mentioned is about the proximate position that we have today being short about 1,101,000,000 pounds with this new addition. Certainly we will look at the new cracker that we have and that has because it is a new unit will have debottleneck capacity though we wouldn't want to do that immediately, but it down the road we'll have an ability to be debottleneck. And we'd like to over time be more balanced, but one need necessarily be perfectly balanced. Okay. And then second question, if may relates to low density polyethylene. It looks like we have a few startups among your competitors over the next 3 to 6 months. In the past, you've talked about the premium that low density garner is relative to other grades of polyethylene. Can you talk through your expectations for 2020 and beyond as it relates to supply demand and the magnitude of how that historical premium could fluctuate? Yeah, certainly as you've heard us talk for a long period of time that the autoclaves has certainly continue to garner a meaningful premium over time and with the new additions coming, there are really no meaningful additions at all in the autoclave technology the additions are all coming in the tubular applications. Commodity based polyethylene in all manner be it high density linear low or even low in the tubular technology. So we continue to see benefits of having a position in the more specialty Some of those margins to be under pressure's new total pounds come into the market, we think that that premium continues to be important and our customers certainly recognize that as well. Very helpful. Thank you. Thank you. Our next question comes from Bob Koort with Goldman Sachs. Your line is now open. Thank you very much. Albert, I thought maybe you could opine on the path forward in the polyethylene world. I know that there had been quite a bit of angst about the startups in the U. S. It seems like those are coming from closed and now maybe the anxiety for some investors has shifted to Asian. Capacity ramps there. But I guess when I look at some of the consultants reports, it seems like they're still calling for a trough in the U. S. Maybe $0.15 a pound on integrated polyethylene, which seems pretty good. How do you sort of see that path forward and how do you think about the capacity outside the U. S. Affecting your business? Yes. As Steve mentioned earlier, the capacity and supply demand for polyethylene really impacted by economic growth globally as well as the oil and gas ratio probability impacting the North American producers. So I think IHS is looking at, by the end of the year and looking forward to next year, fee prices is pretty much flat across 2020. And I think people are assuming that the global GDP we are not going to a recession in the U. S. And as GDP will be growing, albeit at a bit slower rate. And hopefully, trade tensions between U. S. And China would improve somewhat. So I think people are looking at more of a stable environment for commodities and polyethylene general. And just want to follow on what Steve said. I think all the extensions in U. S. Tubular LDP, they are more focused on commodity grades. And our 80% of our LDP is autoclave. And we're focused more on the specialty side. So I think the spread between LGD alone continue and between the auto tubular will also continue. And can I ask on the latte cracker, what you guys figured the economics were on a return on capital basis for that investment? So, Bob, when you think about potential contribution. If we had owned the entire unit for the quarter, third quarter, we saw probably between ownership and market ethylene about a roughly $0.10 Delta between those 2 and owning therefore £1,000,000,000 would bring EBITDA of about $100,000,000 a year. So that's the kind of contribution that you could think about at that kind of a margin as we experienced in the third quarter. Andrew, thank you. As Steve and also as Steve mentioned, the logic cracker came on time on budget. And I think on a per ton basis, even though it's not the biggest ethylene plant in this new build arena that, a term basis is more the lowest investment costs at our plants. And And as you know, there are more major international oil companies are building grassroots, new plants in U. S. Based on pet and cracking. So if we have a cost advantaged position from a recent point of view and have a start up early start up, that should be a vantage position for us. So, a nice accretive transaction, I guess, what I would say in the summary bot. Thank you. Our next question comes from Mike Lighthood with Barclays. Your line is now open. Thanks. Good morning, guys. I guess first, can you just talk through what drove the earnings improvement sequentially in your Olefins segment? Because my understanding was IHS integrated margins were caught flat to lower with polyethylene prices down. That should kind of offset the benefit of falling ethane styrene was weak. So I guess just any additional color you could provide there would be helpful. So, Mike, when you think about year over year, were you speaking year over year or quarter over quarter. Sorry, I'm talking 2Q to 3Q. Okay. So when you think about quarter over quarter, while you did have lower polyethylene prices, in the neighborhood of say 6 or so percent, you had also meaningfully lower feedstock cost and fuel costs. So feedstock costs were lower by about 18% and fuel cost net gas was lower by 11%. And so that had a significant upsudema benefit, offsetting to offset a lot of the lower polyethylene prices period over period. Got it. Okay. And then in the release, you pointed to the impact of the slower macroeconomic environment. So was hoping maybe you could give a bit more color on your downstream PVC compounding and building products businesses because that's one of the few areas in your portfolio. It's harder track from the outside? The business tends to be more stable. It is of course seasonal in nature because a lot of the building products go into construction materials, but tends to be more stable. The compounding materials goes into more than just construction related materials. It goes into wiring cabling. But as I mentioned earlier, our NAKAN businesses also go into auto and lots of medical applications. It has a broader footprint in just the construction markets, but the construction markets are where our pipes and siding applications do go. But it tends to be less cyclical, deeply than some of the chemicals related businesses. And as we noted, we did pick up some of the recovery of volumes that we lost earlier in the year due to cold and wet weather. Got it. Thank you. You're welcome. Thank you. Our next question comes from the Capital Markets. Your line is now open. Thanks. Good morning guys. First question I had was on caustic we've seen another downtick of $15 here in October after the downtown in September. I guess how you characterize the business out there from your perspective? And what are what's the main driver you think that that would help improve the caustic environment. And then given that inventories are quite low, is it industrial production demand, supply disruptions or anything else you'd point to? Thanks. Yes, I think, as we said earlier, the industrial demand globally has been weakening But we are seeing a bottom line of prices in Asia and some of the Asian and Chinese producers, I think it's probably better below there the cash costs. So, if the industrial demand globally improves next year, we're seeing things similar than in Asia that should help improving caustic prices. And if I could ask similar question, with PVC. Maybe you can just give us your outlook there, and tie in what's going on in the ethylene markets. Think lower feedstock would result in and supply would result in lower ethylene pricing and make it difficult to get margin in PVC? Or how are you thinking about the outlook for PVC from here? Thanks. Yes. PVC prices, I think IHS looking next year, our price increase domestic in the U. S. And also for export price is pretty stable. PCD, this is very unlike polyethylene globally. There's very little capacity new additions, capacity, in PVC. So as the demand is still growing globally, that will help to tighten up the market help pricing. So I think IHS looking at prices going up next year domestically in the U. S. As you know, also that the housing construction is still, even though we are around 1,200,000 units a year rate, is still below the 50 year average of 1,500,000 units of residential construction. So as the U. S. Residential commercial market returns, it'll also help domestic demand for PDC. And then lastly, if I may, just wanted to get your thoughts, if any reaction, there's been a competitor of yours for most of this speaking about adding capacity in chlor alkali. You guys added some at Geismar, several years ago, that's probably the most recent market investment. So maybe just help me understand, what potentially going through their head as far as returns, what you would do would look for, in a new facility at all possible. Thanks. Sure. And I think from what we read, looking at 5 year out, global demand would file see the capacity additions and are looking at spending approximately $3,000,000,000 U. S. Or building a plant in chlor alkali VC and PVC plant. So if you are looking at replacement cost economics, support investment, which further supports the thesis that chlor alkali and vinyl business will improved globally and U. S. Is the best place in this. Thank you. And our next question comes from Jim Sheehan with SunTrust. Your line is now open. Good morning. Thank you. Could you talked about any planned turnarounds that you expect to have in the fourth quarter and what the impact might be on earnings? Jim, we obviously do with a large number of facilities we have worldwide. We do turnarounds on a regular basis. But there are none that are going to be meaningfully impactful in the fourth quarter. As we look into 2020, we will have an ethylene turn around and I'll give more guidance to that ethylene turnaround as we finish our planning. But the other units that we have, nothing that I would have would be a call out that would be meaningful in the fourth quarter. And what's your outlook for ethane prices going forward? I think ethane prices is pretty much in this $0.20 gallon range. And I think the future prices supports that. Thank you. You're welcome. Thank you. And our next question comes from Hassan Ahmed with Alembic Global. Your line is now open. Good morning, Albert and Steve. Good morning, Hassan. Albert and Steve just wanted to go back to the timing of exercising the loyalty option. Obviously ethylene pricing has been fairly volatile over the last couple of quarters. And we've obviously seen incremental supply come online primarily in the U. S. Now you guys were kind enough to break out what the economics would have looked like had you owned the cracker in Q3, but obviously there's always a fair that as the capacity is digested, those economics deteriorate quite rapidly. So now my question is that you guys exercising the option now rather than later should that be taken as a signal that you're actually incrementally positive now on the equity market or said differently you think the worst is behind us as we move forward from Q3 and beyond? Well, as you said, Hassan, believe that the that we've made for the incremental pounds. I agree with you that the margins over a short period of time can be volatile. But we believe that over the cycle that this investment will prove to be a very attractive one for us and further integrate our business chain in the vinyl segment even more so. And so we think it's going to be a very nice investment over the cycle, but you're right in from period to period. There can be high degree of volatility in ethylene prices and margins. Understood. Now as a follow-up, if we were to go back to the start of the year, I broadly the perception was a lot of ethylene polyethylene capacity coming online in the back half of the year. And again, the perception was, hey, look, pricing would crack and crack pretty hard. And it was the exact opposite for the chlor alkali side of things where the assumption was back half price increases hardly any capacity coming online. So I would love to hear your views on what really changed, right? Because obviously polyethylene has been quite resilient, chlor alkali, not as much. I mean, is it as simple as the consumer being stronger than the industrial economy? And has it is it primarily demand related, I guess? Well, I think a bit of both. The chlor alkali, as you know, is a very generally used chemical in many, many industries. And as the world, manufacturing industry is slowing down and some people say it's a recessionary with PMI going below 50 for manufacturing that has impacted demand for chlor alkali. And even though the supply is limited, it's just in a short term supply demand wise, it has impacted the lighting other commodity metals resemble. But we believe the inventory adjustments and demand will go over economies of so long as the global economy still grows, people still use things and eventually cycle me over and people will start producing again. So as Steve said, short term could be fluctuations, but on a longer term basis, we're very optimistic on the cloud vinyl chain going forward. Thank you. And our next question comes from P. J. Juvekar with Citi. Your line is now open. Yes. Hi. Good morning. Hi, Pedro. You know, today most of the money in ECU is made in caustic with very little money including So I guess you just make PVC and then exported. But given the importance of caustic fundamentals, with Eleonore having ramped up, export prices have still come down really hard and the delta between domestic and export prices have really opened up. So how do you see that situation resolving And do you think that maybe there is some risk to domestic pricing? Thank you. Actually, the chlorine side is pretty stable and chlorine demand is pretty stable. Obviously, the seasonality that the water treatment, the pool, chemical, bleach, are slowing down in the winter months, but caustic and PVC demand globally is still strong. On the trailing side, and EDC, VCM demand are strong. So I think, and even though crawling goes through your things and other products TiO2, even though they're impacted, but net net crawling demand is still pretty good. I think caustic today because of the commodity nature, it's much more volatile than in the past. And as I said, hopefully with the industrials, inventory cycles over people still need products and they will come back and the production will improve But I think the chlorine chain is doing pretty well now. Okay. Thank you. And then secondly, What are you seeing in China in sort of recent data points in terms of industrial activity as well as, construction activity? Based on your business there? On what we see that China's industrial manufacturing cuts recovered from the low in the 1st or second quarter. And hopefully, this will continue. And as well, you may know that, the PVC, but anti dumping duty, in China has been dropped, coming from the U. S. So I think there'll be a boost for US producers selling PVC to China and Globally. Thank you. You're welcome. Thank you. And our next question comes from Frank Mitsch with Birmingham Research. Your line is now open. Hey, good morning, gentlemen. I was struck by the assertion that your operating rate were better than the industry average and listening to the commentary, it sounded like that was more on the vinyl side than than on the olefin side. A, is that true? And B, how much better were the operations? And it was interesting because your inventories actually ticked down. So it looks like you sold pretty much everything that you were producing. Is that how we should think about it? So, Frank, when you think about our integrated chain being integrated as we are that does allow us to run at those elevated operating rates relative to many of our peers in the vinyls chain. And so as I mentioned earlier, we had some spring turnarounds that took place during the course of prior quarters. And so we obviously built inventory and then sold that while the plants were undertaking their normal maintenance activities. And then the olefins chain of certainly almost all the producers are highly integrated in that space. So I'd say that relative to our peers that the strength of that integrated chain plays well in this kind of cycle where we are and the high degree of integration is very beneficial in spreading that fixed cost of our pounds of production. It keeps our costs low. That's very helpful. And Steve, I guess more of a curiosity than anything else, but you issued $700,000,000 in euros. During the quarter and I believe you're probably making a payment, what, I guess, this quarter of $815,000,000 or so. For the Lotte JV, why issue in euros and pay dollars? How should we think about that? So, Frank, it was an approach to finance in an attractive rate wise market where it was 1.5 8thspercentcoupon for a 10 year period And we designated that a hedge against our European investments. So there is no mark to market that flows through the P and L. I could then use those proceeds to attractively priced markets with good terms and conditions, not have a mark to market on the euro base of that borrowing base. And be able to deploy those dollars wherever we saw an opportunity to make a good return. Interesting that you said deploy those dollars and not deploy those URLs? Thank you, Steve. You're welcome. Thank you. Our next question comes from David Begleiter with Deutsche Bank. Your line is now open. Thank you. Good morning. Albert, how was your starting business in the quarter? And what's your outlook for 20 20 given some new capacity and styrene coming online in China next year? Yes. I think, as Steve said, our operations are doing very well. Thanks for So you're right. There'll be more capacity coming up next year. And, the dynamics of, banking price and starting price as the spread that comes and a lot of volatility, the benzene price and starting price right So we'll see how things settle. And, as you know, they are also on a technology like possum plants, So we don't know how those plans will run, whether it'll keep running for, for starting or not. So a lot of these things are impact the future operability of the global starting business. And Steve, just comment on other income in the quarter. It was what drove that sequential increase? Thank you. So, David, the components, primary components were some interest income, some insurance recoveries and some higher income in some small joint ventures that we have. You. And our next question comes from John Roberts with UBS. Your line is now open. Thank you. Does any of the earnings contribution from the Lotte cracker come in as equity income or should it all come in as reduction in cost of goods? It'll come through a reduction in cost of sales. Okay. And then I assume the Building Products business grew faster than the vinyl segments overall. Do we have to wait for the 10 Q to come out later or Can you give us either the sales or kind of what the growth rate was for building products? We'll have that queue filed tomorrow. Thank you and our next question comes from Jonas Oxgaard with Bernstein. Your line is now open. Hi, good morning. Over the last, I would say, year, we've seen, the oil majors announced 1,000,000,000 after 1,000,000,000 after 1,000,000,000 of CapEx in petrochemicals. None of it seems to go into chloride but a lot in polyethylene. Can you give us some thoughts on how are you seeing this? How worried are you about the oil CapEx And does that change your strategic outlook on Clorality versus polyethylene? So Jonas, when you think about the capital intensity of the vinyls chain, it's very capital intensive. And so one has to build both power or alkali, the intermediates of EDC BCM to get to PVC. And so it's very capital intensive And so when you think about the capital intensity to build olefins and polyolefins, it's much more it's much less cost intensive in that sense. And given some have said the integration they have back into the upstream side of the business, that's what they've chosen to make your investments. And so certainly as we think about the approach they've taken in terms of investing in this business, they've been in this business for many years. On the vinyl side of the chain, all the majors exited this space about a generation and a half ago and it is a business that requires a real focus since you're handling hazardous materials chlorine specifically. So we remain very comfortable that the investments that we've made continue to provide good value and we think that the the supplydemand balance we think remains constructive over time. And as you heard Albert say earlier, We believe that the John, if I may add also that much of the investments in the vinyl, clockwise side was made through acquisition at replacement costs. So when we hear major competitors building grassroots for our vinyl plants, which is available confidence that even net replacement cost economics, there will be a good return. But most of our acquisitions if not all, based on acquisition that belongs to fixed accounts. Okay. So I find the that you immediately go to chlor alkali looks a lot better to be a telling part of the answer. But how do you square them that against buying out the share in the Lotte Cracker, if you seemingly don't believe in the polyethylene side that much. Well, when you think about the investment that we've made in the ethylene recently recognized that if you look at the where the margin sits within the vinyls chain, a very significant portion of that margin sits in chlor alkali, but also a very large component of sits in ethylene. So over time, be it 5 years or 10 years or even longer, the great majority of the value has been upstream either in caustic or in ethylene. And so this investment allows us to further integrate our business in that ethylene chain to make ultimately PVC out of that chlorine and ethylene. So what this investment allows us to do is further integrate that vinyl chain and capture the ethylene margin that would have been left to others to be able to capture not just one side, but both sides the chlor alkali as well as the ethylene margin in that vinyls Thank you. And our next question comes from Matthew Blair with Tudor, Pickering, Holt. Your line is now open. Hey, good morning, Albert and Steve. Circling back to the strong olefins results, were you able to switch to propane cracking? And if so, can you provide any sort of numbers around how much propane you cracked in Q2 versus Q3? So Matthew, our plan certainly have the ability to switch feedstocks but we still believe that the ethane feedstock is the most advantaged because when we go to a heavier feedstock such as propane, you have deray production of ethylene. And when you think about the facility we have in Kentucky or the facilities we have down in Louisiana, our interest is really running those derivatives as well as we can and as high an operator as we can. And so while it times when it looks at the ethylene margin only, we're looking at the integrated margin across the chain. And so to to use a heavier feedstock and therefore derate the amount of ethylene we produce would offset would not offset the benefits we received downstream. So it's better to really run the ethane feedstock to get the ethylene to be able to run the downstream units with that ethylene at higher operating rates. Makes sense. And then, Steve, your net leverage has been creeping up a little bit here. Are you comfortable with current levels or should we expect some debt reduction in the coming year? So, Matthew, we always focus on keeping a very strong balance sheet and we'll do what we need to do year and in following years to be able to manage that. And certainly that's always an area of focus. Thank you. At this time the 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 full year results. Thank you for participating in today's Westlake Chemical Corporation Third Quarter Earnings Conference Call. The call has ended and may be accessed until 11:59 pm Eastern Time on Tuesday, November 12, 2019. The replay can be accessed by calling 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 7725119. Thank you for participating. You may now disconnect.